<PAGE> 1
As Filed With the Securities And Exchange Commission on June 17, 1997;
Registration No. 333-
--------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
AREA BANCSHARES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kentucky 6025 61-0902343
--------------- ------------------- -------------------
(State of other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classi- Identification No.)
incorporation) fication Code No.)
230 Frederica Street
Owensboro, Kentucky 42301
(502) 926-3232
---------------------------------------------------
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal
executive offices)
Copy to:
Kathryn L. Knudson, Esq. Stuart G. Stein, Esq.
Powell, Goldstein, Frazer & Murphy LLP Hogan and Hartson L.L.P.
Sixteenth Floor, 191 Peachtree Street, N.E. 555 Thirteenth Street, NW
Atlanta, Georgia 30303 Washington, DC 20004
(404) 572-6952 (202) 637-8575
- --------------------------------------------------------------------------------
(Name, address, including ZIP Code, and telephone
number, including area code, of agent for service)
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G check the following box. [ ]
[Cover Page Continued]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
================================================================================================================================
<CAPTION>
Proposed Proposed
Title of each class maximum maximum Amount of
of securities Amount to be offering aggregate Registration
to be registered registered price per unit offering price Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no 4,750,983(1) shares $19.34942(2) $91,927,895(2) $27,857(2)
par value
================================================================================================================================
</TABLE>
(1) The number of shares being registered assumes shareholder approval of an
increase in the number of authorized shares of the Registrant's common stock
from 16,000,000 to 50,000,000. Following shareholder approval of such matter at
the Registrant's Special Meeting of Shareholders, the Registrant will amend its
Articles of Incorporation to authorize the requisite number of shares of common
stock. This Registration Statement covers (i) the maximum number of shares of
the common stock of the Registrant that is expected to be issued in connection
with the Merger, and (ii) the maximum number of shares of common stock of the
Registrant reserved for issuance under option plans of Cardinal Bancshares,
Inc., the obligations under which will be assumed by the Registrant upon
consummation of the Merger. The Registrant will deregister the indicated shares
if the Registrant's shareholders fail to approve the matter described above.
(2) Estimated solely for the purpose of calculating the registration fee and
pursuant to Rule 457(c) and (f) under the Securities Act of 1933, as amended,
based upon the average of the high and low sales price of Cardinal Bancshares,
Inc. as reported on the Nasdaq National Market System for June 13, 1997 and the
exchange ratio prescribed by the Agreement and Plan of Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
[CARDINAL LETTERHEAD]
To the Holders of Cardinal Common Stock:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Cardinal Bancshares, Inc. ("Cardinal"), to be held at The
Vine Street Trust Company, 360 East Vine Street, Lexington, Kentucky 40507 on
_______________, 1997, at __________, local time, notice of which is enclosed.
At the Meeting, you will be asked to consider and vote on a proposal to
approve an Agreement and Plan of Merger (the "Agreement") entered into with Area
Bancshares Corporation ("Area") pursuant to which Cardinal will merge (the
"Merger") with Interim Area Corporation ("Interim"), a wholly-owned subsidiary
of Area that was organized for the purpose of facilitating the Merger. As a
result of the Merger, Cardinal's banking and other subsidiaries will become
subsidiaries of Area, and each share of Cardinal common stock ("Cardinal Common
Stock") issued and outstanding will be converted into and exchanged for the
right to receive 2.7391 shares of Area Common Stock.
The accompanying Joint Proxy Statement/Prospectus includes a
description of the proposed Merger and also provides other specific information
concerning the Meeting and Area Common Stock.
The Merger has been approved unanimously by your Board of Directors and
is recommended by the Board to you for approval. Each member of the Board of
Directors has agreed to vote all Cardinal shares beneficially owned by such
member (other than in a fiduciary capacity) in favor of the Merger. Consummation
of the Merger is subject to certain conditions, including shareholder approvals
of Cardinal and Area and regulatory approvals.
APPROVAL OF THE AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY
OF THE SHARES OF CARDINAL COMMON STOCK ENTITLED TO VOTE AT THE MEETING.
CONSEQUENTLY, A FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
AGREEMENT.
Accordingly, whether or not you plan to attend the Meeting, you are
urged to complete, sign, and return promptly the enclosed proxy card. If you
attend the Meeting, you may vote in person if you wish, even if you previously
have returned your proxy card. The proposed Merger is a significant transaction
for Cardinal, and your vote on this matter is of great importance. ON BEHALF OF
THE BOARD OF DIRECTORS, I URGE YOU TO VOTE FOR APPROVAL OF THE MERGER BY MARKING
THE ENCLOSED PROXY CARD "FOR" THE MERGER.
Sincerely,
John S. Penn
President and Chief Executive Officer
<PAGE> 4
CARDINAL BANCSHARES, INC.
400 EAST VINE STREET
SUITE 300
LEXINGTON, KENTUCKY 40507
(606) 255-8300
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1997
----------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Cardinal Bancshares, Inc. ("Cardinal") will be held at The Vine
Street Trust Company, 360 East Vine Street, Lexington, Kentucky 40507 on
____________, 1997, at _____ __.m., local time, for the following purposes:
1. Approve Merger. To consider and vote on the Agreement and Plan of
Merger, dated as of May 1, 1997 (the "Agreement"), by and between Area
Bancshares Corporation ("Area") and Cardinal pursuant to which (i) Cardinal will
merge (the "Merger") with Interim Area Corporation ("Interim"), a wholly-owned
subsidiary of Area, and (ii) each share of the issued and outstanding common
stock of Cardinal ("Cardinal Common Stock") (except for certain shares held by
Cardinal or Area) will be converted into 2.7391 shares of Area common stock, as
described more fully in the accompanying Joint Proxy Statement/Prospectus.
2. Other Business. To transact such other business as may properly come
before the Meeting, including adjourning the Meeting to permit, if necessary,
further solicitation of proxies.
Approval of the Agreement requires the affirmative vote of a majority
of the shares of Cardinal Common Stock entitled to vote at the Meeting. Only
shareholders of record at the close of business on _______________, 1997 are
entitled to receive notice of and to vote at the Meeting or any adjournment or
postponement thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF CARDINAL
COMMON STOCK VOTE "FOR" THE MERGER AS DESCRIBED ABOVE.
Holders of Cardinal Common Stock have the right to dissent from
approval of the Agreement and obtain payment for the fair value of their shares
of Cardinal Common Stock by following the procedures described in Sections
271B.13-010 through 271B.13-280 of the Kentucky Business Corporation Act. See
Appendix B hereto and "The Merger -- Dissenters' Rights."
By Order of the Board of Directors
----------------------------------
Secretary
Lexington, Kentucky
, 1997
- ------------
WE URGE YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED
IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT
ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
<PAGE> 5
[AREA LETTERHEAD]
Dear Area Bancshares Corporation Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders
(the "Meeting") of Area Bancshares Corporation ("Area") to be held at Area's
main office, 230 Frederica Street, Owensboro, Kentucky, 42301 on ______________,
1997, at __________, local time, notice of which is enclosed.
At the Meeting, you will be asked to consider and vote on proposals (i)
to amend Area's Articles of Incorporation to increase the number of shares of
authorized no par value common stock ("Area Common Stock") from 16,000,000 to
50,000,000 and (ii) to consider and vote on a proposal to approve an Agreement
and Plan of Merger (the "Agreement"), entered into with Cardinal Bancshares,
Inc. ("Cardinal") pursuant to which Cardinal will merge (the "Merger") with
Interim Area Corporation ("Interim"), a wholly-owned subsidiary of Area that was
organized for the purpose of facilitating the Merger. Upon consummation of the
Merger, each share of Cardinal common stock will be converted into and exchanged
for the right to receive 2.7391 shares of Area Common Stock.
The proposed amendment to authorize additional shares of Area Common
Stock must be adopted in order to effect the Merger of Cardinal and Interim. The
accompanying Joint Proxy Statement/Prospectus includes a description of the
proposed Merger and also provides other specific information concerning the
Meeting. PLEASE NOTE THAT THE HOLDERS OF CARDINAL COMMON STOCK ARE ALSO ENTITLED
TO VOTE ON THE MERGER. Please read the Joint Proxy Statement/Prospectus
carefully and consider thoughtfully the information set forth therein.
The proposals listed above have been approved unanimously by your Board
of Directors and are recommended by the Board to you for approval. Each member
of the Board of Directors has agreed to vote all shares of Area Common Stock
beneficially owned by such member (other than in a fiduciary capacity) in favor
of the proposals listed above.
The combination with Cardinal will be an excellent strategic fit for our
franchise and will allow us to expand into new markets with good prospects for
continued growth. In addition, this Merger will bring to Area a solid
organization and sound lending principles.
Whether or not you plan to attend the Meeting, you are urged to
complete, sign, and return promptly the enclosed proxy card. If you attend the
Meeting, you may vote in person if you wish, even if you previously have
returned your proxy card. ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO
VOTE FOR APPROVAL OF THE PROPOSALS PRESENTED BY MARKING THE ENCLOSED PROXY CARD
"FOR" PROPOSALS ONE AND TWO.
We look forward to seeing you at the Special Meeting.
Sincerely,
Thomas R. Brumley
President and Chief Executive Officer
<PAGE> 6
AREA BANCSHARES CORPORATION
230 FREDERICA STREET
OWENSBORO, KENTUCKY 42301
(502) 926-3232
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1997
----------------
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Area Bancshares Corporation ("Area") will be held at Area's main
office, 230 Frederica Street, Owensboro, Kentucky 42301 on ____________, 1997,
at _____ __.m., local time, for the following purposes:
1. Increase in Authorized Shares of Common Stock. To consider and vote
on an amendment to Area's Articles of Incorporation to increase the number of
authorized shares of common stock from 16,000,000 to 50,000,000
2. Approve Merger. To consider and vote the Agreement and Plan of
Merger, dated as of May 1, 1997 (the "Agreement") by and between Area and
Cardinal Bancshares, Inc. ("Cardinal"), pursuant to which (i) Area will acquire
all of the issued and outstanding common stock of Cardinal ("Cardinal Common
Stock") through the merger (the "Merger") of Cardinal and Interim Area
Corporation ("Interim"), a wholly-owned subsidiary of Area, and (ii) each share
of Cardinal Common Stock (except certain shares held by Area or Cardinal) will
be converted into 2.7391 shares of Area Common Stock, as described more fully in
the accompanying Joint Proxy Statement/Prospectus.
3. Other Business. To transact such other business as may properly come
before the Meeting, including adjourning the Meeting to permit, if necessary,
further solicitation of proxies.
Only shareholders of record at the close of business on _______________,
1997, are entitled to receive notice of and to vote at the Meeting or any
adjournment or postponement thereof.
Holders of Area Common Stock have the right to dissent from approval of
the Agreement and obtain payment for the fair value of their shares of Area
Common Stock by following the procedures described in Sections 271B.13-010
through 271B.13-280 of the Kentucky Business Corporation Act. See Appendix B
hereto and "The Merger -- Dissenters' Rights."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF AREA
COMMON STOCK VOTE "FOR" THE PROPOSALS LISTED ABOVE.
By Order of the Board of Directors
----------------------------------
Secretary
Owensboro, Kentucky
, 1997
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<PAGE> 7
WE URGE YOU TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON. YOUR PROXY MAY BE REVOKED
IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AT
ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING.
<PAGE> 8
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
DATED JUNE 17, 1997
JOINT PROXY STATEMENT
FOR THE SPECIAL MEETING FOR THE SPECIAL MEETING
OF SHAREHOLDERS OF SHAREHOLDERS
TO BE HELD ON , 1997 TO BE HELD ON , 1997
--------- --------
AREA BANCSHARES CORPORATION CARDINAL BANCSHARES, INC.
230 FREDERICA STREET 400 EAST VINE STREET
OWENSBORO, KENTUCKY 42301 SUITE 300
(502) 926-3232 LEXINGTON, KENTUCKY 40507
(606) 255-8300
-----------------------------
PROSPECTUS
OF
AREA BANCSHARES CORPORATION
230 FREDERICA STREET
OWENSBORO, KENTUCKY 42301
(502) 926-3232
FOR
4,750,983 SHARES OF COMMON STOCK
-----------------------------
This Prospectus of Area Bancshares Corporation, a bank holding company
organized and existing under the laws of the State of Kentucky, relates to the
shares of the no par value common stock of Area ("Area Common Stock"), which are
issuable to the shareholders of Cardinal Bancshares, Inc. ("Cardinal") upon
consummation of the proposed merger (the "Merger") described herein, pursuant to
which Cardinal will merge with Interim Area Corporation ("Interim), a
wholly-owned subsidiary of Area pursuant to the terms of an Agreement and Plan
of Merger, dated as of May 1, 1997, by and between Area and Cardinal (the
"Agreement"). A copy of the Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix A.
At the effective time of the Merger (the "Effective Time"), except as
otherwise described herein, (i) Cardinal will merge with Interim, and (ii) each
outstanding share of the no par value common stock of Cardinal ("Cardinal Common
Stock") will be converted into 2.7391 shares of Area Common Stock. As a result
of the Merger, the subsidiaries of Cardinal will become indirect subsidiaries of
Area. For a further description of the terms of the Merger, see "The Merger."
This Prospectus also constitutes a Joint Proxy Statement of Area and
Cardinal and is being furnished to their respective shareholders in connection
with the solicitation of proxies by their respective Boards of Directors. The
proxies solicited by the Area Board of Directors will be used at the Special
Meeting of Shareholders of Area (the "Area Meeting") to be held on ________,
1997, including any adjournment or postponement thereof, for the following
purposes: (i) to consider and vote on an amendment to Area's Articles of
Incorporation increasing the number of authorized shares of Area Common Stock
from 16,000,000 to 50,000,000; (ii) to consider and vote on the proposed Merger;
and (iii) to transact such other business as may properly come before the Area
Meeting or any adjournment thereof. The proxies solicited by the Cardinal Board
of Directors will be used at the
<PAGE> 9
Special Meeting of Shareholders of Cardinal (the "Cardinal Meeting") to be held
on ____________, 1997, including any adjournment or postponement thereof, to
consider and vote on the proposed Merger and to transact such other business as
may properly come before the Cardinal Meeting or any adjournments thereof. This
Joint Proxy Statement/Prospectus and the accompanying proxy cards are first
being mailed to shareholders of Area and Cardinal on or about _________________,
1997.
Approval of the Agreement requires the affirmative vote of the holders
of a majority of the outstanding shares of Area Common Stock and Cardinal Common
Stock entitled to vote at the special meetings of Area and Cardinal,
respectively. Of the ___ shares of Area Common Stock entitled to vote, ____
shares, representing ___% of the shares entitled to vote are known to be
committed to voting in favor of the Agreement. See "The Area Meeting--Required
Vote."
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR OTHER
OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is , 1997.
---------------
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION........................................................................................... 1
DOCUMENTS INCORPORATED BY REFERENCE............................................................................. 2
SUMMARY ........................................................................................................ 4
The Parties............................................................................................. 4
Special Meeting of Area Shareholders.................................................................... 4
Special Meeting of Cardinal Shareholders................................................................ 5
The Merger; Exchange Ratio.............................................................................. 6
Dissenters' Rights...................................................................................... 6
Reasons for the Merger.................................................................................. 6
Fairness Opinions....................................................................................... 7
Effective Time.......................................................................................... 7
Exchange of Stock Certificates.......................................................................... 8
Regulatory Approvals and Other Conditions............................................................... 8
Waiver, Amendment, and Termination of the Agreement..................................................... 8
Interests of Certain Persons in the Merger.............................................................. 9
Certain Federal Income Tax Consequences of the Merger................................................... 9
Accounting Treatment.................................................................................... 9
Certain Differences in Shareholders' Rights............................................................. 9
Comparative Market Prices of Common Stock............................................................... 10
Comparative Per Share Data.............................................................................. 10
Selected Historical Financial Data...................................................................... 11
Selected Pro Forma Combined Financial Data.............................................................. 16
THE AREA MEETING................................................................................................ 17
General ................................................................................................ 17
Record Date; Vote Required.............................................................................. 18
THE CARDINAL MEETING............................................................................................ 19
General ................................................................................................ 19
Record Date; Vote Required.............................................................................. 20
THE MERGER...................................................................................................... 21
General ................................................................................................ 21
Effect of Merger on Stock Rights........................................................................ 21
Background of and Reasons for the Merger................................................................ 22
Fairness Opinions....................................................................................... 25
Effective Time of the Merger............................................................................ 32
Distribution of Stock Certificates After the Merger..................................................... 32
Conditions to Consummation of the Merger................................................................ 33
Regulatory Approvals.................................................................................... 34
Waiver, Amendment, and Termination of the Agreement..................................................... 34
Conduct of Business Pending the Merger.................................................................. 35
Management and Operations Following the Merger.......................................................... 36
Interests of Certain Persons in the Merger.............................................................. 37
Dissenters' Rights...................................................................................... 37
Certain Federal Income Tax Consequences of the Merger................................................... 40
Accounting Treatment.................................................................................... 41
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
<S> <C>
Expenses and Fees....................................................................................... 42
Resales of Area Common Stock............................................................................ 42
COMPARATIVE MARKET PRICES AND DIVIDENDS......................................................................... 43
Market Prices........................................................................................... 43
Shareholders of Record.................................................................................. 44
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............................................................. 44
Pro forma Combined Condensed Balance Sheets............................................................. 44
Pro Forma Combined Condensed Statements of Income....................................................... 46
DESCRIPTION OF AREA COMMON STOCK................................................................................ 52
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS.................................................................. 52
Authorized Capital Stock................................................................................ 52
Actions by Shareholders Without a Meeting............................................................... 53
Special Meeting of Shareholders......................................................................... 53
Number of Directors..................................................................................... 54
Cumulative Voting....................................................................................... 54
Limitations on Director Liability....................................................................... 54
Indemnification......................................................................................... 55
EXPERTS ........................................................................................................ 55
OPINIONS........................................................................................................ 56
PROPOSAL PRESENTED TO THE AREA SHAREHOLDERS ONLY................................................................ 57
ADJOURNMENT OF SPECIAL MEETING.................................................................................. 58
SHAREHOLDER PROPOSALS........................................................................................... 58
OTHER MATTERS................................................................................................... 59
Appendix A - Agreement and Plan of Merger ......................................................................A-1
Appendix B - Subtitle 13. Dissenters' Rights ...................................................................B-1
Appendix C - The Bank Advisory Group, Inc. Fairness Opinion ....................................................C-1
Appendix D - Professional Bank Services, Inc. Fairness Opinion .................................................D-1
</TABLE>
<PAGE> 12
AVAILABLE INFORMATION
Area and Cardinal are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, file reports, proxy statements, and other information with
the Securities and Exchange Commission (the "SEC"). Copies of such reports,
proxy statements, and other information can be obtained, at prescribed rates,
from the SEC by addressing written requests for such copies to the Public
Reference Section at the SEC at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, such reports, proxy statements, and other information
can be inspected at the public reference facilities referred to above and at the
regional offices of the SEC at 7 World Trade Center, 13th Floor, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The SEC maintains a website that contains reports,
proxy and information statements, and other information pertaining to
registrants that file electronically with the SEC, including Area and Cardinal.
The SEC's website address is: http://www.sec.gov.
This Joint Proxy Statement/Prospectus constitutes part of the
Registration Statement on Form S-4 of Area (including any exhibits and
amendments thereto, the "Registration Statement") filed with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
securities offered hereby. This Joint Proxy Statement/Prospectus does not
include all of the information in the Registration Statement, certain portions
of which have been omitted pursuant to the rules and regulations of the SEC. For
further information about Area and the securities offered hereby, reference is
made to the Registration Statement. The Registration Statement may be inspected
and copied, at prescribed rates, at the SEC's public reference facilities at the
addresses set forth above. In addition, Area Common Stock and Cardinal Common
Stock are traded on the Nasdaq National Market System ("Nasdaq"). Reports, proxy
statements, and other information concerning Area and Cardinal may be inspected
at the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
Certain financial and other information relating to Area and Cardinal is
contained in the documents indicated below under "Documents Incorporated by
Reference."
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AREA OR CARDINAL. THIS
JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF AREA OR CARDINAL SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN OR INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
All information included in this Joint Proxy Statement/Prospectus or
incorporated by reference herein with respect to Area was supplied by Area, and
all information included herein or incorporated by reference herein with respect
to Cardinal was supplied by Cardinal. Although neither Area nor Cardinal has
actual knowledge that would indicate that any statements or information
(including financial statements) relating to the other party contained or
incorporated herein by reference are inaccurate or incomplete, neither Area nor
Cardinal warrants the accuracy or completeness of such statements or information
as they relate to the other party.
1
<PAGE> 13
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by Area pursuant
to the Exchange Act are hereby incorporated by reference herein:
(a) Area's Annual Report on Form 10-K for the fiscal year ended December
31, 1996;
(b) Area's Quarterly Report on Form 10-Q for the three months ended
March 31, 1997; and
(c) Area's Current Report on Form 8-K dated May 2, 1997;
Area's Annual Report on Form 10-K for the year ended December 31, 1996,
incorporates by reference specific portions of Area's annual report to
stockholders for that year (the "Area Annual Report to Stockholders"), but does
not incorporate other portions of the Area Annual Report to Stockholders. Only
those portions of the Area Annual Report to Stockholders captioned "Consolidated
Five-Year Selected Financial Data," "Financial Review" and the Consolidated
financial statements included on pages 22-50 of the Area Annual Report to
Stockholders, are incorporated herein. Other portions of the Area Annual Report
to Stockholders are NOT incorporated herein and are not a part of the
Registration Statement.
The following documents previously filed with the SEC by Cardinal
pursuant to the Exchange Act are hereby incorporated by reference herein:
(a) Cardinal's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(b) Cardinal's Quarterly Report on Form 10-Q for the three months ended
March 31, 1997; and
(c) Cardinal's Current Report on Form 8-K dated May 1, 1997.
Cardinal's Annual Report on Form 10-K for the year ended December 31,
1996, incorporates by reference specific portions of Cardinal's annual report to
stockholders for that year (the "Cardinal Annual Report to Stockholders"), but
does not incorporate other portions of the Cardinal Annual Report to
Stockholders. Only those portions of the Cardinal Annual Report to Shareholders
captioned "Consolidated Selected Historical Financial Data," "Management's
Discussion and Analysis" and the consolidated financial statements included on
pages 36 through 43 of the Cardinal Annual Report to Stockholders are
incorporated herein. Other portions of the Cardinal Annual Report to
Stockholders are NOT incorporated herein and are not a part of the Registration
Statement.
All documents filed by Area and Cardinal pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Special Meetings shall be
deemed to be incorporated by reference in this Joint Proxy Statement/Prospectus
and to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any subsequently
filed document which also is, or is deemed to be, incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part hereof, except as so
modified or superseded.
2
<PAGE> 14
Area will provide without charge, upon the written or oral request of
any person, including any beneficial owner, to whom this Joint Proxy
Statement/Prospectus is delivered, a copy of any and all information (excluding
certain exhibits) relating to Area that has been incorporated by reference in
the Registration Statement of which this Joint Proxy Statement/Prospectus is a
part. Such requests should be directed to Judith R. Windle, Area Bancshares
Corporation, 230 Frederica Street, Owensboro, Kentucky 42301 (Telephone (502)
926-3232).
Cardinal's 1996 Annual Report to Shareholders and its Quarterly Report
on Form 10-Q for the three months ended March 31, 1997 accompany this Joint
Proxy Statement/Prospectus. Cardinal will also provide without charge, upon the
written or oral request of any person, including any beneficial owner, to whom
this Joint Proxy Statement/Prospectus is delivered, a copy of any and all
information (excluding certain exhibits) relating to Cardinal that has been
incorporated by reference in the Registration Statement of which this Joint
Proxy/Prospectus is a part. Such requests should be directed to Cardinal
Bancshares, Inc., 400 East Vine Street, Suite 300, Lexington, Kentucky, 40507,
Attention: Carolyn L. Gabriel (Telephone (606) 255-8300).
In order to ensure timely delivery of the documents, any such requests
should be made by _____________, 1997.
3
<PAGE> 15
SUMMARY
The following is a summary of certain information relating to the
Cardinal Meeting, the Area Meeting, the proposed Merger, and the shares of Area
Common Stock to be issued upon consummation thereof. This summary does not
purport to be complete and is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus. Shareholders are urged to read carefully the entire Joint
Proxy Statement/Prospectus, including the Appendices. As used in this Joint
Proxy Statement/Prospectus, the terms "Area" and "Cardinal" refer to those
entities, respectively, and, where the context requires, to those entities and
their respective subsidiaries.
THE PARTIES
Area. Area is a multi-bank holding company headquartered in Owensboro,
Kentucky. Area has six subsidiary commercial banks. Three of Area's bank
subsidiaries are state banks and three are national banks. Area also controls
four nonbank subsidiaries. Area and its subsidiaries engage in retail and
commercial banking and related services with approximately 30 offices in
Kentucky. As of March 31, 1997, Area had total consolidated assets of
approximately $1.146 billion, total deposits of approximately $835.6 million and
total shareholders' equity of approximately $124.8 million. Through its
subsidiaries, Area offers a broad range of banking and banking-related services.
Area was incorporated in 1976 under the laws of Kentucky and is a bank
holding company under the regulations of the Bank Holding Company Act of 1956,
as amended (the "BHC Act"). Area's principal executive offices are located at
230 Frederica Street, Owensboro Kentucky 42301, and its telephone number at such
address is (502) 926-3232.
Cardinal. Cardinal is a multi-bank holding company headquartered in
Lexington, Kentucky. Cardinal has five banking subsidiaries and four nonbank
subsidiaries. Of Cardinal's banking subsidiaries, three are state banks, one is
a national bank and one is a federal thrift. Through its nonbank subsidiaries,
Cardinal provides data processing, financial, brokerage, investment and
insurance services, and Small Business Administration loans. As of March 31,
1997, Cardinal had total consolidated assets of approximately $631 million,
total deposits of approximately $549 million and total shareholders' equity of
approximately $51 million.
Cardinal was incorporated in 1988 under the laws of Kentucky. Cardinal
is regulated as a bank holding company under the BHC Act. Cardinal's principal
executive offices are located at 400 East Vine Street, Suite 300, Lexington,
Kentucky 40507, and its telephone number at such address is (606) 255-8300.
SPECIAL MEETING OF AREA SHAREHOLDERS
The Area Meeting will be held at ____________ _.m., local time, on
____________, 1997, at Area's main office, 230 Frederica Street, Owensboro,
Kentucky 42301, for the following purposes: (i) to consider and vote on an
amendment to the Area Articles of Incorporation to increase the number of
authorized shares of Area Common Stock from 16,000,000 to 50,000,000; (ii) to
consider and vote on approval of the Agreement; and (iii) to transact such other
business as may properly come before the Special Meeting or any adjournment
thereof. See "The Area Meeting."
Only holders of record of Area Common Stock at the close of business on
__________, 1997 (the "Record Date") will be entitled to vote at the Area
Meeting. The affirmative vote of a majority
4
<PAGE> 16
of the Area Common Stock outstanding and entitled to vote at the Area Meeting
will be required to approve the proposed amendment to the Articles of
Incorporation and to approve the Agreement. Approval of any other matter will
require the affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote. As of the Record Date, there were [11,337,828]
shares of Area Common Stock outstanding and entitled to vote.
As of the Record Date, the directors and executive officers of Area
beneficially owned [5,254,731] shares (or approximately [46.3]% of the
outstanding shares) of Area Common Stock, including 8,175 shares held by the
trust departments of the subsidiaries of Area for which the trust departments do
not have discretionary authority to vote such shares. Each member of the Board
of Directors of Area has agreed to vote those shares beneficially owned by such
member (except for shares held in a fiduciary capacity) in favor of the
proposals to be presented at the Area Meeting.
As of the Record Date, the trust departments of subsidiaries of Area
held of record [1,271,160] shares of Area Common Stock in a fiduciary capacity
representing approximately [11.2%] of the outstanding shares of Area Common
Stock. With respect to [506,836] shares (the "Discretionary Shares")
(approximately [4.5%] of the outstanding shares of Area Common Stock), the
instrument creating the trust or fiduciary relationship specifically directs the
trustee to vote the shares, of which [16,550] shares are held by directors and
executive officers of Area. The trust departments will act through their
respective trust committees, with the committees determining whether the Merger
is in the best interests of the applicable trust beneficiaries. The remaining
shares held by the trust departments will be voted at the direction of the
beneficial owners. If the Discretionary Shares voted by the trustees are voted
in favor of the proposals, in light of the shares beneficially owned by Area's
directors and executive officers (who have committed to vote in favor of the
proposals), Area anticipates that the Agreement will be approved by its
shareholders. See "The Area Meeting."
As of the Record Date, the directors and executive officers of Cardinal
beneficially owned no shares of Area Common Stock.
SPECIAL MEETING OF CARDINAL SHAREHOLDERS
The Cardinal Meeting will be held at _____ __.m., local time, on
____________, 1997, at The Vine Street Trust Company, 360 East Vine Street,
Lexington, Kentucky 40507, for the purpose of considering and voting on approval
of the Agreement and transacting such other business as may properly come before
the meeting or any adjournment thereof. See "The Cardinal Meeting."
Only holders of record of Cardinal Common Stock at the close of business
on ____________, 1997 (the "Record Date"), will be entitled to vote at the
Cardinal Meeting. Approval of the Agreement requires the affirmative vote of a
majority of the shares of Cardinal Common Stock entitled to vote at the Cardinal
Meeting. As of the Record Date, there were [_________] shares of Cardinal Common
Stock outstanding and entitled to vote.
As of the Record Date, the directors and executive officers of Cardinal
beneficially owned ___________ shares (or approximately ____________% of the
outstanding shares) of Cardinal Common Stock. Each member of the Board of
Directors of Cardinal has agreed to vote those shares of Cardinal Common Stock
beneficially owned by such member (except for shares held in a fiduciary
capacity) in favor of the Merger.
5
<PAGE> 17
As of the Record Date, Area held 78,450 shares of Cardinal Common Stock,
and the directors and executive officers of Area beneficially owned ____________
shares of Cardinal Common Stock for an aggregate of __________ shares (or
approximately _____% of the outstanding shares of Cardinal Common Stock for an
aggregate of __________ shares (or approximately _____% of the outstanding
shares of Cardinal Common Stock). As of that date, Area holds shares of Cardinal
Common Stock in a fiduciary capacity for others. See "The Cardinal Meeting."
THE MERGER; EXCHANGE RATIO
The Agreement provides for Cardinal to merge with Interim, a
wholly-owned subsidiary of Area, with Cardinal being the surviving corporation
of the Merger. At the Effective Time, each share of Cardinal Common Stock then
issued and outstanding (excluding any shares held by Area, Cardinal or their
respective subsidiaries, other than shares held in a fiduciary capacity or in
satisfaction of debts previously contracted) will be converted into 2.7391
shares of Area Common Stock (the "Exchange Ratio"). See "The Merger -- General."
DISSENTERS' RIGHTS
Holders of Area Common Stock and Cardinal Common Stock who dissent from
the Merger are entitled to the rights and remedies of dissenting shareholders
set forth in Subtitle 13 of the Kentucky Business Corporation Act (the "Kentucky
Act"), subject to compliance with the procedures set forth therein. Among other
things, a dissenting shareholder is entitled to receive cash in an amount equal
to the "fair value" of such holder's shares. A copy of Subtitle 13 of the
Kentucky Act is set forth in Appendix B to this Joint Proxy Statement/Prospectus
and a summary thereof is included under "The Merger -- Dissenters' Rights." TO
PERFECT DISSENTERS' RIGHTS, A SHAREHOLDER MUST COMPLY WITH SUBTITLE 13 OF THE
KENTUCKY ACT, WHICH REQUIRES, AMONG OTHER THINGS, THAT A SHAREHOLDER GIVE AREA
OR CARDINAL, AS THE CASE MAY BE, WRITTEN NOTICE OF SUCH HOLDER'S INTENT TO
DISSENT FROM APPROVAL OF THE AGREEMENT PRIOR TO THE VOTE OF THE SHAREHOLDERS AT
THE APPLICABLE SPECIAL SHAREHOLDERS MEETING AND THAT SUCH SHAREHOLDER NOT VOTE
HIS OR HER SHARES IN FAVOR OF THE AGREEMENT. ANY SHAREHOLDER WHO RETURNS A
SIGNED PROXY BUT FAILS TO PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH
HOLDER'S SHARES ARE TO BE VOTED WILL BE DEEMED TO HAVE VOTED IN FAVOR OF THE
AGREEMENT AND THUS WILL NOT BE ENTITLED TO ASSERT DISSENTERS' RIGHTS.
REASONS FOR THE MERGER
The Area Board of Directors has unanimously approved the Merger and the
Agreement and has determined that the Merger is fair to, and in the best
interests of Area and its shareholders. ACCORDINGLY, AREA'S BOARD UNANIMOUSLY
RECOMMENDS THAT AREA'S SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE
AMENDMENT TO AREA'S ARTICLES OF INCORPORATION. EACH MEMBER OF THE BOARD OF
DIRECTORS OF AREA HAS AGREED TO VOTE SUCH MEMBER'S SHARES OF AREA COMMON STOCK
IN FAVOR OF THE AGREEMENT. In approving the Merger, Area's directors considered
Cardinal's financial condition, operations and market area; Area's overall
strategic focus; the financial terms and income tax consequences of the Merger;
the management philosophy of Cardinal and its compatibility with that of Area;
and the view of The Bank Advisory Group, Inc. as to the fairness of the Exchange
Ratio, from a financial point of view, to the shareholders of Area. See "The
Merger -- Background and Reasons for the Merger."
Cardinal's Board of Directors has unanimously approved the Merger and
the Agreement and has determined that the Merger is fair to, and in the best
interests of, Cardinal and its shareholders. Accordingly, Cardinal's Board
unanimously recommends that Cardinal's shareholders vote FOR
6
<PAGE> 18
approval of the Agreement. Each member of the Board of Directors of Cardinal has
agreed to vote such member's shares of Cardinal Common Stock in favor of the
Agreement. The Cardinal Board of Directors believes that the Merger will enable
holders of Cardinal Common Stock to realize increased value over time as part of
the combination with Area. The Board believes the combined company will have a
greater earnings and expansion potential than either company would have
individually. The Merger may enable Cardinal shareholders to participate in
opportunities for appreciation of Area Common Stock as a result of being part of
a larger Kentucky banking franchise, as well as a result of potential increases
in market interest in the Area Common Stock because of greater potential
liquidity and market capitalization. Furthermore, the Cardinal Board of
Directors considered the premium over market price, net income per share and
book value per share of Area Common Stock to be received by Cardinal
shareholders as a result of the Merger. See "The Merger -- Opinion of Cardinal
Financial Advisor" and "The Merger -- Background of and Reasons for the Merger."
FAIRNESS OPINIONS
Area. The Bank Advisory Group, Inc. has rendered an opinion to Area
that, based on and subject to the procedures, matters, and limitations described
in its opinion and such other matters as it considered relevant, as of the date
of its opinion, the terms of the Merger are fair, from a financial point of
view, to the shareholders of Area. BAG's opinion is attached as Appendix C to
this Joint Proxy Statement/Prospectus. Shareholders are urged to read the
opinion in its entirety for a description of the procedures followed, matters
considered, and limitations on the reviews undertaken in connection therewith.
See "The Merger -- Fairness Opinions."
Cardinal. Professional Bank Services, Inc. has rendered an opinion to
Cardinal that, based on and subject to the procedures, matters and limitations
described in its opinion and such other matters as it considered relevant, as of
the date of its opinion, the terms of the Merger are fair, from a financial
point of view, to the shareholders of Cardinal. PBS' opinion is attached as
Appendix D to this Joint Proxy Statement/Prospectus. Shareholders are urged to
read the opinion in its entirety for a description of the procedures followed,
matters considered and limitations on the reviews undertaken in connection
therewith. See "The Merger -- Fairness Opinions."
EFFECTIVE TIME
Subject to the conditions to the obligations of the parties to effect
the Merger, the Effective Time will occur on the date and at the time specified
in the Articles of Merger filed by Area with the Kentucky Secretary of State. If
no effective date or time is specified, the Merger will become effective upon
the filing of the Articles of Merger. Unless otherwise agreed upon by Area and
Cardinal, and subject to the conditions to the obligations of the parties to
effect the Merger, the parties will use their reasonable efforts to cause the
Effective Time to occur on the fifth business day following the last to occur:
(i) the effective date (including the expiration of any applicable waiting
period) of the last federal or state regulatory approval required for the
Merger; (ii) the date on which the amendment to the Area Articles of
Incorporation and the Agreement is approved by the requisite vote of Area
shareholders; or (iii) the date on which the Agreement is approved by the
requisite vote of Cardinal shareholders. The parties expect that all conditions
to consummation of the Merger will be satisfied so that the Merger can be
consummated in the fourth quarter of 1997, although there can be no assurance as
to whether or when the Merger will occur. See "The Merger -- Effective Time of
the Merger, -- Conditions to Consummation of the Merger, and -- Waiver,
Amendment, and Termination of the Agreement."
7
<PAGE> 19
EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Time, Area will cause UMB Bank, acting in
its capacity as exchange agent for Area (the "Exchange Agent"), to mail to the
former shareholders of Cardinal a letter of transmittal, together with
instructions for the exchange of such shareholders' certificates representing
shares of Cardinal Common Stock for certificates representing shares of Area
Common Stock. Former shareholders of Cardinal will not be entitled to receive
dividends on their shares of Area Common Stock until Area has received their
Cardinal stock certificates. CARDINAL SHAREHOLDERS SHOULD NOT SEND IN THEIR
STOCK CERTIFICATES UNTIL THEY RECEIVE THE FORM LETTER OF TRANSMITTAL AND
INSTRUCTIONS. See "The Merger -- Distribution of Stock Certificates After the
Merger."
REGULATORY APPROVALS AND OTHER CONDITIONS
The Merger is subject to approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"), and the Kentucky Department of
Financial Institutions (the "Kentucky Department"). Applications for the
requisite approvals have been filed with these agencies, each of which has yet
to issue its approval of the Merger. [UPDATE IF APPROVALS RECEIVED]. There can
be no assurance that the approvals of these agencies will be given or as to the
timing or conditions of such approvals.
Consummation of the Merger is also subject to the approval by the Area
shareholders of an amendment to Area's Articles of Incorporation increasing the
number of authorized shares of Area Common Stock from 16,000,000 to 50,000,000.
Following shareholder approval of this matter at the Area Meeting, and effective
prior to the consummation of the Merger, Area will amend its Articles of
Incorporation to authorize the requisite number of shares of common stock. If
the proposal to authorize additional shares of Area Common Stock is not
approved, the Articles of Incorporation cannot be amended and the Merger will
not be consummated. Area Shareholders must also approve the Agreement.
Consummation of the Merger is subject to various other conditions,
including receipt of the required approval of the Agreement by the Area
shareholders and the Cardinal shareholders, receipt of an opinion of counsel as
to the tax-free nature of certain aspects of the Merger, receipt of a letter
regarding accounting treatment of the Merger from the independent public
accountants of Area and Cardinal, and certain other customary conditions. See
"The Merger -- Conditions to Consummation of the Merger."
WAIVER, AMENDMENT, AND TERMINATION OF THE AGREEMENT
The Agreement may be terminated, and the Merger abandoned, at any time
prior to the Effective Time by mutual action of the Boards of Directors of both
Area and Cardinal, or by action of the Board of Directors of either company
under certain circumstances, including if the Merger is not consummated by
December 31, 1997 unless the failure to consummate by such time is due to a
breach of the Agreement by the party seeking to terminate. If for any reason the
Merger is not consummated, Cardinal will continue to operate as a bank holding
company under its present management. See "The Merger -- Waiver, Amendment, and
Termination of the Agreement."
8
<PAGE> 20
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain executive officers and directors of Area and Cardinal have
interests in the Merger in addition to their respective interests as Area or
Cardinal shareholders generally. Those interests relate to, among other things,
provisions in the Agreement regarding indemnification and eligibility for
certain Area employee benefits, and treatment of outstanding options to acquire
Cardinal Common Stock. See "The Merger -- Interests of Certain Persons in the
Merger."
As of the Record Date, Area's directors and executive officers
beneficially owned approximately [46.3]% of the outstanding shares of Area
Common Stock and approximately _____% of the outstanding shares of Cardinal
Common Stock. Upon consummation of the Merger, this group will beneficially own
approximately ___% of the outstanding shares of Area Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Area and Cardinal have received an opinion of Powell, Goldstein, Frazer
& Murphy LLP, counsel to Area, to the effect that, among other things: (i) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); (ii) the exchange in
the Merger of Cardinal Common Stock for Area Common Stock will not give rise to
gain or loss to Cardinal shareholders, except to the extent of any cash
received; and (iii) neither Area nor Cardinal will recognize income, gain or
loss as a consequence of the Merger. See "The Merger -- Certain Federal Income
Tax Consequences of the Merger."
DUE TO THE INDIVIDUAL NATURE OF THE INCOME TAX CONSEQUENCES OF THE
MERGER, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE
THE SPECIFIC EFFECT OF THE MERGER ON THEM UNDER FEDERAL, STATE, LOCAL, AND
FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
It is a condition of the Agreement that the Merger will be accounted for
as a pooling-of-interests. Under the pooling-of-interests method of accounting,
the recorded amounts of the assets and liabilities of Cardinal will be carried
forward and recorded on the financial statements of Area at their previously
recorded amounts.
The Agreement provides that Area and Cardinal will receive a letter from
KPMG Peat Marwick LLP, dated as of the Effective Time, stating that the Merger
will qualify for pooling-of-interests accounting treatment under Accounting
Principles Board Opinion No. 16. If the Merger does not qualify for
pooling-of-interests accounting treatment, it will be abandoned. Neither Area's
management nor Cardinal's management currently has any reason to believe that
the Merger will not qualify for pooling-of-interests accounting treatment.
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Time, Cardinal shareholders, whose rights are governed
by Cardinal's Articles of Incorporation and Bylaws, will automatically become
Area shareholders, and their rights as Area shareholders will be governed by
Area's Articles of Incorporation, as amended prior to or contemporaneously with
the consummation of the Merger, and by Area's Bylaws. Upon consummation of the
Merger, the rights of Area shareholders will differ from the rights of Cardinal
9
<PAGE> 21
shareholders in certain respects. See "Effect of the Merger on the Rights of
Shareholders" and "Description of Area Common Stock."
COMPARATIVE MARKET PRICES OF COMMON STOCK
Shares of Area Common Stock and Cardinal Common Stock are traded in the
over-the-counter market and are quoted on the Nasdaq. The following table sets
forth the reported closing sale prices per share of Area Common Stock and
Cardinal Common Stock on April 30, 1997, the last full business day preceding
the public announcement of the execution of the Agreement, and on _________,
1997 the latest practicable date prior to the mailing of this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
CARDINAL
MARKET PRICE AREA CARDINAL EQUIVALENT
PER SHARE AT: COMMON STOCK COMMON STOCK PRICE PER SHARE
------------- ------------ ------------ ---------------
<S> <C> <C> <C>
April 30, 1997............................. $22.00 $47.50 $60.26
, 1997.........................
- ------------
</TABLE>
The equivalent price per share of Cardinal Common Stock at each
specified date represents the Closing price of a share of Area Common Stock on
such date multiplied by the Exchange Ratio. See "Comparative Market Prices
and Dividends."
There can be no assurance as to what the market price of Area Common
Stock will be if and when the Merger is consummated.
COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative per share data
relating to net income, cash dividends, and book value on (i) an historical
basis for Area and Cardinal, (ii) a pro forma combined basis per share of Area
Common Stock, giving effect to the Merger, and (iii) an equivalent pro forma
basis per share of Cardinal Common Stock, giving effect to the Merger. The Area
and Cardinal pro forma combined information gives effect to the Merger on a
pooling-of-interests accounting basis and assumes an Exchange Ratio of 2.7391
shares of Area Common Stock for each share of Cardinal Common Stock. See "The
Merger -- Accounting Treatment." The unaudited pro forma data is presented for
informational purposes only and is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the
Merger been consummated at the dates or during the periods indicated, nor is it
necessarily indicative of future results of operations or combined financial
position.
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of Area and
Cardinal, including the respective notes thereto, and the pro forma financial
information included herein and incorporated herein by reference. See "Documents
Incorporated by Reference," "-- Selected Historical Financial Data," "--
Selected Pro Forma Combined Financial Data," and "Pro Forma Condensed Combined
Financial Information."
10
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------
1997 1996 1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME (LOSS) PER SHARE
Area historical $ .32 $ .29 $ 1.37 $ 1.01 $ .66
Cardinal historical .94 (.06) 2.58 .56 (.36)
Area and Cardinal pro forma
combined (1) .33 .20 1.25 .79 .45
Cardinal pro forma Merger
equivalent (2) .90 .55 3.42 2.16 1.23
DIVIDENDS DECLARED PER
COMMON SHARE
Area historical .03 .023 .107 .09 .08
Cardinal historical .20 .20 .80 .80 .80
Area and Cardinal pro forma
combined (1) .042 .036 .16 .14 .13
Cardinal pro forma Merger
equivalent (2) .12 .10 .44 .38 .36
BOOK VALUE PER SHARE
(PERIOD END)
Area historical 11.00 9.72 10.79 9.50 8.05
Cardinal historical 32.12 27.12 31.58 27.92 26.20
Area and Cardinal pro forma
combined (1) 11.13 9.77 10.92 9.68 8.43
Cardinal pro forma Merger
equivalent (2) 30.49 26.76 29.91 26.51 23.09
</TABLE>
(1) Represents the combined results of Area and Cardinal as if the Merger
were consummated at the beginning of the period and was accounted for as
a pooling-of-interests transaction.
(2) Represents pro forma combined information multiplied by the Exchange
Ratio of 2.7391 shares of Area Common Stock for each share of Cardinal
Common Stock.
SELECTED HISTORICAL FINANCIAL DATA
The following tables present certain selected historical financial
information for Area and Cardinal and are based on the consolidated financial
statements of Area and the consolidated financial statements of Cardinal as of
the end of and for each of the years in the five-year period ended December 31,
1996, including the respective notes thereto, which are incorporated by
reference in, or accompany, this Joint Proxy Statement/Prospectus. The data
should be read in conjunction with such historical financial statements,
including the respective notes thereto, and other financial information
concerning Area and Cardinal incorporated by reference or provided herewith.
Interim unaudited data for the three months ended March 31, 1997 and 1996 of
Area and Cardinal reflect, in the opinion of the respective managements of Area
and Cardinal, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the three months
ended March 31, 1997 are not necessarily indicative of results which may be
expected for any other interim period or for the year as a whole. The Cardinal
financial data have not been restated or otherwise changed to adjust for the
sale of substantially all of the assets of Cardinal Credit Corporation and the
spin-off of Security First Network Bank in May 1996. See "Documents Incorporated
by Reference."
11
<PAGE> 23
AREA BANCSHARES CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income $ 20,548 $ 20,081 $ 82,500 $ 77,219 $ 64,464 $ 67,613 $ 59,030
Total interest expense 9,368 9,393 38,299 37,242 27,034 29,339 28,013
Net interest income 11,180 10,688 44,201 39,977 37,430 38,274 31,017
Provision for loan losses 342 230 1,369 2,830 3,185 3,095 3,714
Net interest income
after loan loss provision 10,838 10,458 42,832 37,147 34,245 35,179 27,303
Total noninterest income
excluding securities gains
(losses) 3,684 3,130 13,387 12,959 12,486 15,592 9,141
Security gains (losses) 5 (14) 3,216 831 44 26 921
Total noninterest expense 9,552 8,997 37,912 35,766 37,770 32,271 21,202
Income tax expense 1,370 1,221 5,968 3,589 1,493 4,694 4,307
Income before cumulative effect of
change in accounting principle 3,605 3,356 15,555 11,582 7,512 13,832 11,856
Cumulative effect of change in
accounting for income taxes - - - - - 239 -
--------- --------- --------- --------- --------- ------- -------
Net income $ 3,605 $ 3,356 $ 15,555 $ 11,582 $ 7,512 $ 14,071 $ 11,856
========= ========= ========= ========= ========= ======= =======
PER SHARE DATA:
Income per common share before
cumulative effect of change $ .32 $ .29 $ 1.37 $ 1.01 $ .66 $ 1.21 $ 1.04
in accounting principle
Cumulative effect of change in
accounting for income taxes - - - - - .02 -
--------- --------- --------- --------- --------- ------- -------
Net income $ .32 $ .29 $ 1.37 $ 1.01 $ .66 $ 1.23 $ 1.04
========= ========= ========= ========= ========= ======= =======
Cash dividends $ .03 $ .023 $ .107 $ .09 $ .08 $ .07 $ .07
Book value 11.00 9.72 10.79 9.50 8.05 7.87 6.74
OTHER INFORMATION:
Average number of shares outstanding 11,361 11,415 11,390 11,428 11,446 11,456 11,366
BALANCE SHEET DATA
(PERIOD END):
Total assets $1,146,376 $1,117,760 $1,170,838 $1,110,070 $1,062,774 $976,037 $822,275
Securities (including trading
account securities) 358,044 362,734 357,346 360,263 342,380 322,860 254,640
Loans, net of unearned income
(including loans held for sale) 682,345 660,683 701,056 648,196 614,380 562,866 470,860
Total deposits 835,664 809,865 845,151 808,122 747,815 743,398 619,894
Total debt 176,145 184,222 190,482 182,016 215,793 134,165 120,883
Stockholders' equity 124,752 110,780 122,530 108,574 92,090 90,210 77,207
</TABLE>
12
<PAGE> 24
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets 1.33% 1.27% 1.44% 1.12% .77% 1.37% 1.53%
Return on average stockholders'
equity 11.82% 12.45% 13.72% 11.62% 7.97% 17.20% 16.04%
Net interest margin 4.75% 4.73% 4.71% 4.53% 4.53% 4.39% 4.62%
Dividend payout 9.40% 7.90% 7.79% 8.88% 12.24% 5.98% 7.01%
CAPITAL RATIOS:
Average stockholders' equity to
average assets 10.88% 9.91% 10.48% 9.64% 9.62% 7.99% 9.51%
Tier 1 risk-based capital (1) 15.02% 13.75% 14.33% 13.59% 12.74% 13.00% 17.22%
Total risk-based capital (1) 16.28% 15.00% 15.58% 14.85% 13.99% 14.23% 18.78%
Tier 1 leverage (1) 10.11% 9.08% 9.88% 8.64% 8.41% 8.23% 8.91%
</TABLE>
(1) The required minimum Tier 1 and total risk-based capital ratios are
4.0% and 8.0%, respectively. The minimum leverage ratio of Tier 1
capital to total adjusted assets is 3.0% to 5.0%, depending on the risk
profile of the institutions and other factors.
13
<PAGE> 25
CARDINAL BANCSHARES, INC.
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income $ 12,906 $ 14,611 $ 54,335 $ 54,869 $ 38,511 $ 31,393 $ 33,431
Total interest expense 5,960 7,272 26,111 27,088 15,418 14,132 17,413
Net interest income 6,946 7,339 28,224 27,781 23,093 17,261 16,018
Provision for loan losses 369 838 3,480 1,994 1,791 656 1,014
Net interest income after loan
loss provision 6,577 6,501 24,744 25,787 21,302 16,605 15,004
Total noninterest income excluding
securities gains (losses) 878 944 11,586 4,315 2,837 3,000 2,308
Security gains (losses) 16 49 49 308 (1,563) 62 56
Total noninterest expense 4,984 7,604 28,000 28,648 23,329 15,257 13,321
Income tax expense (benefit) 872 (6) 4,048 898 (215) 1,383 1,434
Income (loss) before cumulative effect
of change in accounting principle 1,615 (104) 4,331 864 (538) 3,027 2,613
Cumulative effect of change in
accounting for income taxes - - - - - 490 -
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 1,615 $ (104) $ 4,331 $ 864 $ (538) $ 3,517 $ 2,613
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Income (loss) per common share before
cumulative effect of change in
accounting principle (1) $ .94 $ (.06) $ 2.58 $ .56 $ (.36) $ 2.71 $ -
Cumulative effect of change in
accounting for income taxes (1) - - - - - .43 -
------- ------- ------- ------- ------- ------- -------
Net income (loss) (1) $ .94 $ (.06) $ 2.58 $ .56 $ (.36) $ 3.14 $ -
======= ======= ======= ======= ======= ======= =======
Cash dividends $ .20 $ .20 $ .80 $ .80 $ .80 $ .80 $ .60
Book value (1) 32.12 27.12 31.58 27.92 26.20 27.73 29.41
OTHER INFORMATION:
Average number of shares outstanding (1) 1,715 1,624 1,679 1,547 1,499 1,119 -
BALANCE SHEET DATA
(PERIOD END):
Total assets $631,349 $675,411 $629,061 $668,489 $559,735 $482,391 $451,247
Securities 105,218 139,525 112,203 139,372 134,770 146,236 144,138
Loans, net of unearned income
(including loans held for sale) 472,877 470,322 467,216 468,101 378,037 293,211 260,687
Total deposits 548,777 579,900 549,248 570,734 475,741 431,975 409,450
Total debt 24,708 49,757 23,434 50,740 43,146 6,906 8,513
Stockholders' equity 51,185 40,413 50,297 41,150 36,282 39,201 29,401
PERFORMANCE RATIOS:
Return on average assets 1.03% (.06)% .67% .14% (.10)% .76% .59%
Return on average stockholders' equity 12.65% (1.02)% 9.17% 2.28% (1.41)% 10.88% 10.29%
Net interest margin 4.68% 4.64% 4.65% 4.69% 4.78% 4.00% 3.90%
Dividend payout 19.75% N/A 28.86% 131.94% N/A 24.14% 23.61%
</TABLE>
14
<PAGE> 26
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL RATIOS:
Average stockholders' equity to
average assets 8.13% 6.08% 7.28% 6.01% 7.40% 6.96% 5.73%
Tier 1 risk-based capital (2) 10.58% 7.92% 10.47% 7.84% 9.32% 12.92% 10.66%
Total risk-based capital (2) 11.83% 9.17% 11.72% 9.09% 10.57% 14.17% 12.09%
Tier 1 leverage (2) 7.35% 5.04% 7.09% 5.08% 5.53% 7.11% 5.34%
</TABLE>
(1) Net income per share and average shares for 1992 are not reported
due to the effect of the merger conversions related to Alliance
Bank and Security First Network Bank.
(2) The required minimum Tier 1 and total risk-based capital ratios are
4.0% and 8.0%, respectively. The minimum leverage ratio of Tier 1
capital and total adjusted assets is 3.0% to 5.0%, depending on the
risk profile of the institution and other factors.
15
<PAGE> 27
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma financial data gives effect, as
appropriate, to the Merger as of the dates and for the periods indicated and
pursuant to the accounting bases described below. The unaudited pro forma
financial data are presented for informational purposes only and are not
necessarily indicative of the combined financial position or results of
operations which actually would have occurred if the transactions had been
consummated at the date and for the periods indicated or which may be obtained
in the future. The information should be read in conjunction with the unaudited
pro forma financial information appearing elsewhere in this Joint Proxy
Statement/Prospectus.
The following unaudited pro forma combined data give effect to the Merger
as of the date or at the beginning of the periods indicated, assuming such
Merger is treated as a pooling-of-interests.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA COMBINED AREA AND
CARDINAL EARNINGS
Net interest income $ 18,126 $ 18,027 $ 72,425 $ 67,758 $ 60,523 $ 55,535 $ 47,035
Provision for loan losses 711 1,068 4,849 4,824 4,976 3,751 4,728
Net income 5,220 3,252 19,886 12,446 6,974 17,588 14,469
PER SHARE
Net income (1) .33 .20 1.25 .79 .45 1.21 -
Cash Dividends declared (1) .042 .036 .16 .14 .13 .12 -
BALANCE SHEET AT
PERIOD END
Assets 1,774,057 1,793,171 1,796,290 1,778,559 1,622,509 1,458,428 1,273,522
Deposits 1,384,441 1,389,765 1,394,399 1,378,856 1,223,556 1,175,373 1,029,344
Debt 200,853 233,979 213,916 232,756 258,939 141,071 129,396
Shareholders' equity 172,454 151,193 169,383 149,724 128,372 129,411 106,608
</TABLE>
(1) Net income per share and cash dividends declared for 1992 are not reported
due to the effect of the merger conversions related to Cardinal's merger
with Alliance Bank and Security First Network Bank.
16
<PAGE> 28
THE AREA MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the holders
of Area Common Stock in connection with the solicitation by the Area Board of
Directors of proxies for use at the Area Meeting, at which Area shareholders
will be asked to vote upon the following proposals:
1. To approve an amendment to Area's Articles of Incorporation
to increase the number of authorized shares of common stock
from 16,000,000 to 50,000,000.
2. To approve the Agreement.
The Area Meeting will be held at ______ _.m., local time, on
_____________, 1997, at the main office of Area, located at 230 Frederica
Street, Owensboro, Kentucky 42301.
Area shareholders are requested promptly to sign, date, and return the
accompanying proxy card to Area in the enclosed postage-paid, addressed
envelope.
Any Area shareholder who has delivered a proxy may revoke it at any
time before it is voted by giving notice of revocation in writing or submitting
to Area a signed proxy card bearing a later date, provided that such notice or
proxy card is actually received by Area before the vote of shareholders or in
open meeting prior to the taking of the shareholder vote at the Area Meeting.
Any notice of revocation should be sent to Area Bancshares Corporation, 230
Frederica Street, Owensboro, Kentucky 42301 Attention: Corporate Secretary. A
proxy will not be revoked by death or supervening incapacity of the stockholder
executing the proxy unless, before the vote, notice of such death or incapacity
is filed with the Corporate Secretary.
The shares of Area Common Stock represented by properly executed
proxies received at or prior to the Area Meeting and not subsequently revoked
will be voted as directed in such proxies. IF INSTRUCTIONS ARE NOT GIVEN, SHARES
REPRESENTED BY PROXIES RECEIVED WILL BE VOTED FOR THE AMENDMENT TO THE ARTICLES
OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
16,000,000 TO 50,000,000; FOR THE APPROVAL OF THE AGREEMENT; AND IN THE
DISCRETION OF THE PROXY HOLDER AS TO ANY OTHER MATTERS THAT PROPERLY MAY COME
BEFORE THE AREA MEETING. IF NECESSARY, AND UNLESS CONTRARY INSTRUCTIONS ARE
GIVEN, THE PROXY HOLDER ALSO MAY VOTE IN FAVOR OF A PROPOSAL TO ADJOURN THE
MEETING TO PERMIT FURTHER SOLICITATION OF PROXIES IN ORDER TO OBTAIN SUFFICIENT
VOTES TO APPROVE A MATTER. PROXIES MARKED TO BE VOTED AGAINST EITHER OF THE
PROPOSALS WILL NOT BE VOTED IN FAVOR OF SUCH A PROPOSAL TO ADJOURN. As of the
date of this Joint Proxy Statement/Prospectus, Area is unaware of any other
matters to be presented at the Area Meeting.
Solicitation of proxies will be made by mail but also may be made by
telephone or telegram or in person by the directors, officers, and employees of
Area, who will receive no additional compensation for such solicitation but may
be reimbursed for out-of-pocket expenses. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward solicitation
materials to beneficial owners and will be reimbursed for their reasonable
out-of-pocket expenses.
17
<PAGE> 29
RECORD DATE; VOTE REQUIRED
Area's Board of Directors has established the close of business on
_____________, 1997, as the Record Date for determining the Area shareholders
entitled to notice of and to vote at the Area Meeting. Only Area shareholders of
record as of the Record Date will be entitled to vote at the meeting. The
affirmative vote of a majority of the Area Common Stock outstanding and entitled
to vote at the Area Meeting will be required to approve the proposed amendment
to the Articles of Incorporation and the Agreement, while approval of any other
matter will require the affirmative vote of a majority of the shares present in
person or by proxy and entitled to vote. An abstention or failure to return a
properly executed proxy card will have the same effect as a vote against the
proposed amendment to the Articles of Incorporation and the Agreement. Broker
non-votes, which occur when a broker submits a proxy card without exercising
discretionary voting authority on a non- routine matter, are not counted for
purposes of determining whether a proposal has been approved. As a result,
broker non-votes will have the effect of votes against the proposed amendment to
the Articles of Incorporation and the Agreement. As of the Record Date, there
were approximately [600] holders of [11,337,828] shares of Area Common Stock
outstanding and entitled to vote at the Area Meeting, with each share entitled
to one vote.
The presence, in person or by proxy, of a majority of the outstanding
shares of Area Common Stock entitled to vote at the Area Meeting is necessary to
constitute a quorum of the shareholders in order to take action at the meeting.
For these purposes, shares of Area Common Stock that are present, or represented
by proxy, at the Area Meeting will be counted for quorum purposes regardless of
whether the holder of the shares or proxy fails to vote on any matter or whether
a broker with discretionary authority fails to exercise its discretionary voting
authority with respect to any matter.
As of the Record Date, the directors and executive officers of Area
beneficially owned [5,254,731] shares (or approximately [46.3]% of the
outstanding shares) of Area Common Stock, including 8,175 shares held by the
trust departments of the subsidiaries of Area for which the trust departments do
not have discretionary authority to vote such shares. Each member of the Board
of Directors of Area has agreed to vote those shares of Area Common Stock
beneficially owned by such member (except for shares held in a fiduciary
capacity) in favor of the Merger.
As of the Record Date, the trust departments of subsidiaries of Area
held of record [1,271,160] shares of Area Common Stock in a fiduciary capacity
representing approximately [11.2]% of the outstanding shares of Area Common
Stock. With respect to [506,836] shares (approximately [4.5]% of the outstanding
shares of Area Common Stock), the instrument creating the trust or fiduciary
relationship specifically directs the Trustee to vote the shares, of which
76,550 shares are held by directors and executive officers of Area. The trust
departments will act through their respective trust committees, with the
committees determining whether the Merger is in the best interests of the
applicable trust beneficiaries. The remaining shares held by the trust
departments will be voted at the direction of the beneficial owners. If the
Discretionary Shares voted by the trustees are voted in favor of the proposals,
in light of the shares beneficially owned by Area's directors and executive
officers (who have committed to vote in favor of the proposals), Area
anticipates that the Agreement will be approved by its shareholders.
As of the Record Date, the directors and executive officers of Cardinal
beneficially owned no shares of Area Common Stock.
18
<PAGE> 30
THE CARDINAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the holders
of Cardinal Common Stock in connection with the solicitation by the Cardinal
Board of Directors of proxies for use at the Cardinal Meeting, at which such
Cardinal shareholders will be asked to vote upon a proposal to approve the
Agreement. The Cardinal Meeting will be held at ____ _.m., local time, on
___________, 1997, at The Vine Street Trust Company, located at 360 East Vine
Street, Lexington, Kentucky 40507.
Cardinal shareholders are requested promptly to sign, date, and return
the accompanying proxy card to Cardinal in the enclosed postage-paid, addressed
envelope.
Any Cardinal shareholder who has delivered a proxy may revoke it at any
time before it is voted by giving notice of revocation in writing or submitting
to Cardinal a signed proxy card bearing a later date, provided that such notice
or proxy card is actually received by Cardinal before the vote of shareholders
or in open meeting prior to the taking of the shareholder vote at the Cardinal
Meeting. Any notice of revocation should be sent to Cardinal Bancshares, Inc.,
400 East Vine Street, Suite 300, Lexington, Kentucky 40507 Attention: Carolyn L.
Gabriel, Corporate Secretary. A proxy will not be revoked by death or
supervening incapacity of the stockholder executing the proxy unless, before the
vote, notice of such death or incapacity is filed with the Corporate Secretary.
The shares represented by properly executed proxies received at or prior
to the Cardinal Meeting and not subsequently revoked will be voted as directed
in such proxies. IF INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED BY PROXIES
RECEIVED WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND IN THE DISCRETION OF
THE PROXY HOLDER AS TO ANY OTHER MATTERS THAT PROPERLY MAY COME BEFORE THE
CARDINAL MEETING. IF NECESSARY, AND UNLESS CONTRARY INSTRUCTIONS ARE GIVEN, THE
PROXY HOLDER ALSO MAY VOTE IN FAVOR OF A PROPOSAL TO ADJOURN THE SPECIAL MEETING
TO PERMIT FURTHER SOLICITATION OF PROXIES IN ORDER TO OBTAIN SUFFICIENT VOTES TO
APPROVE THE AGREEMENT. PROXIES MARKED TO BE VOTED AGAINST THE MERGER WILL NOT BE
VOTED IN FAVOR OF SUCH A PROPOSAL TO ADJOURN. As of the date of this Joint Proxy
Statement/Prospectus, Cardinal is unaware of any other matter to be presented at
the Cardinal Meeting.
Employees of Cardinal who participate in the Cardinal Bancshares, Inc.
Affiliates Employee Stock Ownership Plan (the "ESOP") generally may vote the
shares held in their account (which generally are allocated in proportion to
each participant's compensation) by giving instructions for voting to the ESOP's
trustee. When shares held by the ESOP are allocated to a suspense account, each
participant in the ESOP is deemed to have one share for the purpose of directing
the trustee in voting the unallocated shares. The trustee of the ESOP will vote
all of the unallocated shares held by the ESOP in proportion to the instructions
it receives from participants. However, if a participant does not give voting
instructions, shares represented by the participant's vote will not be voted.
Employees of Cardinal who participate in either the First Federal
Savings Bank Management Retention Plan or the Mutual Federal Savings Bank
Management Retention Plan (collectively the "MRPs") are entitled to vote the
shares held by the trustee that are represented by their individual share
awards. If the trustee of the MRPs does not receive instructions with respect to
a share award, the trustee will vote such shares represented by the share award
at the direction of the Management Retention Plan Committee (the "MRP
Committee").
19
<PAGE> 31
The Vine Street Trust Company ("Vine Street"), the trustee of the ESOP
and the MRPs, is a wholly owned subsidiary of Cardinal; therefore, participants'
instructions will be given to an independent third party for tabulation and then
transmitted to the trustee to protect the confidentiality of the vote.
The cost of soliciting proxies will be borne by Cardinal. Solicitation
of proxies will be made by mail but also may be made by telephone or telegram or
in person by the directors, officers, and employees of Cardinal, who will
receive no additional compensation for such solicitation but may be reimbursed
for out-of-pocket expenses. Brokerage houses, nominees, fiduciaries, and other
custodians will be requested to forward solicitation materials to beneficial
owners and will be reimbursed for their reasonable out-of-pocket expenses.
CARDINAL SHAREHOLDERS SHOULD NOT FORWARD ANY CARDINAL COMMON STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, STOCK
CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A
LETTER OF TRANSMITTAL WHICH WOULD BE SENT TO CARDINAL SHAREHOLDERS BY THE
EXCHANGE AGENT PROMPTLY AFTER THE EFFECTIVE TIME.
RECORD DATE; VOTE REQUIRED
Cardinal's Board of Directors has established the close of business on
_____________, 1997, as the Record Date for determining the shareholders
entitled to notice of and to vote at the Cardinal Meeting. Only record holders
of Cardinal Common Stock as of the Record Date will be entitled to vote at the
Cardinal Meeting. Approval of the Agreement requires the affirmative vote of a
majority of the shares of Cardinal Common Stock entitled to vote at the Cardinal
Meeting. Approval of any other matter presented requires the affirmative vote of
a majority of the shares present in person or by proxy and entitled to vote. An
abstention or failure to return a properly executed proxy card will have the
same effect as a vote against the Agreement, but will not affect the outcome of
any other matter presented. Abstentions and broker non-votes will be included in
the calculation of the number of shares represented at the Special Meeting for
purposes of determining whether a quorum has been achieved. Since approval of
the Agreement requires the affirmative vote of the holders of at least a
majority of the outstanding shares of Cardinal Common Stock entitled to be voted
at the Special Meeting, abstentions and broker non-votes will have the same
effect as a vote against the Agreement. As of the Record Date, there were
approximately [___] holders of [_________] shares of Cardinal Common Stock
outstanding and entitled to vote at the Cardinal Meeting, with each share
entitled to one vote.
The presence, in person or by proxy, of a majority of the outstanding
shares of Cardinal Common Stock is necessary to constitute a quorum of the
shareholders in order to take action at the Cardinal Meeting. For these
purposes, shares of Cardinal Common Stock that are present, or represented by
proxy, at the Cardinal Meeting will be counted for quorum purposes regardless of
whether the holder of the shares or proxy fails to vote on the Agreement.
As of the Record Date, the directors and executive officers of Cardinal
and their affiliates beneficially owned ____________ shares (or approximately
___________% of the outstanding shares) of Cardinal Common Stock. Each member of
the Board of Directors of Cardinal has agreed to vote those shares of Cardinal
Common Stock beneficially owned by such member (except for shares held in a
fiduciary capacity) in favor of the Merger.
20
<PAGE> 32
As of the Record Date, Area held 78,450 shares of Cardinal Common Stock,
and the directors and executive officers of Area and their affiliates
beneficially owned ____________ shares of Cardinal Common Stock for an aggregate
of ______ shares (or approximately ___% of the outstanding shares of Cardinal
Common Stock). As of that date, Area owned [15,601] shares of Cardinal Common
Stock in a fiduciary capacity for others.
THE MERGER
The following material describes certain aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Agreement, which is attached
as Appendix A to this Joint Proxy Statement/Prospectus and incorporated herein
by reference. All shareholders are urged to read the Appendices in their
entirety.
GENERAL
The Agreement provides for the Merger of Cardinal and Interim, a
wholly-owned subsidiary of Area that was organized under the laws of the State
of Kentucky for the purposes of facilitating the Merger. At the Effective Time,
each share of Cardinal Common Stock (excluding any shares held by Cardinal,
Area, or their respective subsidiaries, other than shares held in a fiduciary
capacity or in satisfaction of debts previously contracted) issued and
outstanding will be converted into 2.7391 shares of Area Common Stock (the
"Exchange Ratio"), subject to adjustment in the event of a stock dividend, stock
split or similar stock reclassification. Each share of Area Common Stock
outstanding immediately prior to the Effective Time will remain outstanding and
unchanged as a result of the Merger.
No fractional shares of Area Common Stock will be issued. Rather, cash
(without interest) will be paid in lieu of any fractional share interest to
which any Cardinal shareholder would be entitled upon consummation of the
Merger, in an amount equal to such fractional share of Area Common Stock
multiplied by the "Market Value" of one share of Area Common Stock at the
Effective Time. The "Market Value" of one share of Area Common Stock at the
Effective Time shall be the last sale price of such common stock on the Nasdaq
(as reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as selected by Area) on the last trading day preceding the
Effective Time.
EFFECT OF MERGER ON STOCK RIGHTS
The Agreement provides that, at the Effective Time, all rights with
respect to Cardinal Common Stock pursuant to stock options ("Cardinal Options")
granted by Cardinal under the existing stock option and stock-based compensation
plans and agreements (the "Cardinal Stock Plans"), which are outstanding at the
Effective Time, whether or not exercisable, shall be converted into and become
rights with respect to Area Common Stock. Area will assume each Cardinal Option,
in accordance with the terms of the Cardinal Stock Plan by which it is
evidenced. From and after the Effective Time, (i) each Cardinal Option assumed
by Area may be exercised solely for shares of Area Common Stock, (ii) the number
of shares of Area Common Stock subject to such Cardinal Option will be equal to
the number of shares of Cardinal Common Stock subject to such Cardinal Option
immediately prior to the Effective Time multiplied by the Exchange Ratio, and
(iii) the per share exercise price under each such Cardinal Option shall be
adjusted by dividing the per share exercise price under each Cardinal Option by
the Exchange Ratio and rounding down to the nearest cent.
21
<PAGE> 33
Area will not issue any fraction of a share of Area Common Stock upon exercise
of a Cardinal Option, and any fraction of a share of Area Common Stock that
would otherwise be subject to a converted Cardinal Option will represent the
right to receive a cash payment equal to the product of such fraction and the
difference between the "Market Value" of one share of Area Common Stock and the
per share exercise price of such Option. The "Market Value" of one share of Area
Common Stock shall be the last sales price of such common stock on the Nasdaq,
or such other exchange or market system on which Area Common Stock is then
traded, (as reported by The Wall Street Journal or, if not reported thereby, any
other authoritative source selected by Area) on the last trading day preceding
the date of exercise.
All restrictions or limitations on transfer with respect to Cardinal
Common Stock awarded under the Cardinal Stock Plans or any other plan, program
or arrangement of any Cardinal Company, to the extent that such restrictions or
limitations shall not have already lapsed, and except as otherwise expressly
provided in such plan, program or arrangement, shall remain in full force and
effect with respect to shares of Area Common Stock into which such restricted
stock is converted pursuant to the terms of Agreement.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. Cardinal historically has focused on
acquisition and expansion activities. Cardinal was formed in 1988 and organized
Vine Street. As a result of a July 1989 merger transaction, Cardinal also became
the bank holding company of The Harlan National Bank (now known as HNB Bank,
N.A. ("HNB")). In 1992, Cardinal acquired First Federal Savings Bank, Pineville,
Kentucky (now known as Security First Network Bank ("SFNB")) and began its
expansion of Cardinal Credit Corporation ("CCC"). In 1993, Cardinal acquired
First & Peoples Bank, Springfield, Kentucky ("First & Peoples") and Mutual
Federal Savings Bank, Somerset, Kentucky (now known as "Alliance Bank"). In
1994, Cardinal commenced start-up banking operations in Louisville through the
Jefferson Banking Company ("Jefferson"). In addition to its banking operations
and CCC, Cardinal also established and developed Small Business Administration
and Rural Economic Community Development lending activities (through VST
Financial Services, Inc. ("VST")), insurance activities (through Mutual
Insurance Agency, Inc.), and securities and brokerage activities (through Mutual
Service Corporation).
As a result of its extensive business development activities, Cardinal's
earnings and operations have been characterized by the expansion efforts, and
the investments and charges related thereto. In 1995 and through mid-1996,
Cardinal's operations also were characterized by the development of Internet
banking by one of Cardinal's then-thrift subsidiaries, SFNB, as well as by the
rapid expansion and development of CCC. By May 1996, Cardinal had sold the
assets of CCC and terminated its business for a net after-tax gain of
approximately $4.6 million, and had "spun-off" SFNB to its shareholders. Since
those events were completed in May 1996, Cardinal has focused operations on
improving earnings through its existing banking and financial services
franchises.
Because of the nature of Cardinal's development since 1988, the Board of
Directors was continually evaluating strategic alternatives for Cardinal. In
1995 and 1996, as Cardinal's investment in Internet banking became substantial
and material to Cardinal's operations, the Board considered a number of
alternatives for Cardinal. Although the Board did consider merger and
acquisition alternatives at that time, the Board determined that the best long
term interests of shareholders were better served by the steps ultimately taken
in 1996, including the private placement of equity capital in April 1996, as
well as the sale of the assets of CCC and the spin-off of SFNB.
22
<PAGE> 34
In March 1997, representatives of Area contacted Cardinal regarding a
possible merger transaction. The principals of the parties were relatively
familiar with each other, and the informal discussions which occurred following
that contact developed fairly rapidly. Over the next several weeks, the parties
performed a detailed due diligence investigation and negotiation of a definitive
agreement. At a meeting held on April 30, 1997, the Cardinal Board of Directors
unanimously approved the definitive Agreement and the Merger provided for
therein.
Recommendation of the Cardinal Board of Directors and Reasons for the
Merger. The Board of Directors of Cardinal has approved the Agreement and has
determined that the Merger is fair to, and in the best interests of, Cardinal
and its shareholders. THE CARDINAL BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF
CARDINAL COMMON STOCK VOTE TO APPROVE AND ADOPT THE AGREEMENT AND THE MERGER
PROVIDED FOR THEREIN. The Cardinal Board of Directors believes that the Merger
will enable holders of Cardinal Common Stock to realize increased value over
time as part of the combination with Area. The Board believes the combined
company will have a greater earnings and expansion potential than either company
would have individually. In that regard, the Board believes that the Merger may
enable Cardinal shareholders to participate in opportunities for appreciation of
Area Common Stock as a result of being part of a larger Kentucky banking
franchise, as well as a result of potential increases in market interest in the
Area Common Stock because of greater potential liquidity and market
capitalization. Furthermore, the Cardinal Board of Directors considered the
premium over market price, net income per share and book value per share of Area
Common Stock to be received by Cardinal shareholders as a result of the Merger.
See "-- Fairness Opinions -- Cardinal" below. In reaching its decision to
approve the Agreement, the Board consulted with its outside counsel regarding
the legal terms of the Merger and the Board's fiduciary obligations in its
consideration of the proposed merger, its financial advisor, PBS, regarding the
financial aspects and fairness of the proposed Agreement, as well as with
management of Cardinal and, without assigning any relative or specific weight,
considered the following, which are all of the material factors considered, both
from a short-term and long-term perspective:
(a) The Cardinal Board's familiarity with, and review of, the business,
financial condition, results of operations and prospects of Cardinal, including,
but not limited to, its potential growth, development, productivity and
profitability and the business risks associated therewith;
(b) The current and prospective environment in which Cardinal operates,
including national and local economic conditions, the highly competitive
environment for financial institutions generally, the increased regulatory
burden on financial institutions, and the trend toward consolidation in the
financial services industry;
(c) The potential appreciation in market and book value of Cardinal
Common Stock on both a short- and long-term basis, as a stand alone entity;
(d) Information concerning the business, financial condition, results of
operations, asset quality and prospects of Area including the long-term growth
potential of Area Common Stock and the future prospects of Area, combined with
Cardinal following the proposed Merger, and the business risks associated
therewith;
(e) The combined financial resources of Area and Cardinal;
(f) The geographic diversity, and lack of overlap of Cardinal's and
Area's respective neighboring market areas, the compatibility of the business
and management philosophies of Cardinal and Area, and Area's strong commitment
to the communities it serves;
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<PAGE> 35
(g) The fact that Area's offer of Area Common Stock in exchange for
Cardinal Common Stock can be effected on a tax-free basis for Cardinal
shareholders, and the potential for appreciation and growth for the market value
of Area Common Stock following the proposed Merger;
(h) The oral presentation and opinion of PBS that the terms of the
Agreement are fair to the holders of Cardinal Common Stock from a financial
point of view (See "-- Fairness Opinions -- Cardinal");
(i) The advantages and disadvantages of Cardinal remaining as an
independent institution or affiliating with a larger institution; and,
(j) The short- and long-term interests of Cardinal and its shareholders,
the interests of the employees, customers and creditors of Cardinal, and the
interests of the Cardinal communities that may be served to advantage by an
appropriate affiliation which creates a larger holding company with increased
resources to meet the changing needs of the financial institution industry.
On the basis of these considerations, the Agreement was approved, and
the Board of Directors unanimously recommends that the shareholders vote for the
approval of the Agreement and the Merger provided for therein.
Each member of the Board of Directors of Cardinal has agreed to vote
such member's shares of Cardinal Common Stock in favor of the Agreement.
CARDINAL'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT CARDINAL
SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT.
Recommendation of the Area Board of Directors and Reasons for the
Merger. The Area Board of Directors has unanimously approved the Agreement and
has determined that the Merger is in the best interests of Area and its
shareholders. In approving the Agreement, the Area Board considered a number of
factors concerning the benefits of the Merger. Without assigning any relative or
specific weights to the factors, the Area Board of Directors considered the
following material factors:
(a) a review, based in part on a presentation by Area's management, of
(i) the business, operations, earnings, and financial condition, including the
capital levels and asset quality, of Cardinal on an historical, prospective, and
pro forma basis and in comparison to other financial institutions in the area,
(ii) the demographic, economic, and financial characteristics of the markets in
which Cardinal operates, including existing competition, history of the market
areas with respect to financial institutions, and average demand for credit, on
an historical and prospective basis, and (iii) the result of Area's due
diligence review of Cardinal; and
(b) a variety of factors affecting and relating to the overall
strategic focus of Area including Area's desire to expand into markets in the
general vicinity of its core markets.
AREA'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT AREA SHAREHOLDERS
VOTE FOR APPROVAL OF THE AGREEMENT.
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<PAGE> 36
FAIRNESS OPINIONS
Area. In April, 1997 and prior to execution of the Agreement, Area
engaged The Bank Advisory Group, Inc. ("BAG") to act as an independent financial
advisor to the Board of Directors and shareholders of Area in connection with
the Merger. BAG is a recognized investment banking firm regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions, and in valuations for estate, corporate and other
purposes. BAG was selected by the Board of Directors of Area to act as Area's
financial advisor based on BAG's qualifications, expertise and reputation.
Specifically, based on BAG's reputation and qualifications in evaluating
financial institutions, the Board of Directors of Area requested that BAG render
advice and analysis in connection with the Merger, and to provide an opinion
with regard to fairness, from the perspective of the shareholders of Area, of
the financial terms of the Merger.
On April 30, 1997, BAG rendered its verbal opinion to the Area Board of
Directors that, based upon and subject to the various considerations set forth
in the opinion on the date thereof, the Exchange Ratio was fair from a financial
point of view to the holders of Area Common Stock (other than Cardinal and its
affiliates). BAG subsequently confirmed its verbal opinion by delivery of a
written fairness opinion dated May 1, 1997. Subsequently thereafter, BAG updated
its written opinion by issuance of an opinion letter dated _________, 1997
(hereinafter referred to as the "BAG Opinion").
The full text of the BAG Opinion, which sets forth, among other things
the assumptions made, procedures followed, matters considered, and limitations
on the review undertaken, is attached as Appendix C to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Area shareholders
are urged to read the BAG Opinion carefully and in its entirety in conjunction
with this Joint Proxy Statement/Prospectus. The BAG Opinion addresses only the
fairness of the Exchange Ratio from a financial point of view and does not
constitute an endorsement of the Merger or a recommendation to any shareholder
of Area as to how such shareholder should vote with respect to the Merger. The
summary of the BAG Opinion set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
Regarding AREA, BAG based the BAG Opinion upon, among other things, a
review of: (a) audited consolidated financial statements, contained in Annual
Reports and on Form 10-Ks, for the years ended December 31, 1996, 1995, and
1994; (b) quarterly financial statements, on Form 10-Q, for the three-month
period ended March 31, 1997; (c) consolidated financial statements, on form
FR-Y9C, for the years ended December 31, 1996, 1995, and 1994, and for the
three-month period ended March 31, 1997, as filed with the Federal Reserve
System; (d) parent company only financial statements, on form FR Y-9LP, for the
years ended December 31, 1996, 1995, and 1994, and for the three-month period
ended March 31, 1997, as filed with the Federal Reserve System; (e) the
condition of the commercial banking industry, as indicated in financial reports
filed with various federal bank regulatory authorities by all federally-insured
commercial banks; (f) certain internal financial analyses and forecasts prepared
by the management of Area, including projections of future performance; (g)
certain other summary materials and analyses with respect to Area's loan
portfolio, securities portfolio deposit base, fixed assets, and operations
including, but not limited to: (i) schedules of loans and other assets
identified by management as deserving special attention or monitoring given the
characteristics of the loan/asset and the local economy, (ii) analyses
concerning the adequacy of the loan loss reserve, (iii) schedules of "other real
estate owned," including current carrying values and recent appraisals, and (iv)
schedules of securities, detailing book values, market values, and lengths to
maturity, and; (h) such other information, including financial studies,
analyses, investigations, and economic and market criteria, that BAG deemed
relevant to its assignment.
25
<PAGE> 37
Regarding CARDINAL, BAG based the BAG Opinion upon, among other things,
a review of: (a) audited consolidated financial statements, contained in Annual
Reports and on Form 10-Ks, for the years ended December 31, 1996, 1995, and
1994; (b) quarterly financial statements, on Form 10-Q, for the three-month
period ended March 31, 1997; (c) consolidated financial statements for Cardinal,
on form FR Y-9C, for the years ended 1996, 1995, and 1994, and for the
three-month period ended March 31, 1997, as filed with the Federal Reserve
System; (d) parent company only financial statements, on form FR Y-9LP, for the
years ended December 31, 1996, 1995, and 1994, and for the three-month period
ended March 31, 1997, as filed with the Federal Reserve System; (e) the
condition of the commercial banking industry, as indicated in financial reports
filed with various federal bank regulatory authorities by all federally-insured
commercial banks; (f) certain internal financial analyses and forecasts prepared
by the management of Cardinal; (g) certain other summary materials and analyses
with respect to Cardinal's loan portfolio, securities portfolio, deposit base,
fixed assets, and operations including, but not limited to: (i) schedules of
loans and other assets identified by management as deserving special attention
or monitoring given the characteristics of the loan/asset and the local economy,
(ii) analyses concerning the adequacy of the loan loss reserve, (iii) schedules
of "other real estate owned," including current carrying values and recent
appraisals, and (iv) schedules of securities, detailing book values, market
values, and lengths to maturity, and; (h) such other information, including
financial studies, analyses, investigations, and economic and market criteria,
that BAG deemed relevant to its assignment.
Additionally, BAG based the BAG Opinion upon, among other things, a
review of: (a) the Agreement, and any amendments thereto, that sets forth, among
other items, the terms, conditions to closing, pending litigation against both
Area and Cardinal, and representations and warranties of Area and Cardinal with
respect to the proposed Merger; (b) the financial terms and price levels for
thirteen commercial banking organizations with assets between $400 million and
$900 million recently acquired for 100% stock in the United States during 1996
and the first calendar quarter of 1997, together with the financial performance
and condition of such banks, and; (c) such other information, including
financial studies, analyses, investigations, and economic and market criteria,
that BAG deemed relevant to its assignment.
BAG maintains a sizable database of information pertaining to the
prices paid for U.S. banks. The database includes transactions involving banking
organizations acquired in the United State since 1989. BAG has the capability of
sorting the records to yield transactions involving similar banks. Similarities
might include banks within a specific asset size range, banks that generate a
return on average assets (ROA) within a specified range, banks that have an
equity-to-assets ratio within a certain range, or banks that sold for a specific
form of consideration (cash or stock). The ability to produce specific groups of
comparable banks facilitates making a valid comparative purchase price analysis.
BAG considered the transaction values for banking organizations with
total assets between $400 million and $900 million acquired in the United States
during 1996 and the first calendar quarter of 1997, with stock as the form of
consideration. BAG compared those transaction values, and the corresponding
financial characteristics for the relevant banks, in relation to the transaction
value computed for the Merger. The comparative analysis revealed that the merger
of Area with Cardinal yields a transaction value that results in a price-equity
index (purchase price as a percent of total assets) of 16.14 and a
price-earnings index (purchase price as a percent of average assets) of 15.94,
versus averages of 20.29 and 21.69, respectively, for the United States.
The equity ratio for Cardinal (as measured by the equity-to-assets
ratio) as of March 31, 1997 equals 8.77%, a ratio slightly below the average
equity ratio of 8.88% for the United States.
26
<PAGE> 38
Furthermore, the twelve-month trailing ROA for Cardinal approximates 0.95%, a
ratio well below the average ROA of 1.40% for the United States. Accordingly,
the analysis suggests that the transaction value for Cardinal, as measured by
the price indices described above, is reasonable and defensible in relation to
the average price indices paid during 1996 and the first calendar quarter of
1997 for banking organizations with assets between $400 million and $900 million
in the United States, with stock as the form of consideration. The table set
forth below summarizes this comparative analysis, and highlights the Cardinal
transaction.
<TABLE>
<CAPTION>
------------------------------
Price Multiples
------------------------------
Equity- Total
# of Assets to- Price
Banks $(000) Assets ROA ROE $(000) Equity Earnings
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S 13 $560,411 8.88% 1.40% 15.98% $113,704 2.29x 15.51x
Transactions
- ---------------------------------------------------------------------------------------------------------------------------
Cardinal(1) 1 $631,349 8.77%2 0.95% 13.37% $101,8001 1.84x2 16.83x
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
-------------------------
Price Indices
-------------------------
Equity Earnings
<S> <C> <C>
U.S 20.29 21.69
Transactions
- ----------------------------------------------
Cardinal(1) 16.14(2) 15.94
- ----------------------------------------------
</TABLE>
(1) Represents a "gross" total price for Cardinal based on the issuance of
4,750,983 shares of Area Common Stock to be issued to Cardinal
shareholders, plus the 78,450 shares of Cardinal Common Stock currently
held by Area adjusted for the 2.7391 exchange ratio [4,750,983+ (78,450
x 2.7391)]. The total price is based on a $20.50 per share market price
for Area as of May 29, 1997. Financial data for Cardinal as of March
31, 1997. ROA and earnings-derived data based on 12-month trailing
earnings as of March 31, 1997.
(2) Equity adjusted to reflect the issuance of 219,198 shares Cardinal
Common Stock, and the addition of $4.4 million in new equity capital,
assuming the exercise of all of Cardinal's stock options currently
outstanding, together with the additional shares issued or issuable to
J. S. Mahan.
Consideration was also given to the projected levels of earnings per
share and equity per share appreciation or dilution percentages to be incurred
by both Area and Cardinal over the next three to five years after consummation
of the Merger. Typically, a merger is completed with the intention of realizing
economies of scale and earnings enhancement opportunities, thereby providing a
benefit to shareholders of both merger partners that might not otherwise be
achieved with both parties operating on a stand-alone basis. To justify the
fairness of the transaction from the perspective of the shareholders of Area,
BAG believes it is important to forecast a positive, or at least a "break-even",
impact on earnings per share and equity per share for Area shareholders within
three to five years after consummation of the Merger, based upon realistic
financial projections for both Area and Cardinal together with realistic merger
savings. Overall, BAG forecasts that Area shareholders will benefit from the
Merger on a financial basis versus what Area shareholders could have otherwise
achieved for its shareholders while operating on a stand-alone basis.
BAG is of the belief that its review of, among other things, the
aforementioned items, provides a reasonable basis for the issuance of the BAG
Opinion, recognizing that BAG is issuing an informed professional opinion, not a
certification of value. No limitations were imposed on the scope of BAG's
investigation by either Area or Cardinal. BAG holds no ownership interest in
Area or Cardinal.
BAG, as part of its line of professional services, specializes in
rendering valuation opinions of banks and bank holding companies in connection
with mergers and acquisitions nationwide. Prior to its retention for this
assignment, BAG had provided financial advisory services to Area. However, the
professional fees billed for the prior services are insignificant as compared to
BAG's
27
<PAGE> 39
annual billings. BAG has not provided any services to Cardinal. BAG holds no
ownership interest in Area or Cardinal.
BAG has relied upon the information provided by the management of Area
and Cardinal, or otherwise reviewed by BAG, as being complete and accurate in
all material respects. BAG has not verified through independent inspection or
examination the specific assets or liabilities of Area, Cardinal or their
subsidiary banks. BAG has assumed that there has been no material changes in the
assets, financial condition, results of operations, or business prospects of
Area and Cardinal since the date of the last financial statements made available
to BAG. BAG met with the management of both Area and Cardinal for the purpose of
discussing the relevant information that has been provided to BAG.
Based on all factors that BAG deemed relevant and assuming the accuracy
and completeness of the information and data provided, BAG concluded that the
provisions of the proposed Merger, as outlined herein, are fair, from a
financial point of view, to the common shareholders of Area. For BAG's services
as an independent financial analyst and advisor to Area in connection with the
Merger, Area has agreed to pay BAG a professional fee totaling between $60,000
and $65,000. The professional fee is not contingent in nature and is not tied to
the transaction value of the Merger. Furthermore, payment of the professional
fee is not contingent upon whether the Merger is consummated. Additionally, Area
also has agreed to reimburse BAG for reasonable out-of-pocket expenses.
Cardinal. Professional Bank Services, Inc. ("PBS") was engaged by
Cardinal to advise the Cardinal Board of Directors as to the fairness of the
consideration, from a financial perspective, to be paid by Area to Cardinal
shareholders as set forth in the Agreement. PBS is a bank consulting firm with
offices in Louisville, Atlanta, Chicago, Nashville and Washington, D.C. As part
of its investment banking business, PBS is regularly engaged in reviewing the
fairness of financial institution acquisition transactions from a financial
perspective and in the valuation of financial institutions and other businesses
and their securities in connection with mergers, acquisitions, estate
settlements, and other transactions. Neither PBS nor any of its affiliates has a
material financial interest in Cardinal or Area. PBS was selected to advise the
Cardinal Board of Directors based upon their familiarity with Kentucky financial
institutions and knowledge of the banking industry as a whole.
PBS performed certain analyses described herein and presented the range
of values for Cardinal resulting from such analyses to the Board of Directors of
Cardinal in connection with its advice as to the fairness of the consideration
to be paid by Area.
A fairness opinion of PBS (the "PBS Opinion") was delivered to the
Board of Directors of Cardinal on April 30, 1997, at a special meeting of the
Board of Directors. A copy of the PBS Opinion, which includes a summary of the
assumptions made and information analyzed in deriving the PBS Opinion, is
attached as Appendix D to this Joint Proxy Statement/Prospectus and should be
read in its entirety.
In arriving at its PBS Opinion, PBS reviewed certain publicly available
business and financial information relating to Cardinal and Area. PBS considered
certain financial and stock market data of Cardinal and Area, compared that data
with similar data for certain other publicly-held bank holding companies and
considered the financial terms of certain other comparable bank transactions in
the States of Kentucky, Indiana and Tennessee that had recently been effected.
PBS also considered such other information, financial studies, analyses and
investigations and financial,
28
<PAGE> 40
economic and market criteria that it deemed relevant. In connection with its
review, PBS did not independently verify the foregoing information and relied on
such information as being complete and accurate in all material respects.
Financial forecasts prepared by PBS were based on assumptions believed by PBS to
be reasonable and to reflect currently available information. PBS did not make
an independent evaluation or appraisal of the assets of Cardinal or Area.
As part of preparing the PBS Opinion, PBS performed a due diligence
review of Area. As part of the due diligence, PBS reviewed the following items:
minutes of the Board of Directors from January 16, 1996 through March 17, 1997;
reports filed with the SEC by Area on Forms 10-K, 8-K and 10-Q for the years
ended December 31, 1994, 1995 and 1996 and year-to-date 1997; reports of
independent auditors and management letters and response thereto, for the year
ended December 31, 1996; analysis and calculations of allowance for loan and
lease losses as of December 31, 1996; internal loan review reports; investment
portfolio activity reports; asset quality reports; Uniform Bank Holding Company
Report for Area as of December 31, 1996; discussion of pending litigation and
other issues with senior management of Area.
PBS reviewed and analyzed the historical performance of Cardinal and
its wholly owned subsidiaries contained in: audited Annual Reports and financial
statements dated December, 1994, 1995 and 1996 as well as unaudited March 31,
1997 financial statements of Cardinal; March 31, 1996, June 30, 1996, September
30, 1996 Forms 10-Q filed by Cardinal with the SEC; December 31, 1996
Consolidated Report of Condition and Income filed with the Federal Reserve by
Cardinal; December 31, 1996 Uniform Holding Company Performance Report of
Cardinal; historical common stock trading activity of Cardinal; and the premises
and other fixed assets. PBS reviewed and tabulated statistical data regarding
the loan portfolio, securities portfolio and other performance ratios and
statistics. Financial projections were prepared and analyzed as well as other
financial studies, analyses and investigations as deemed relevant for the
purposes of this PBS Opinion. In review of the aforementioned information, PBS
took into account its assessment of general market and financial conditions, its
experience in other similar transactions, and its knowledge of the banking
industry generally.
In connection with rendering the PBS Opinion and preparing its written
and oral presentation to Cardinal's Board of Directors, PBS performed a variety
of financial analyses, including those summarized herein. The summary does not
purport to be a complete description of the analyses performed by PBS in this
regard. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and therefore, such
an opinion is not readily susceptible to summary description. Accordingly,
notwithstanding the separate factors summarized below, PBS believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion. In performing its analyses, PBS made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond Cardinal's or Area's
control. The analyses performed by PBS are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the process by which
businesses actually may be sold.
Acquisition Comparison Analysis: In performing this analysis, PBS
reviewed all bank acquisition transactions in the States of Kentucky, Indiana
and Tennessee (the "Regional Area") since 1990. In addition, PBS reviewed
acquisitions of public exchange traded banks which like Cardinal
29
<PAGE> 41
had assets between $500 million and $2.0 billion throughout the United States
since 1994. There were 155 bank acquisition transactions in the Regional Area
announced since 1990 for which detailed financial information was available. The
purpose of the analysis was to obtain an evaluation range based on these
Regional Area and publicly traded bank acquisition transactions. Median
multiples of earnings and book value implied by the comparable transactions were
utilized in obtaining a range for the acquisition value of Cardinal. In addition
to reviewing recent Regional Area bank and publicly traded transactions, PBS
performed separate comparable analyses for acquisitions of banks which, like
Cardinal, were located in the State of Kentucky, had an equity-to-asset ratio
between 7.00% and 9.00%, and had a return on average assets ("ROAA") between
0.50% and 1.00%. In addition, median values for the 155 Regional Area
acquisitions expressed as multiples of both book value and earnings were 1.65
and 16.02, respectively. The median multiples of book value and earnings for
acquisitions of banks located in the State of Kentucky were 1.65 and 14.66,
respectively The median multiples of book value and earnings for acquisitions of
Regional Area banks with equity-to-asset ratios between 7.00% and 9.00% were
1.74 and 13.92, respectively. For acquisitions of Regional Area banks with a
ROAA between 0.50% and 1.00%, the median multiples were 1.69 and 16.61,
respectively. The median multiples of book value and earnings for acquisitions
of the 35 publicly traded banks with assets between $500 million and $2.0
billion were 2.13 and 16.66, respectively.
In the proposed transaction, Cardinal shareholders will receive 2.7391
shares of Area Common Stock for each share of Cardinal Common Stock outstanding.
In addition each Cardinal option outstanding will be converted into an option to
purchase 2.7391 shares of Area Common Stock at a strike price which is
determined by dividing the Cardinal option strike price by 2.7391 as further
defined in the Agreement. On April 23, 1997, Area Common Stock closed at $23.00
per share. Using this closing price of $23.00 per share of Area Common Stock,
the per share value to be received by Cardinal shareholders would equal $63.00
per share or an aggregate value of $109,998,930 which represents a multiple of
Cardinal's March 31, 1997 book value and a multiple of Cardinal's 1996 earnings
adjusted for non-recurring items of 2.15 and 34.36 respectively.
The market value of the proposed transaction's percentile ranking was
prepared and analyzed with respect to the above Regional Area and publicly
traded bank comparable groups. Compared to all Regional Area bank transactions,
the acquisition value ranked in the 84th percentile as a multiple of book value
and in the 71st percentile as a multiple of earnings. For bank transactions in
the State of Kentucky, the acquisition value ranked in the 88th percentile as a
multiple of book value and in the 81st percentile as a multiple of earnings.
Compared to Regional Area bank transactions where the acquired institution had
an equity-to-asset ratio between 7.00% and 9.00%, the acquisition value ranked
in the 79th percentile as a multiple of book value and the 83rd percentile as a
multiple of earnings. For Regional Area bank transactions where the acquired
institution had a ROAA between .50% and 1.00%, the acquisition value ranked in
the 92nd percentile as a multiple of book value and the 68th percentile as a
multiple of earnings. For acquisitions involving publicly traded banks with
assets between $500 million and $2.0 billion, the acquisition value ranked in
the 44th percentile as a multiple of book value and in the 80th percentile as a
multiple of earnings.
Adjusted Net Asset Value Analysis: PBS reviewed Cardinal's balance
sheet data to determine the amount of material adjustments required to the
stockholder's equity of Cardinal based on differences between the market value
of Cardinal's assets and their value reflected on Cardinal's financial
statements. PBS determined that three adjustments were warranted. Equity was
increased $4,404,000 to reflect the exercise of all Cardinal options and a
Director Stock Contract. PBS reflected a value of the non-interest bearing
demand deposits of approximately $12,500,000. PBS also made an adjustment to
reflect Cardinal's intangible assets of $5,233,000. The aggregate
30
<PAGE> 42
adjusted net asset value of Cardinal was determined to be $62,856,000 or $34.67
per Cardinal common share.
Discounted Earnings Analysis: A dividend discount analysis was
performed by PBS pursuant to which a range of stand-alone values of Cardinal was
determined by adding (i) the present value of estimated future dividend streams
that Cardinal could generate over a five-year period beginning in 1997 and
ending in 2001, and (ii) the present value of the "terminal value" of Cardinal's
earnings at the end of the year 2001. The "terminal value" of Cardinal's
earnings at the end of the five-year period was determined by applying a
multiple of 16.02 times the projected terminal year's earnings. The 16.02
multiple represents the median price paid as a multiple of earnings for all
Regional Area bank transactions since 1990.
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of Cardinal Common Stock. The
aggregate value of Cardinal, determined by adding the present value of the total
cash flows, was $100,588,000 or $55.48 per share. In addition, using the
five-year projection as a base, a twenty-year projection was prepared assuming
that an annual growth rate of 6.5% and a consistent return on assets of 1.25%
would remain in effect for the entire period, beginning in year twelve.
Dividends also were assumed to be 50% of income for all years. This long-term
projection resulted in an aggregate value of $91,031,000 or $50.21 per Cardinal
share.
Specific Acquisition Analysis: PBS valued Cardinal based on an
acquisition analysis assuming a "break-even" earnings scenario to an acquiror as
to price, current interest rates and amortization of the premium paid. Based on
this analysis, an acquiring institution would pay in aggregate $85,601,000, or
$47.22 per share assuming they were willing to accept no impact to their net
income in the initial year. This analysis was based on a funding cost of 7.5%
adjusted for taxes, amortization of the acquisition premium over 15 years and an
estimated 1997 earnings level adjusted for options for Cardinal of $6,238,000.
This analysis was repeated assuming a potential acquiror would attain
non-interest expense reductions of 10% in the transaction. Based on this
analysis an acquiring institution would pay in aggregate $97,816,000 or $53.95
per Cardinal share.
The PBS Opinion is directed only to the question of whether the
consideration to be received by Cardinal's shareholders under the Agreement is
fair and equitable from a financial perspective and does not constitute a
recommendation to any Cardinal shareholder to vote in favor of the Affiliation.
No limitations were imposed on PBS regarding the scope of its investigation or
otherwise by Cardinal or any of its affiliates.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by Cardinal shareholders under
the Agreement is fair and equitable from a financial perspective to the
shareholders of Cardinal.
PBS will receive a fee in the amount of $45,000 for all of its services
performed in connection with rendering the PBS Opinion. In addition, Cardinal
has agreed to indemnify PBS and its directors, officers and employees, from
liability in connection with the transaction, and to hold PBS harmless from any
losses, actions, claims, damages, expenses or liabilities related to any of PBS'
acts or decisions made in good faith and in the best interest of Cardinal.
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<PAGE> 43
EFFECTIVE TIME OF THE MERGER
Subject to the conditions to the obligations of the parties to effect
the Merger, the Effective Time will occur on the date and at the time specified
in the Articles of Merger filed by Area with the Kentucky Secretary of State. If
no effective date or time is specified, the Merger will become effective upon
the filing of the Articles of Merger. Unless otherwise agreed upon by Area and
Cardinal, and subject to the conditions to the obligations of the parties to
effect the Merger, the parties will use their reasonable efforts to cause the
Effective Time to occur by the fifth business day after the last of the
following events occurs: (i) the effective date (including the expiration of any
applicable waiting period) of the last federal or state regulatory approval
required for the Mergers; (ii) the date on which the amendment to the Area
Articles of Incorporation and Agreement are approved by the Area shareholders;
or (iii) the date on which the Agreement is approved by the requisite vote of
Cardinal shareholders.
No assurance can be provided that the necessary shareholder and
regulatory approvals can be obtained or that other conditions precedent to the
Merger can or will be satisfied. Area and Cardinal anticipate that all
conditions to consummation of the Merger will be satisfied so that the Merger
can be consummated in the fourth quarter of 1997. However, delays in the
consummation of the Merger could occur.
The Board of Directors of either Area or Cardinal generally may
terminate the Agreement if the Merger is not consummated by December 31, 1997,
unless the failure to consummate by that date is the result of a breach of the
Agreement by the party seeking termination. See "-- Conditions to Consummation
of the Merger" and "-- Waiver, Amendment, and Termination of the Agreement."
DISTRIBUTION OF STOCK CERTIFICATES AFTER THE MERGER
Promptly after the Effective Time Area will cause UMB Bank, acting in
the capacity of Exchange Agent, to mail to the former shareholders of Cardinal a
letter of transmittal, together with instructions for the exchange of such
shareholders' certificates representing shares of Cardinal Common Stock for
certificates representing shares of Area Common Stock.
CARDINAL SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE THE FORM LETTER OF TRANSMITTAL AND INSTRUCTIONS. Upon
surrender to the Exchange Agent of certificates for Cardinal Common Stock
together with a properly completed letter of transmittal, there will be issued
and mailed to each holder of Cardinal Common Stock surrendering such items a
certificate or certificates representing the number of shares of Area Common
Stock to which such holder is entitled as a result of the Merger. After the
Effective Time, to the extent permitted by law, holders of record of Cardinal
Common Stock as of the Effective Time will be entitled to vote at any meeting of
Area shareholders the number of shares of Area Common Stock into which their
Cardinal Common Stock has been converted, regardless of whether such
shareholders have surrendered their Cardinal stock certificates. NO DIVIDEND OR
OTHER DISTRIBUTION PAYABLE AFTER THE EFFECTIVE TIME WITH RESPECT TO AREA COMMON
STOCK, HOWEVER, WILL BE PAID TO THE HOLDER OF ANY UNSURRENDERED CARDINAL STOCK
CERTIFICATE UNTIL THE HOLDER DULY SURRENDERS SUCH CERTIFICATE. Upon such
surrender, all undelivered dividends and other distributions will be delivered
to such shareholder, in each case without interest.
After the Effective Time, there will be no transfers of shares of
Cardinal Common Stock on Cardinal's stock transfer books. If certificates
representing shares of Cardinal Common Stock are
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presented for transfer after the Effective Time, they will be canceled and
exchanged for the shares of Area Common Stock deliverable in respect thereof.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to a number of conditions,
including, but not limited to:
(a) approval from the Federal Reserve and the Kentucky Department
without any conditions or restrictions that would, in the reasonable judgment of
either party, so materially adversely impact the economic benefits of the
transactions contemplated by the Agreement as to render inadvisable the
consummation of the Merger, and the expiration of applicable waiting periods
under the BHC Act; the Agreement provides that the conditions related to the
following issues shall not be deemed to adversely impact the benefits of the
transactions contemplated by the Agreement: (i) the participation of Area, or
any of its directors, officers or affiliates, in the affairs of Security First
Network Bank, or any of Security First Network Bank's subsidiaries or
affiliates, and (ii) the participation of any of the directors or officers of
Cardinal and its subsidiaries in the affairs of Area or Cardinal and their
subsidiaries following the Merger.
(b) Approval by the holders of a majority of the shares of Cardinal
Common Stock entitled to vote on the Agreement;
(c) Approval by the holders of a majority of the shares of Area Common
Stock entitled to vote on the Agreement;
(d) The absence of any action by any court or governmental authority
restraining or prohibiting the Merger;
(e) The receipt of an opinion of counsel to the effect that, among other
things: (i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code; (ii) the exchange in the Merger of Cardinal Common
Stock for Area Common Stock will not give rise to gain or loss to Cardinal
shareholders, except to the extent of any cash received; and (iii) neither Area
nor Cardinal will recognize gain or loss as a consequence of the Merger (except
for deferred gain or loss recognized pursuant to Treasury Regulations issued
under Section 1502 of the Code);
(f) Approval for listing on the Nasdaq of the shares of Area Common
Stock to be issued in the Merger; and
(g) Receipt of a letter from KPMG Peat Marwick LLP, dated as of the
Effective Time, confirming that the Merger will qualify for pooling-of-interests
accounting treatment.
Consummation of the Merger also is subject to the satisfaction or waiver
of various other conditions specified in the Agreement, including, among others:
(i) the delivery by Area and Cardinal of certificates executed by their
respective Chief Executive Officers and Chief Financial Officers as to
compliance with the Agreement; and (ii) as of the Effective Time, the accuracy
of certain representations and warranties and the compliance in all material
respects with the agreements and covenants of each party.
Finally, consummation of the Merger is subject to approval by the Area
shareholders of an amendment to Area's Articles of Incorporation increasing the
number of authorized shares of Area
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Common Stock from 16,000,000 to 50,000,000. Following shareholder approval of
such matter at the Area Meeting, and effective prior to the consummation of the
Merger, Area will amend its Articles of Incorporation to authorize the requisite
number of shares of common stock. If the proposal to authorize the additional
shares of Area Common Stock is not approved, the Articles of Incorporation
cannot be amended and the Merger will not be consummated.
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not effected on or before
December 31, 1997, the Agreement may be terminated and the Merger abandoned by a
vote of a majority of the Board of Directors of either Area or Cardinal. See "--
Waiver, Amendment, and Termination of the Agreement."
REGULATORY APPROVALS
The Merger may not proceed in the absence of receipt of the requisite
regulatory approvals. There can be no assurance that such regulatory approvals
will be obtained or as to the timing of such approvals. There also can be no
assurance that such approvals will not be accompanied by a conditional
requirement which causes such approvals to fail to satisfy the conditions set
forth in the Agreement. Applications for the approvals described below have been
submitted to the appropriate regulatory agencies.
Area and Cardinal are not aware of any material governmental approvals
or actions that are required for consummation of the Merger, except as described
below. Should any other approval or action be required, it presently is
contemplated that such approval or action would be sought.
The Merger requires the prior approval of the Federal Reserve, pursuant
to Section 3 of the BHC Act. In granting its approval under Section 3 of the BHC
Act, the Federal Reserve must take into consideration, among other factors, the
financial and managerial resources and future prospects of the institutions and
whether the Merger can reasonably be expected to produce benefits to the public,
such as greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound banking
practices. Under the BHC Act, the Merger may not be consummated until the 30th
day following the date of Federal Reserve approval, which may be shortened by
the Federal Reserve to the 15th day, during which time the United States
Department of Justice may challenge the transaction on antitrust grounds. The
commencement of any antitrust action would stay the effectiveness of the Federal
Reserve's approval, unless a court specifically orders otherwise.
The Merger also is subject to the approval of the Kentucky Department.
In its evaluation, the Kentucky Department will take into account considerations
similar to those applied by the Federal Reserve.
WAIVER, AMENDMENT, AND TERMINATION OF THE AGREEMENT
Prior to the Effective Time, and to the extent permitted by law, any
provision of the Agreement generally may be (i) waived by the party benefitted
by the provision or (ii) amended by a written agreement between Area and
Cardinal approved by their respective Boards of Directors; provided, however,
that after approval by the Area shareholders and the Cardinal shareholders, no
amendment that would require further approval by such shareholders under the
Kentucky Act may be made without the approval of such shareholders.
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The Agreement may be terminated, and the Merger abandoned, at any time
prior to the Effective Time, either before or after approval by the Area
shareholders and the Cardinal shareholders, under certain circumstances,
including:
(a) By mutual agreement of the Boards of Directors of Area and
Cardinal;
(b) By the Board of Directors of either party, in the event of the
other party's breach or failure to comply with any provision of the Agreement
which meets certain standards specified in the Agreement;
(c) By the Board of Directors of either party, upon final nonappealable
denial of any required regulatory approval;
(d) By the Board of Directors of either party, if the shareholders of
Area have not approved (a) the Amendment to the Articles of Incorporation to
increase the number of authorized shares to 50,000,000 or (b) the Agreement in
accordance with the Kentucky Act;
(e) By the Board of Directors of either party, if the shareholders of
Cardinal have not approved the Agreement in accordance with the provisions of
the Kentucky Act;
(f) By the Board of Directors of either party, if the Merger shall not
have been consummated by December 31, 1997, but only if the failure to
consummate the Merger by such date has not been caused by the terminating
party's breach of the Agreement; or
(g) By the Board of Directors of Cardinal, in connection with entering
into a competing definitive agreement in accordance with the terms of the
Agreement and upon payment of the Termination Fee specified in the Agreement.
If the Agreement is terminated as described above, the Agreement will
become void and have no effect, except that certain provisions of the Agreement,
including those related to the obligations to share expenses, maintain
confidentiality of certain information obtained and return all documents
obtained from the other party under the Agreement will survive. See "--Expenses
and Fees" for additional information concerning the payment of expenses.
CONDUCT OF BUSINESS PENDING THE MERGER
Each of Area and Cardinal generally has agreed, unless the prior
consent of the other party is obtained, and except as otherwise contemplated by
the Agreement, to operate its business only in the ordinary course, preserve
intact its business organization and assets, maintain its rights and franchises,
and take no action that would affect, adversely and materially, the ability of
either party to perform its covenants and agreements under the Agreement or that
would adversely affect either party's ability to obtain any consent or approval
required for the consummation of the transactions contemplated by the Agreement.
In addition, the Agreement contains certain other restrictions applicable to the
conduct of the business of both Area and Cardinal prior to consummation of the
Merger, as described below.
Each party has agreed not to take certain actions relating to the
operation of its business pending consummation of the Merger without the prior
approval of the other party. Those actions generally include, without
limitation: (i) amending its Articles of Incorporation or Bylaws; (ii) becoming
responsible for any obligation for borrowed money in excess of an aggregate of
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$100,000 (except in the ordinary course of business consistent with past
practices); (iii) acquiring or exchanging any shares of its capital stock or
paying any dividend or other distribution in respect of its capital stock,
except that Area is permitted to declare and pay a quarterly cash dividend of up
to $.04 per share on the shares of Area Common Stock and Cardinal is permitted
to declare and pay a quarterly cash dividend of up to $.20 per share on the
shares of Cardinal Common Stock, it being the parties' intent that Cardinal
shareholders will receive an amount equal to their regular quarterly dividends
as to any quarter which is at least half competed prior to the Effective Time;
(iv) issuing or selling any additional shares of its capital stock, any rights
to acquire any such stock, or any security convertible into such stock (except
as set forth in the Agreement, as previously disclosed to the other party, or
pursuant to the exercise of outstanding stock options); (v) adjusting or
reclassifying any of its capital stock, disposing of or encumbering any shares
of capital stock of any subsidiary (excluding inter-company transfers) or
disposing of or encumbering any asset with a book value of $50,000 or more other
than in the ordinary course of business; (vi) except for purchases of U.S.
Treasury Securities, U.S. Government agency securities or mortgage-backed
securities of maturity or grade consistent with past practices, purchase any
securities or make any material investment in any person, other than a
wholly-owned subsidiary, other than in connection with foreclosures in the
ordinary course of business or acquisition of control by a depository
institution subsidiary in its fiduciary capacity; (vii) granting any increase in
compensation or benefits to employees or officers (except in accordance with
past practice or prior obligation, in each case as previously disclosed to the
other party or as required by law), paying any bonus (except as previously
disclosed or in accordance with any existing program or plan), entering into or
amending any severance agreements with officers, or granting any increase in
compensation or other benefits to directors of Area or Cardinal or any of their
subsidiaries; (viii) entering into or amending any employment contract that it
does not have the unconditional right to terminate without liability other than
for services already rendered; (ix) adopting any new employee benefit plan or
program, or materially changing any existing plan or program except for any
change required by law or advisable to maintain the tax qualified status of any
such plan; (x) making any significant change in any tax or accounting methods or
systems of internal accounting controls (except in conformity to changes in tax
laws, regulatory accounting requirements or generally accepted accounting
principles ("GAAP")); (xi) settling any litigation involving liability of the
Area or Cardinal or any of their subsidiaries for damages in excess of $50,000
or material restrictions upon its operations; or (xii) modifying or terminating
any material contract except in the ordinary course of business.
In addition, each party has agreed not to solicit, directly or
indirectly, any acquisition proposal from any other person or entity. Each party
also has agreed not to negotiate with respect to any such proposal, provide
nonpublic information to any party making such a proposal, or enter into any
agreement with respect to any such proposal, except in compliance with the
fiduciary obligations of its Board of Directors. In addition, each party has
agreed to use reasonable efforts to cause its advisors and other representatives
not to engage in any of the foregoing activities.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Consummation of the Merger will not alter the present management team
or the Board of Directors of Area. Information concerning the management of Area
is included in the documents incorporated herein by reference. See "Available
Information" and "Documents Incorporated by Reference." Upon consummation of the
Merger, Area and Cardinal will continue to operate their businesses and to serve
the communities and customers of their respective market areas.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Agreement provides that Area will indemnify the present and former
directors, officers, employees and agents of Cardinal and the subsidiaries of
Cardinal against all liabilities arising out of actions or omissions at or prior
to the Effective Time to the full extent permitted under Kentucky law and by
Cardinal's Articles of Incorporation or Bylaws, as currently in effect,
including provisions relating to advances of expenses incurred in the defense of
any litigation. In any case in which approval by Area is required to effect any
indemnification, at the election of the indemnified party, the determination of
any such approval will be made by independent counsel mutually agreed upon
between Area and the indemnified party.
The Agreement also provides that, after the Effective Time, Area will
provide generally to officers and employees of Cardinal and its subsidiaries who
become officers or employees of Area or its subsidiaries following the Effective
Time, employee benefits under employee benefit plans on terms and conditions
that, taken as a whole, are substantially similar to those currently provided by
Area and its subsidiaries to their similarly situated officers and employees.
For purposes of participation and vesting under such employee benefit plans (but
not accrual of benefits), service with Cardinal or its subsidiaries prior to the
Effective Time will be treated as service with Area or its subsidiaries. The
Agreement further provides that Area will honor all employment, severance,
consulting, and other compensation contracts previously disclosed to Area
between Cardinal or its subsidiaries and any current or former director,
officer, or employee, and all provisions for vested amounts earned or accrued
through the Effective Time under Cardinal's benefit plans.
As described above under "-- Effect of Merger on Stock Rights," the
Agreement also provides that all rights with respect to Cardinal Common Stock
pursuant to stock options granted by Cardinal under its stock option plans or
agreements that are outstanding at the Effective Time, whether or not then
exercisable, will be converted into and will become rights with respect to Area
Common Stock, and Area will assume each of such options in accordance with its
terms.
As of the Record Date, Area's directors and executive officers
beneficially owned approximately [46.3]% of the outstanding shares of Area
Common Stock and approximately _____% of the outstanding shares of Cardinal
Common Stock. Upon consummation of the Merger, this group will beneficially own
approximately _____% of the outstanding shares of Area Common Stock.
DISSENTERS' RIGHTS
In accordance with the applicable provisions of the Kentucky Act, the
holders of shares of Cardinal Common Stock and Area Common Stock are entitled to
dissent from the Merger and to receive an appraised value of such shares in
cash. Subject to the resale restrictions applicable to executive officers,
directors and other controlling shareholders described under "-- Resales of Area
Common Stock", holders of Cardinal Common Stock may also sell the shares of Area
Common Stock they receive in the Merger on the Nasdaq.
The following discussion applies to the shareholders of both Area and
Cardinal.
Pursuant to the provisions of Subtitle 13 of the Kentucky Act, if the
Merger is consummated, any shareholder who (i) gives to Cardinal, in the case of
a Cardinal shareholder, or Area, in the case of an Area shareholder, prior to
the vote at the meeting with respect to the approval of the Agreement, written
notice of such holder's intent to demand payment for such holder's shares and
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(ii) does not vote in favor thereof, shall be entitled to receive, upon
compliance with the statutory requirements summarized below, the fair value of
such holder's shares as of the Effective Time.
A record shareholder may assert dissenters' rights as to fewer than all
of the shares registered in such holder's name only if such holder dissents with
respect to all shares beneficially owned by any one beneficial shareholder and
such holder notifies the corporation in writing of the name and address of each
person on whose behalf such holder asserts dissenters' rights. The rights of
such a partial dissenter are determined as if the shares as to which such holder
dissents and such holder's other shares were registered in the names of
different shareholders.
The written objection requirement referred to above will not be
satisfied under the Kentucky Act by merely voting against approval of the
Agreement by proxy or in person at the Special Shareholders' Meeting. Any
shareholder who returns a signed proxy but fails to provide instructions as to
the manner in which such shares are to be voted will be deemed to have voted in
favor of the Agreement and will not be entitled to assert dissenters' rights. In
addition to not voting in favor of the Agreement, a shareholder wishing to
preserve the right to dissent and seek appraisal must give a separate written
notice of such holder's intent to demand payment for such holder's shares if the
Merger is effected, as hereinabove provided.
Any written objection to the Agreement satisfying the requirements
discussed above should be addressed as follows: for Area shareholders to Area
Bancshares Corporation, 230 Frederica Street, Owensboro, Kentucky 42301,
Attention: President; for Cardinal shareholders, to Cardinal Bancshares, Inc.
400 East Vine Street, Suite 300, Lexington, Kentucky 40507, Attention:
President.
If the Merger is authorized at the Special Shareholders' Meeting, Area
and Cardinal must deliver a written dissenters' notice (the "Dissenters'
Notice") to all of their respective shareholders who satisfy the foregoing
requirements. The Dissenters' Notice must be sent within 10 days after the
Agreement was approved and must (i) state where the demand for payment must be
sent and where and when certificates for the shares must be deposited, (ii)
inform holders of uncertificated shares to what extent transfer of these shares
will be restricted after the demand for payment is received, (iii) supply a form
for demanding payment that includes the date of the first announcement to news
media or to shareholders of the terms of the proposed corporate action and
requires that the person asserting dissenter's rights certify whether or nor he
or she acquired beneficial ownership of the shares before that date, (iv) set a
date by which the corporation must receive the demand for payment (which date
may not be fewer than 30 nor more than 60 days after the Dissenters' Notice is
delivered), and (iv) be accompanied by a copy of Subtitle 13 of the Kentucky
Act.
A record shareholder who receives the Dissenters' Notice must demand
payment and deposit such holder's certificates in accordance with the
Dissenters' Notice. Such shareholder will retain all other rights of a
shareholder until those rights are canceled or modified by the consummation of
the Merger. A record shareholder who does not demand payment or deposit such
holder's share certificates where required, each by the date set in the
Dissenters' Notice, is not entitled to payment for such holder's shares under
Subtitle 13 of the Kentucky Act.
Except as described below, the corporation must, upon the Effective
Time or receipt of a payment demand, offer to pay to each dissenting shareholder
who complies with the payment demand and deposit requirements described above
the amount that the corporation estimates to be the fair value of such holder's
shares, plus accrued interest from the Effective Time. Such offer of payment
must be accompanied by (i) certain recent financial statements of the
corporation, (ii) an estimate of the fair value of the shares by the
corporation, (iii) an explanation of how the interest was calculated,
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and (iv) a statement of the dissenter's right to demand payment under Section
271B.13-280 of the Kentucky Act.
If the Merger is not effected within 60 days after the date set forth
for demanding payment and depositing share certificates, the corporation must
return the deposited certificates and release the transfer restrictions imposed
on uncertificated shares. If, after such return and release, the Merger is
effected, then the corporation must send a new Dissenters' Notice and repeat the
payment demand procedure described above.
Section 271B.13-280 of the Kentucky Act provides that a dissenting
shareholder may notify the corporation in writing of such holder's own estimate
of the fair value of such holder's shares and the interest due, and may demand
payment of such holder's estimate, if (i) such holder believes that the amount
offered by the corporation is less than the fair value of such holder's shares
or that the interest due has been calculated incorrectly, (ii) the corporation
failed to make payment within 60 days after the date set for demanding payment,
or (iii) the corporation, having failed to effect the Merger, does not return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within 60 days after the date set for demanding payment. A
dissenting shareholder waives such holder's right to demand payment under
Section 271B.13-280 unless such holder notifies the corporation of such holder's
demand in writing within 30 days after the corporation makes or offers payment
for such holder's shares.
If a demand for payment under Section 271B.13-280 remains unsettled,
the corporation must commence a proceeding in the circuit court where the
corporation's principal office is located within 60 days after receiving the
payment demand and must petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within those 60 days, it is required to pay each dissenting shareholder whose
demand remains unsettled the amount demanded. The corporation is required to
make all dissenting shareholders whose demands remain unsettled parties to the
proceeding and to serve a copy of the petition upon each dissenting shareholder.
The court may appoint one or more appraisers to receive evidence and to
recommend a decision on fair value. Each dissenting shareholder made a party to
the proceeding is entitled to judgment for the fair value of such holder's
shares plus interest to the date of judgment.
The court in an appraisal proceeding commenced under the foregoing
provision will determine the costs of the proceeding, including reasonable
compensation and expenses of appraisers appointed by the court, excluding fees
and expenses of attorneys and experts for the respective parties, and will
assess those costs against the corporation, except that the court may assess the
costs against all or some of the dissenting shareholders, in the amounts the
court finds equitable, to the extent the court finds they acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Section
271B.13-280. The court also may assess the fees and expenses of attorneys and
experts for the respective parties against the corporation if the court finds
the corporation did not substantially comply with the requirements of specified
provisions of Subtitle 13 of the Kentucky Act, or against either the corporation
or a dissenting shareholder if the court finds that such party acted
arbitrarily, vexatiously, or not in good faith with respect to the rights
provided by Subtitle 13 of the Kentucky Act.
If the court finds that the services of attorneys for any dissenting
shareholder were of substantial benefit to other dissenting shareholders
similarly situated, and that the fees for those services should be not assessed
against the corporation, the court may award those attorneys reasonable fees out
of the amounts awarded the dissenting shareholders who were benefited. No action
by any dissenting shareholder to enforce dissenters' rights may be brought more
than three
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years after the Effective Time, regardless of whether notice of the Merger and
of the right to dissent was given by Cardinal or Area in compliance with the
Dissenters' Notice and payment offer requirements.
The foregoing is a summary of the material rights of a dissenting
shareholder, but is qualified in its entirety by reference to Subtitle 13 of the
Kentucky Act, included as Appendix B to this Joint Proxy Statement/Prospectus.
Any shareholder who intends to dissent from approval of the Agreement should
carefully review the text of such provisions and should also consult with such
holder's attorney. No further notice of the events giving rise to dissenters'
rights or any steps associated therewith will be furnished to shareholders,
except as indicated above or otherwise required by law.
Any dissenting shareholder who perfects such holder's right to be paid
the value of such holder's shares will recognize taxable gain or loss upon
receipt of cash for such shares for federal income tax purposes. See "Certain
Federal Income Tax Consequences of the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FOLLOWING IS A SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THIS SUMMARY IS BASED ON THE FEDERAL INCOME TAX LAWS
NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES NOT TAKE INTO ACCOUNT
POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS, INCLUDING AMENDMENTS TO
APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN JUDICIAL OR ADMINISTRATIVE
RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT. THIS SUMMARY DOES NOT
PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. IN PARTICULAR,
AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES NOT ADDRESS THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES OR STATUS (FOR EXAMPLE, AS FOREIGN PERSONS, TAX-EXEMPT
ENTITIES, DEALERS IN SECURITIES, INSURANCE COMPANIES, OR CORPORATIONS, AMONG
OTHERS OR WITH RESPECT TO SHAREHOLDERS WHO ACQUIRED THEIR SHARES OF CARDINAL
COMMON STOCK PURSUANT TO THE EXERCISE OF CARDINAL OPTIONS OR OTHERWISE AS
COMPENSATION). NOR DOES THIS SUMMARY ADDRESS ANY CONSEQUENCES OF THE MERGER
UNDER ANY STATE, LOCAL, ESTATE, OR FOREIGN TAX LAWS. SHAREHOLDERS, THEREFORE,
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICATION AND EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL, AND OTHER TAX LAWS,
AND THE IMPLICATIONS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service. Instead, Powell, Goldstein, Frazer
& Murphy LLP, counsel to Area, has rendered an opinion to Area and Cardinal
concerning certain federal income tax consequences of the proposed Merger under
federal income tax law. It is such firm's opinion that:
(a) Provided the Merger qualifies as a statutory merger under the
Kentucky Act, the Merger will be a reorganization within the meaning of Section
368(a) of the Code.
(b) The shareholders of Cardinal will recognize no gain or loss upon
the exchange of their Cardinal Common Stock solely for shares of Area Common
Stock. Each Cardinal shareholder's basis in the Area Common Stock received in
the exchange will be equal to such shareholder's basis in the Cardinal Common
Stock surrendered in exchange for Area Common Stock in the Merger. Each Cardinal
shareholder's holding period for the Area Common Stock (for purposes of
determining whether gain or loss on a subsequent sale of such stock in long-term
or
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short-term gain for loss) will include the period that such shareholder held his
or her Cardinal Common Stock surrendered to exchange for Area Common Stock in
the Merger, provided that the Cardinal Common Stock was a capital asset in the
hands of such shareholder.
(c) The payment of cash in lieu of fractional shares of Area Common
Stock will be treated as if the fractional shares were issued as part of the
exchange and then redeemed by Area. These cash payments will be treated as
having been received as distributions in full payment in exchange for the
fractional shares of Area Common Stock redeemed as provided under Section 302 of
the Code. Generally, any gain or loss recognized will be capital gain or loss,
provided the fractional share constitutes a capital asset in the hands of the
exchanging shareholder and the requirements of Section 302(b)(1) are met.
Cardinal shareholders receiving cash in lieu of fractional shares should consult
their own tax advisors as to the tax treatment in their particular circumstances
(i.e., exchange treatment or dividend).
(d) Shareholders who dissent from the Merger will be treated as having
received such payment as a distribution in redemption of their shares of stock.
Generally, any gain or loss recognized will be capital gain or loss, provided
the Cardinal Common Stock constitutes a capital asset in the hands of the
exchanging shareholder and the requirements of Section 302(b)(1), (2) or (3) are
met. Shareholders electing to exercise dissenters' rights should consult their
own tax advisers as to the tax treatment in their particular circumstances
(i.e., exchange treatment or dividend).
(e) No income, gain or loss will be recognized for federal income tax
purposes by Area or Cardinal as a consequence of the Merger.
Among other things, the opinion of Powell, Goldstein, Frazer & Murphy
LLP is based on Cardinal shareholders maintaining sufficient equity ownership
interest in Area after the Merger. The Internal Revenue Service takes the
position for purposes of issuing an advance ruling on reorganizations, that the
shareholders of an acquired corporation (i.e., Cardinal) must maintain a
continuing equity ownership interest in the acquiring corporation (i.e., Area)
equal, in terms of value, to at least 50% of their interest in the acquired
corporation. In addition to the foregoing requirements, certain additional
matters must be true with respect to the Merger. Area believes that these
additional factual matters will be satisfied.
THE TAX OPINION DOES NOT ADDRESS ANY STATE, LOCAL, OR OTHER TAX
CONSEQUENCES OF THE MERGER. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO THEM
INDIVIDUALLY, INCLUDING TAX CONSEQUENCES UNDER STATE OR LOCAL LAW.
ACCOUNTING TREATMENT
It is the intention of the parties that the Merger be treated for
financial reporting purposes as a pooling-of-interests. Under the
pooling-of-interests method of accounting, the recorded amounts of the assets
and liabilities of Cardinal will be carried forward and recorded on the
financial statements of Area at their previously recorded amounts.
The Agreement provides that Area and Cardinal will receive a letter
from KPMG Peat Marwick LLP, dated as of the Effective Time, stating that the
Merger will qualify for pooling-of-interests for financial reporting purposes.
If the Merger does not qualify for pooling-of-interests accounting treatment, it
will be abandoned. Neither Area's management nor Cardinal's management
41
<PAGE> 53
currently has any reason to believe that the Merger will not qualify for
pooling-of-interests accounting treatment.
For information concerning certain conditions to be imposed on the
exchange of Cardinal Common Stock for Area Common Stock in the Merger by
affiliates of Cardinal and certain restrictions to be imposed on the
transferability of the Area Common Stock received by those affiliates in the
Merger in order, among other things, to ensure the availability of
pooling-of-interests accounting treatment, see "-- Resales of Area Common
Stock."
EXPENSES AND FEES
The Agreement provides, in general, that each of the parties will bear
and pay its own expenses in connection with the transactions contemplated by the
Agreement, including fees and expenses of its own financial or other
consultants, investment bankers, accountants, and counsel, except that Cardinal
and Area will each bear and pay one-half of the filing fees and printing costs
associated with the Registration Statement and this Joint Proxy
Statement/Prospectus and one-half of the filing fees associated with any
regulatory application.
Additionally, the Agreement provides that Cardinal will pay (or cause
to be paid) to Area the sum of $7 million if (i) the Agreement is terminated by
Cardinal in connection with entering into a definitive agreement as a result of
an acquisition proposal from another party; or (ii) prior to the termination of
the Agreement, solely as a result of Cardinal Shareholders having not approved
the Merger by the requisite vote, a bona fide publicly disclosed acquisition
proposal from a third party is made and not withdrawn prior to the meeting of
Cardinal shareholders and within 18 months after termination of the Agreement,
Cardinal consummates the transaction that was the subject of the acquisition
proposal for consideration to Cardinal shareholders of at least equal to $63 per
share.
RESALES OF AREA COMMON STOCK
The shares of Area Common Stock to be issued to Cardinal shareholders
in the Merger have been registered under the Securities Act, but that
registration does not cover resales of those shares by persons who control, are
controlled by, or are under common control with, Cardinal (such persons are
referred to hereinafter as "affiliates" and generally include executive
officers, directors and other controlling shareholders) at the time of the
Cardinal Meeting. Affiliates may not sell shares of Area Common Stock acquired
in connection with the Merger, except pursuant to an effective registration
statement under the Securities Act or in compliance with SEC Rule 145 or another
applicable exemption from the Securities Act registration requirements and until
such time as financial results covering at least 30 days of combined operations
of Area and Cardinal after the consummation of the Merger have been published.
In addition, affiliates of Area may not sell their shares of Area Common Stock
until such time as financial results covering at least 30 days of combined
operations of Area and Cardinal after consummation of the Merger have been
published.
Each person who Cardinal reasonably believes to be an affiliate of
Cardinal has delivered to Area a written agreement providing that such person
generally will not sell, pledge, transfer, or otherwise dispose of any Area
Common Stock to be received by such person upon consummation of the Merger,
except in compliance with the Securities Act, the rules and regulations of the
SEC promulgated thereunder and applicable restrictions regarding
pooling-of-interests accounting treatment. Additionally, each person who Area
reasonably believes to be an affiliate has delivered to Area a written agreement
providing that such person generally will not sell, pledge, transfer or
42
<PAGE> 54
otherwise dispose of any Area Common Stock except in compliance with the
applicable restrictions regarding pooling-of-interests accounting treatment.
COMPARATIVE MARKET PRICES AND DIVIDENDS
MARKET PRICES
Area Common Stock is quoted on the Nasdaq under the symbol "AREA".
Cardinal Common Stock is quoted on the Nasdaq under the symbol "CARD". The
following table sets forth, for the indicated periods, the high and low last
sale prices for Area Common Stock and Cardinal Common Stock as reported on the
Nasdaq and the cash dividends declared per share of Area Common Stock and
Cardinal Common Stock for the indicated periods.
<TABLE>
<CAPTION>
AREA CARDINAL
------------------------------------------ -------------------------------------------
CASH CASH
PRICE RANGE DIVIDENDS PRICE RANGE (1) DIVIDENDS
------------------------------ DECLARED ------------------------------- DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter................... $17.33 $14.67 $ .02 $ 36.50 $29.00 $.20
Second Quarter.................. 16.67 16.33 .02 31.00 27.00 .20
Third Quarter................... 18.17 16.00 .02 31.00 27.00 .20
Fourth Quarter.................. 18.00 16.17 .02 32.00 28.00 .20
1995
First Quarter................... $16.33 $15.33 $ .02 $ 35.00 $26.75 $.20
Second Quarter.................. 16.33 15.33 .023 41.50 34.50 .20
Third Quarter................... 16.00 15.33 .023 45.50 38.50 .20
Fourth Quarter.................. 15.33 14.67 .023 71.25 44.00 .20
1996
First Quarter................... $16.83 $15.50 $.023 $ 70.00 $52.50 $.20
Second Quarter.................. 18.33 15.67 .027 105.50 38.00 .20
Third Quarter................... 18.33 17.00 .027 42.00 39.00 .20
Fourth Quarter.................. 21.00 17.00 .03 46.00 40.00 .20
1997
First Quarter................... $23.50 $20.50 $ .03 $ 49.25 $44.00 $.20
Second Quarter through
_______________, 1997.....
</TABLE>
(1) On May 23, 1996, Cardinal effected the spin-off of SFNB. No adjustment to
Cardinal stock prices have been reflected.
On __________________, 1997, the last reported sales price of Area
Common Stock and Cardinal Common Stock as reported on the Nasdaq system was
______ and ______, respectively. On April 30, 1997, the last business day prior
to public announcement of the proposed Merger, the last sale prices of Area
Common Stock and Cardinal Common Stock as reported on the Nasdaq were $22.00 and
$47.50, respectively.
The holders of Area Common Stock are entitled to receive dividends when
declared by the Board of Directors out of funds legally available therefor. Area
has paid regular quarterly cash dividends since 1987. Although Area currently
intends to continue to pay quarterly cash dividends on the Area Common Stock,
there can be no assurance that Area's dividends policy will remain unchanged
after completion of the Merger. The declaration and payment of dividends
thereafter will
43
<PAGE> 55
depend upon business conditions, operating results, capital and reserve
requirements, and the Board of Directors' consideration of other relevant
factors. For information with respect to provisions limiting dividends payable
by Area and Cardinal while the Merger is pending see "Description of Merger --
Conduct of the Business Pending the Merger."
Area and Cardinal are legal entities separate and distinct from their
respective subsidiaries and their respective revenues depend in significant part
on the payment of dividends from their respective subsidiary depository
institutions. Such subsidiary depository institutions are subject to certain
legal restrictions on the amount of dividends they are permitted to pay. See
"Certain Regulatory Considerations -- Payment of Dividends."
SHAREHOLDERS OF RECORD
As of the Record Date, there were [600] holders of record of Area Common
Stock and [___] holders of record of Cardinal Common Stock.
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEETS
The following unaudited pro forma combined condensed balance sheets
present the historical consolidated balance sheets of Area and Cardinal at March
31, 1997. The unaudited pro forma combined condensed balance sheets should be
read in conjunction with the historical consolidated financial statements of
Area and Cardinal, including the respective notes thereto, which are
incorporated by reference in this Joint Proxy Statement/Prospectus, and the
unaudited pro forma financial information appearing elsewhere in this Joint
Proxy Statement/Prospectus. The pro forma combined condensed balance sheets are
not necessarily indicative of the combined condensed financial position that
actually would have occurred if the Merger had been consummated at the date
indicated or which may be obtained in the future.
44
<PAGE> 56
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINING AREA AND CARDINAL
AREA CARDINAL ADJUSTMENTS PRO FORMA COMBINED
---- -------- ----------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 52,736 $ 20,886 $ 73,622
Interest bearing deposits with banks 4,215 1,706 5,921
Federal funds sold - 16,015 16,015
Trading account securities 50,863 - 50,863
Investment securities:
Available for sale 211,265 105,218 (3,668) (1) 312,815
Held to maturity 95,916 - - 95,916
------------- ------------ ------------- ------------
TOTAL INVESTMENT SECURITIES 307,181 105,218 (3,668) (1) 408,731
------------- ------------ ------------- ------------
Mortgage loans held for sale 8,258 - 8,258
Loans, net of unearned discount 674,087 472,877 1,146,964
Less allowance for loan losses 12,421 6,624 19,045
------------- ------------ ------------
NET LOANS 661,666 466,253 1,127,919
------------- ------------ ------------
Premises and equipment, net 21,844 7,798 29,642
Accrued interest receivable and
other assets 27,761 8,240 36,001
Intangible assets 11,852 5,233 17,085
------------- ------------ ------------- ------------
TOTAL ASSETS $ 1,146,376 $ 631,349 (3,668) (1) $ 1,774,057
============= ============ ============= ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Non-interest-bearing deposits $ 159,838 $ 45,690 $ 205,528
Interest-bearing deposits 675,826 503,087 1,178,913
------------- ------------ ------------
TOTAL DEPOSITS 835,664 548,777 1,384,441
------------- ------------ ------------
Federal funds purchased 40,662 - 40,662
Securities sold under agreements
to repurchase 81,125 7,070 88,195
Notes payable to the U.S. Treasury 19,096 - 19,096
Advances from the Federal Home
Loan Bank 30,841 17,010 47,851
Other borrowings 4,421 628 5,049
Accrued expenses and other
liabilities 9,815 6,679 (185) (1) 16,309
------------- ------------ ------------- ------------
TOTAL LIABILITIES 1,021,624 580,164 (185) (1) 1,601,603
------------- ------------ ------------- ------------
</TABLE>
45
<PAGE> 57
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMBINING AREA AND CARDINAL
AREA CARDINAL ADJUSTMENTS PRO FORMA COMBINED
---- -------- ----------- ------------------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Preferred stock - - -
Common stock $ 17,682 $ 34,778 (28,303)(1) $ 24,157
Paid-in capital 10,000 - 25,164 (1) 35,164
Retained earnings 94,808 16,883 111,691
Deferred compensation on restricted
stock (448) - (448)
ESOP and MRP loan obligations (628) (628)
Net unrealized gains on securities
available for sale, net of tax 2,710 152 (344)(1) 2,518
---------- -------- -------- ----------
TOTAL SHAREHOLDERS' EQUITY 124,752 51,185 (3,483)(1) 172,454
Commitments and continent
liabilities
TOTAL LIABILITIES AND ---------- -------- -------- ----------
SHAREHOLDERS' EQUITY $1,146,376 $631,349 (3,668)(1) $1,774,057
========== ======== ======== ==========
</TABLE>
(1) To reflect the issuance of 4,150,578 shares of Area common stock to
effect the Merger. The Merger will be accounted for as a
pooling-of-interests, therefore the effect upon shareholders' equity
will be to increase Area's shareholders' equity by the total equity of
Cardinal, reduced by $3,668,000 which represents the Market Value of
78,450 shares of Cardinal Common Stock owned by Area. The unaudited
proforma financial statements have been prepared assuming Area will
issue 4,150,578 shares of Area Common Stock in exchange for all the
outstanding shares of Cardinal Common Stock. A reclassification from
common stock to paid-in-capital results from the issuance of the
shares.
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
The following unaudited pro forma combined condensed statements of
income have been prepared for the three-month periods ended March 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1996, and
give effect to the Merger, assuming such acquisition is accounted for as a
pooling-of-interests. The unaudited pro forma combined condensed statements of
income should be read in conjunction with the historical consolidated financial
statements of Area and Cardinal, including the respective notes thereto, which
are incorporated by reference in this Joint Proxy Statement/Prospectus and the
unaudited consolidated historical and other pro forma financial information,
including the notes thereto, appearing elsewhere in this Joint Proxy
Statement/Prospectus. The pro forma combined condensed statements of income are
not necessarily indicative of the results that actually would have occurred if
the Merger had been consummated on the dates indicated or which may be obtained
in the future.
46
<PAGE> 58
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combining Area and Cardinal
Area Cardinal Entries Pro forma Combined
---- -------- ------- ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $15,804 $10,973 $26,777
Interest bearing deposits with banks 57 18 75
Federal funds sold and securities purchased under
agreements to resell 35 255 290
Interest and dividends on investment securities:
U.S. Treasury securities and Federal agencies securities 2,909 1609 4,518
Obligations of states and political subdivisions 1,393 51 1,444
Other 350 - 350
------- ------- ------ -------
TOTAL INTEREST INCOME 20,548 12,906 - 33,454
------- ------- ------ -------
INTEREST EXPENSE:
Interest on deposits 7,483 5,578 13,061
Interest on borrowings 1,885 382 2,267
------- ------- ------ -------
TOTAL INTEREST EXPENSE 9,368 5,960 - 15,328
------- ------- ------ -------
NET INTEREST INCOME 11,180 6,946 18,126
Provision for loan losses 342 369 711
------- ------- ------ -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,838 6,577 - 17,415
------- ------- ------ -------
NON-INTEREST INCOME:
Commissions and fees on fiduciary activities 882 174 1,056
Service charges on deposit accounts 1,289 338 1,627
Other service charges, commissions and fees 1,189 134 1,323
Securities gains (losses), net 5 16 21
Gains on sales of loans, net 132 36 168
Gains (losses) on sales of other real estate owned, net 24 - 24
Other 168 196 364
------- ------- ------ -------
TOTAL NON-INTEREST INCOME 3,689 894 - 4,583
------- ------- ------ -------
NON-INTEREST EXPENSES:
Salaries and employee benefits 4,647 2,517 7,164
Net occupancy expense 630 342 972
Furniture and equipment expense 625 402 1,027
Other 3,650 1,723 5,373
------- ------- ------ -------
TOTAL NON-INTEREST EXPENSES 9,552 4,984 - 14,536
------- ------- ------ -------
Income before income tax expense 4,975 2,487 7,462
Income tax expense 1,370 872 2,242
------- ------- ------ -------
NET INCOME $ 3,605 $ 1,615 - $ 5,220
======= ======= ====== =======
NET INCOME PER COMMON SHARE $ .32 $ .94 - $ .33
======= ======= ====== =======
</TABLE>
47
<PAGE> 59
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combining Area and Cardinal
AREA Cardinal Entries Pro forma Combined
---- -------- ------- ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $14,899 $11,869 $26,768
Interest bearing deposits with banks 6 103 109
Federal funds sold and securities purchased under
agreements to resell 305 273 578
Interest and dividends on investment securities:
U.S. Treasury securities and Federal agencies securities 3,172 2,326 5,498
Obligations of states and political subdivisions 1,418 40 1,458
Other 281 - 281
------- ------- ------- -------
TOTAL INTEREST INCOME 20,081 14,611 - 34,692
------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits 7,603 6,381 13,984
Interest on borrowings 1,790 891 2,681
------- ------- ------- -------
TOTAL INTEREST EXPENSE 9,393 7,272 - 16,665
------- ------- ------- -------
NET INTEREST INCOME 10,688 7,339 18,027
Provision for loan losses 230 838 1,068
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,458 6,501 - 16,959
------- ------- ------- -------
NON-INTEREST INCOME:
Commissions and fees on fiduciary activities 756 89 845
Service charges on deposit accounts 1,212 310 1,522
Other service charges, commissions and fees 964 288 1,252
Securities gains (losses), net (14) 49 35
Gains on sales of loans, net 76 89 165
Gains (losses) on sales of other real estate owned, net (3) - (3)
Other 125 168 293
------- ------- ------- -------
TOTAL NON-INTEREST INCOME 3,116 993 - 4,109
------- ------- ------- -------
NON-INTEREST EXPENSES:
Salaries and employee benefits 4,427 3,614 8,041
Net occupancy expense 662 506 1,168
Furniture and equipment expense 559 686 1,245
Other 3,349 2,798 6,147
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSES 8,997 7,604 - 16,601
------- ------- ------- -------
Income before income tax expense 4,577 (110) ------- 4,467
Income tax expense 1,221 (6) 1,215
------- ------- ------- -------
NET INCOME $ 3,356 $ (104) - $ 3,252
======= ======= ======= =======
NET INCOME PER COMMON SHARE $ .29 $ (.06) - $ .20
======= ======= ======= =======
</TABLE>
48
<PAGE> 60
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combining Area and Cardinal
AREA Cardinal Entries Pro forma Combined
---- -------- ------- -----------------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans, including fees $61,649 $44,842 $106,491
Interest bearing deposits with banks 102 267 369
Federal funds sold 608 827 1,435
U.S. Treasury securities and Federal agencies securities 13,263 8,230 21,493
Obligations of states and political subdivisions 5,661 169 5,830
Other 1,217 - 1,217
------ ------ ------ --------
TOTAL INTEREST INCOME 82,500 54,335 - 136,835
------ ------ ------ --------
INTEREST EXPENSE:
Deposits 30,647 23,806 54,453
Borrowings 7,652 2,305 9,957
------ ------ ------ --------
TOTAL INTEREST EXPENSE 38,299 26,111 - 64,410
------ ------ ------ --------
NET INTEREST INCOME 44,201 28,224 72,425
Provision for loan losses 1,369 3,480 4,849
------ ------ ------ --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 42,832 24,744 - 67,576
------ ------ ------ --------
NON-INTEREST INCOME:
Commissions and fees on fiduciary activities 3,172 462 3,634
Service charges on deposit accounts 5,144 1,256 6,400
Other service charges, commissions and fees 4,043 708 4,751
Securities gains, net 3,216 49 3,265
Gains on sales of loans, net 349 8,563 8,912
Gains on sales of other real estate owned, net 68 - 68
Other 611 597 1,208
------ ------ ------ --------
TOTAL NON-INTEREST INCOME 16,603 11,635 - 28,238
------ ------ ------ --------
NON-INTEREST EXPENSES:
Salaries and employee benefits 18,207 13,700 31,907
Net occupancy expense 2,507 1,632 4,139
Furniture and equipment expense 2,338 2,100 4,438
Other 14,860 10,568 25,428
------ ------ ------ --------
TOTAL NON-INTEREST EXPENSES 37,912 28,000 - 65,912
------ ------ ------ --------
Income before income tax expense 21,523 8,379 - 29,902
Income tax expense 5,968 4,048 10,016
------ ------ ------ --------
NET INCOME $15,555 $4,331 - $ 19,886
======= ====== ====== ========
NET INCOME PER COMMON SHARE $ 1.37 $ 2.58 - $ 1.25
====== ====== ====== ========
</TABLE>
49
<PAGE> 61
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combining Area and Cardinal
Area Cardinal Entries Pro forma Combined
---- -------- ------- ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $56,954 $43,738 $100,692
Interest bearing deposits with banks 23 389 412
Federal funds sold 388 832 1,220
U.S. Treasury securities and Federal agencies securities 13,059 9,776 22,835
Obligations of states and political subdivisions 5,827 134 5,961
Other 968 - 968
------- ------- ------ --------
TOTAL INTEREST INCOME 77,219 54,869 - 132,088
------- ------- ------ --------
INTEREST EXPENSE:
Deposits 27,786 23,623 51,409
Borrowings 9,456 3,465 12,921
------- ------- ------ --------
TOTAL INTEREST EXPENSE 37,242 27,088 - 64,330
------- ------- ------ --------
NET INTEREST INCOME 39,977 27,781 67,758
Provision for loan losses 2,830 1,994 4,824
------- ------- ------ --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 37,147 25,787 - 62,934
------- ------- ------ --------
NON-INTEREST INCOME:
Commissions and fees on fiduciary activities 2,741 138 2,879
Service charges on deposit accounts 4,552 1,218 5,770
Other service charges, commissions and fees 4,391 1,219 5,610
Securities gains, net 831 308 1,139
Gains on sales of loans, net 598 372 970
Gains on sales of other real estate owned, net 196 - 196
Other 481 1,368 1,849
------- ------- ------ --------
TOTAL NON-INTEREST INCOME 13,790 4,623 - 18,413
------- ------- ------ --------
NON-INTEREST EXPENSES:
Salaries and employee benefits 16,821 13,782 30,603
Net occupancy expense 2,187 1,819 4,006
Furniture and equipment expense 2,124 1,957 4,081
Other 14,634 11,090 25,724
------- ------- ------ --------
TOTAL NON-INTEREST EXPENSES 35,766 28,648 - 64,414
------- ------- ------ --------
Income before income tax expense 15,171 1,762 - 16,933
Income tax expense 3,589 898 4,487
------- ------- ------ --------
NET INCOME $11,582 $ 864 - $ 12,446
======= ======= ====== ========
NET INCOME PER COMMON SHARE $ 1.01 $ .56 - $ .79
======= ======= ====== ========
</TABLE>
50
<PAGE> 62
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combining Area and Cardinal
AREA Cardinal Entries Pro forma Combined
---- -------- ------- ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $48,103 $29,922 $ 78,025
Interest bearing deposits with banks 24 228 252
Federal funds sold 457 419 876
U.S. Treasury securities and Federal agencies securities 9,052 7,724 16,776
Obligations of states and political subdivisions 5,829 218 6,047
Other 999 - 999
------- ------- ------ --------
TOTAL INTEREST INCOME 64,464 38,511 - 102,975
------- ------- ------ --------
INTEREST EXPENSE:
Deposits 20,561 13,777 34,338
Borrowings 6,473 1,641 8,114
------- ------- ------ --------
TOTAL INTEREST EXPENSE 27,034 15,418 - 42,452
------- ------- ------ --------
NET INTEREST INCOME 37,430 23,093 60,523
Provision for loan losses 3,185 1,791 4,976
------- ------- ------ --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 34,245 21,302 - 55,547
------- ------- ------ --------
NON-INTEREST INCOME:
Commissions and fees on fiduciary activities 2,262 141 2,403
Service charges on deposit accounts 4,087 1,148 5,235
Other service charges, commissions and fees 4,286 929 5,215
Securities gains, net 44 (1,563) (1,519)
Gains on sales of loans, net 297 257 554
Gains on sales of other real estate owned, net 905 - 905
Other 649 362 1,011
------- ------- ------ --------
TOTAL NON-INTEREST INCOME 12,530 1,274 - 13,804
------- ------- ------ --------
NON-INTEREST EXPENSES:
Salaries and employee benefits 15,155 10,660 25,815
Net occupancy expense 2,091 1,433 3,524
Furniture and equipment expense 1,728 1,357 3,085
Other 18,796 9,879 28,675
------- ------- ------ --------
TOTAL NON-INTEREST EXPENSES 37,770 23,329 - 61,099
------- ------- ------ --------
Income before income tax expense 9,005 (753) - 8,252
Income tax expense 1,493 (215) 1,278
------- ------- ------ --------
NET INCOME $ 7,512 $ (538) - $ 6,974
======= ======= ====== ========
NET INCOME PER COMMON SHARE $ 0.66 $ (.36) - $ .45
======= ======= ====== ========
</TABLE>
51
<PAGE> 63
DESCRIPTION OF AREA COMMON STOCK
Area is currently authorized to issue 16,000,000 shares of Area Common
Stock, of which [11,337,828] shares were issued and outstanding at March 31,
1997. Area is authorized to issue 500,000 shares of no par value Preferred
Stock, none of which is issued and outstanding as of the date of this Joint
Proxy Statement/Prospectus. If the shareholders of Area approve the proposal to
amend Area's Articles of Incorporation to increase the number of authorized
shares of common stock from 16,000,000 to 50,000,000, Area's Articles of
Incorporation will be so amended prior to the consummation of the Merger or, if
the Merger is not approved, as soon after the Area Meeting as is practicable.
Holders of Area Common Stock are entitled to receive such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. The ability of Area to pay dividends is affected by the ability of the
subsidiaries of Area to pay dividends, which for the bank subsidiaries is
limited by applicable regulatory requirements and capital guidelines. At March
31, 1997, under such requirements and guidelines, the subsidiaries had
$6,298,000 of undivided profits legally available for the payment of dividends
without regulatory approval.
See "Certain Regulatory Considerations -- Payment of Dividends."
For a further description of Area Common Stock, see "Effect of the
Merger on Rights of Stockholders."
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
At the Effective Time, Cardinal shareholders will become shareholders
of Area, and their rights as shareholders will be determined by Area's Articles
of Incorporation (as then amended) and Bylaws. The following is a summary of the
material differences in the rights of shareholders of Area and Cardinal. Both
Area and Cardinal are Kentucky corporations governed by the Kentucky Act.
Accordingly, there are no material differences between the rights of an Area
shareholder and the rights of a Cardinal shareholder solely under the Kentucky
Act. This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the Kentucky Act and the Articles of
Incorporation and Bylaws of each corporation.
AUTHORIZED CAPITAL STOCK
Area. Area is currently authorized to issue 16,000,000 shares of common
stock, no par value, of which [11,337,828] shares were outstanding as of the
Record Date. Area is authorized to issue 500,000 shares of no par value
Preferred Stock, none of which is issued and outstanding as of the date of this
joint Proxy Statement/Prospectus. If the shareholders of Area approve the
proposal to amend Area's Articles of Incorporation to increase the number of
authorized shares of common stock from 16,000,000 to 50,000,000, Area's Articles
of Incorporation will be so amended prior to the consummation of the Merger or,
if the Merger is not approved, as soon after the Area Meeting as is practicable.
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Area's Articles of Incorporation provide for the issuance of preferred
stock by the Board of Directors without further shareholder action in one or
more series, with such rights, preferences, privileges and restrictions,
including dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, amounts payable upon liquidation and the number of shares
constituting any series or the designation of such series, as may be determined
by the Board of Directors. If such stock is issued in the future, it will rank
senior to Area Common Stock with respect to rights to receive dividends and to
participate in distributions or payments in the event of any liquidation,
dissolution or winding up of the corporation. The issuance of preferred stock
may have the effect of delaying, deferring, discouraging or preventing a third
party from acquiring a majority of the outstanding voting stock of Area or other
change of control of Area without further action by the shareholders and may
adversely affect voting and other rights of the holders of the common stock,
including the loss of voting control to others.
Cardinal. Cardinal is authorized to issue 5,000,000 shares of Cardinal
Common Stock, no par value, of which [_________] shares were issued and
outstanding as of the Record Date.
ACTIONS BY SHAREHOLDERS WITHOUT A MEETING
Area. Area's Bylaws do not specifically address whether shareholders
may take action without a meeting. Section 271B.7-040 of the Kentucky Act
provides that action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting by consent in writing setting forth the
action to be taken and signed by those persons who would be entitled to vote at
a meeting those shares having the voting power to cast not less than the minimum
number (or numbers, in the case of voting by class) of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote were present and voted.
Cardinal. Cardinal's Bylaws provide that any action required or
permitted to be taken by Cardinal shareholders may be taken without a meeting by
consent in writing setting forth the action to be taken and signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
SPECIAL MEETING OF SHAREHOLDERS
Area. Area's Bylaws state that special meetings of the shareholders may
be called at any time by the Board of Directors or the holders of not less than
one-fifth of all shares entitled to vote at the meeting. Notice must be given in
writing not less than 10 nor more than 50 days before the date of the meeting
and must state the purpose for which the meeting is called.
Cardinal. Cardinal's Bylaws state that special meetings of shareholders
may be called at any time by the Chief Executive Officer, the President, by a
majority of the directors or by the holders of not less than one-fifth of the
outstanding shares of capital stock entitled to vote. Written notice of the
meeting must be given not less than 10 nor more than 50 days before the date of
the meeting and must state the purpose for which the meeting is called.
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NUMBER OF DIRECTORS
Area. Area's Articles of Incorporation provide that Area shall be
managed by a Board of not less than five directors and that the number and
qualifications of directors shall be fixed in the Bylaws. Area's Bylaws state
that the Board of Directors shall consist of not less than five nor more than
twelve directors. Pursuant to Section 271B.8-030 of the Kentucky Act, the number
of directors may be fixed or changed from time to time within this range by the
shareholders or the Board of Directors. Area's Board of Directors presently
consists of nine members.
Cardinal. Cardinal's Articles of Incorporation state that the Board of
Directors shall consist of not less than one nor more than twenty directors. The
Bylaws provide that the number of directors within this range may be fixed from
time to time only by the Board of Directors. The Cardinal Board of Directors
presently consists of seven members.
CUMULATIVE VOTING
Area. Area's Articles of Incorporation provide that shareholders
desiring to vote shares cumulatively for the election of directors, as provided
in Section 207 of the Kentucky Constitution, are required to give written notice
to the President or Secretary of Area not less than 72 hours prior to the
scheduled time of the election. Area's Articles of Incorporation further provide
that if one or more shareholders gives notice of intent to vote cumulatively,
all shareholders may vote cumulatively, regardless of whether they gave timely
notice. Section 207 of the Kentucky Constitution provides that in all elections
of directors of any corporation, each shareholder shall have the right to cast
as many votes in the aggregate as such shareholder shall be entitled to vote
multiplied by the number of directors to be elected at such meeting, and such
shareholder may vote the whole number of shares or distribute such votes among
two or more candidates. Section 207 of the Kentucky Constitution further
provides that directors may not be elected in any other manner.
Cardinal. Cardinal's Articles of Incorporation do not specifically
address the right of shareholders to vote cumulatively. Section 207 of the
Kentucky Constitution, however, applies to all Kentucky corporations including
Cardinal.
LIMITATIONS ON DIRECTOR LIABILITY
Area. Area's Articles of Incorporation and Bylaws do not specifically
limit the liability of directors.
Cardinal. Cardinal's Articles of Incorporation provide that directors
of Cardinal will have no personal liability to Cardinal or its shareholders for
monetary damages for a breach of fiduciary duty, except for liability for: (a)
any transaction in which director's personal financial interest is in conflict
with the financial interest of Cardinal or its stockholders; (b) acts or
omissions not in good faith or which involve intentional misconduct or are known
to the director to be a violation of law; (c) distributions made in violation of
the Kentucky Act; or (d) any transaction from which the director derives an
improper personal benefit.
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INDEMNIFICATION
Area. Area's Articles of Incorporation state that Area will indemnify
its officers and directors as provided by Section 271B.8-510 Kentucky Act.
Section 271B.8-510, as in currently in effect, provides that a corporation may
indemnify its officers and directors against reasonable expenses (including
attorneys' fees) incurred by them in the defense of any action, suit or
proceeding to which they were made a party, or in defense of any claim, issue or
matter therein, by reason of the fact that they are or were officers or
directors of the corporation, to the extent that they have been successful, on
the merits or otherwise, in such defense. Section 271B.8-510 also permits
indemnification of a corporation's directors and officers against any liability
incurred in connection with any threatened, pending or completed action, suit or
proceeding by reason of the fact that they are or were directors or officers of
the corporation or who, while directors or officers of the corporation, are or
were serving at the corporation's request as directors, officers, partners,
trustees, employees or agents of another entity, if they acted in a manner they
believed in good faith to be in, or not opposed to, the best interests of the
corporation, or, with respect to any criminal proceeding, had no reasonable
cause to believe their conduct was unlawful, if a determination has been made
that they have met these standards of conduct. Such indemnification in
connection with a proceeding by or in the right of the corporation, however, is
limited to reasonable expenses, including attorney's fees, incurred in
connection with the proceeding. The corporation may also advance expenses
incurred by any director or officer in defending any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such officer or
director to repay such advances unless it is ultimately determined that he or
she is not entitled to indemnification by the corporation.
Section 271B.8-520 of the Kentucky Act provides that a corporation
shall indemnify a director who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he or she was a party
because such person is or was a director of the corporation against reasonable
expenses incurred in connection with such proceeding.
Cardinal. Cardinal's Articles of Incorporation (i) provide that
Cardinal's directors and executive officers will be indemnified to the fullest
extent authorized by the Kentucky Act and (ii) permit the Board of Directors of
Cardinal to indemnify other officers, employees, and agents of Cardinal as
provided in the Kentucky Act.
EXPERTS
The consolidated financial statements of Area as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996, incorporated by reference herein and in the Registration Statement by
reference to Area's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, have been incorporated by reference in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The report of KPMG Peat Marwick LLP covering the
December 31, 1996 consolidated financial statements refers to a change in the
accounting for investment securities
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effective January 1, 1994 to adopt the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
The consolidated financial statements of Cardinal as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, incorporated by reference herein and in the Registration Statement by
reference to Cardinal's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, have been incorporated by reference in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The report of KPMG Peat Marwick LLP covering the
December 31, 1996 consolidated financial statements refers to a change in the
accounting for investment securities effective January 1, 1994 to adopt the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
OPINIONS
The legality of the shares of the Area Common Stock to be issued in the
Merger will be passed upon by Timothy O. Shelburne, Esq., Area's general
counsel. Certain income tax consequences of the Merger will be passed upon by
Powell, Goldstein, Frazer & Murphy LLP, Atlanta, Georgia. Certain matters
relating to the Merger have been passed upon by Powell, Goldstein, Frazer &
Murphy LLP and Hogan & Hartson L.L.P. for Area and Cardinal, respectively.
56
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PROPOSAL PRESENTED TO THE
AREA SHAREHOLDERS ONLY
PROPOSAL TO AMEND THE AREA ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK
Area's Articles of Incorporation presently provide that Area is
authorized to issue 16,000,000 shares of common stock having no par value. The
Board of Directors has recommended that the number of authorized shares of
common stock be increased from 16,000,000 to 50,000,000 shares. The additional
shares of common stock for which authorization is sought would be a part of the
existing class of common stock and, if and when issued, would have the same
rights and privileges as the shares of common stock now outstanding.
As of ______________, there were [11,337,828] shares of Area Common
Stock issued and outstanding. An aggregate of [22,932] shares are subject to
issuance under Area stock option plans and agreements.
The Board recommends the increase in authorized common stock to enable
Area to have a sufficient number of shares of common stock available for
issuance to Cardinal shareholders in the Merger. The Board of Directors
anticipates that 4,365,456 shares of Area Common Stock will be issued in the
Merger and that an additional 211,698 shares will be required to be reserved for
issuance upon the exercise of options to purchase Area Common Stock issued in
exchange for options to purchase Cardinal Common Stock in the Merger. The Board
also recommends the increase to enable Area to have additional shares available
for possible issuance in connection with such general corporate purposes as
stock splits and stock dividends, the issuance of shares for cash to raise
equity capital or conversions of convertible securities or in connection with
future business acquisitions or other employee benefit plans that may be adopted
in the future. The Board believes that additional authorized common stock will
give Area greater flexibility and allow shares of common stock to be issued
without the expense and delay of a shareholders' meeting to authorize additional
shares if and when the need arises.
If the proposed amendment is adopted, Area would be permitted to issue
the authorized shares without further shareholder approval, except to the extent
otherwise required by law, by a securities exchange on which the common stock is
listed at the time, or by Area's Articles of Incorporation. Shareholders do not
have preemptive rights to subscribe for or purchase additional shares of common
stock.
Except as described in this Joint Proxy Statement/Prospectus, Area has
no current plans, agreements or arrangements for the issuance of additional
common stock. The additional authorized shares would be available for issuance
(subject to further shareholder approval only as noted above) at such times and
for such proper corporate purposes as the Board of Directors may approve,
including possible future financing and acquisition transactions. Depending upon
the nature and terms thereof, such transactions could enable the Board to render
more difficult or discourage an attempt to obtain control of Area. For example,
the issuance of shares of common stock in a public or private sale, merger or
similar transaction would increase the
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number of Area's outstanding shares, thereby diluting the interest of a party
seeking to take over the company. Furthermore, while Area has no plans to
implement such a program, other companies have issued warrants or other rights
to acquire additional shares to holders of common stock to discourage or defeat
unsolicited stock accumulation programs and acquisition proposals. If this
proposal is adopted, more Area Common Stock would be available for such purposes
than is currently available. Management currently knows of no intent or plan on
the part of any persons or entity to gain control of Area and this proposal is
not being recommended in response to any such intent or plan or for the purpose
of inhibiting any action by any third party.
Issuances of additional shares of common stock, depending upon their
timing and circumstances, may dilute or increase earnings per share and may
decrease or increase the book value per share of shares theretofore outstanding,
and the percentage ownership of Area by each shareholder may be proportionately
reduced as a result of a larger number of outstanding shares.
If the Area shareholders approve the proposal to amend the Articles of
Incorporation to increase the number of authorized shares of common stock, the
Articles of Incorporation of Area, as in force and effect on the date hereof,
will be amended by deleting Article 4A thereof in its entirety and by
substituting in lieu thereof the following:
"4.
A. The Corporation shall have the authority to issue Fifty
Million (50,000,000) shares of no par value common stock (the
"Common Stock") and Five Hundred Thousand (500,000) shares of
no par value preferred stock (the "Preferred Stock").
THE AREA BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED
AMENDMENT TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED IN AREA'S
ARTICLES OF INCORPORATION.
ADJOURNMENT OF SPECIAL MEETING
The holders of Cardinal and Area Common Stock will be asked to approve,
if necessary, the adjournment of their respective Special Meetings to solicit
further votes in favor of the Agreement. The proxies of shareholders voting
against the Agreement may not be used by management to vote in favor of an
adjournment pursuant to its discretionary authority.
SHAREHOLDER PROPOSALS
Any proposal which an Area stockholder wishes to have included in the
proxy materials of Area with respect to Area's 1998 Annual Meeting must be
received by Area at Area's principal executive offices at 230 Frederica Street,
Owensboro, Kentucky 42301 no later than _________ __, 1997.
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If the Agreement is approved and adopted and the Merger is consummated,
there will not be an annual meeting of Cardinal's shareholders in 1998. However,
if the Merger is not consummated, Cardinal anticipates that its 1998 annual
meeting will be held in May 1998. Any proposal intended to be presented by a
Cardinal shareholder for inclusion in Cardinal's proxy statement for its 1998
annual meeting must be received by Cardinal at its principal executive offices
no later than December 5, 1997.
OTHER MATTERS
It is not expected that any matters other than those described in this
Joint Proxy Statement/Prospectus will be brought before either of the Special
Meetings. If any other matters are presented, however, it is the intention of
the persons named in the respective proxies to vote such proxies in accordance
with the determination of a majority of the Board of Directors of Cardinal or
Area, as applicable, including, without limitation, a motion to adjourn or
postpone the Special Meetings to another time and/or place for the purpose of
soliciting additional proxies in order to approve the Agreement or otherwise.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
AREA BANCSHARES CORPORATION
AND
CARDINAL BANCSHARES, INC.
EXECUTION COPY
DATED AS OF MAY 1, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Preamble.............................................................................................. A-7
ARTICLE 1............................................................................................. A-7
TRANSACTIONS AND TERMS OF MERGER...................................................................... A-7
1.1 Merger.............................................................................. A-7
1.2 Time and Place of Closing........................................................... A-7
1.3 Effective Time...................................................................... A-8
ARTICLE 2............................................................................................. A-8
TERMS OF MERGER....................................................................................... A-8
2.1 Articles of Incorporation........................................................... A-8
2.2 Bylaws.............................................................................. A-8
2.3 Directors and Officers.............................................................. A-8
2.4 Name................................................................................ A-8
ARTICLE 3............................................................................................. A-8
MANNER OF CONVERTING SHARES........................................................................... A-8
3.1 Conversion of Shares................................................................ A-8
3.2 Anti-Dilution Provisions............................................................ A-9
3.3 Shares Held by Cardinal or Area..................................................... A-9
3.4 Conversion of Stock Options; Restricted Stock....................................... A-9
3.5 Fractional Shares...................................................................A-10
3.6 Dissenting Shareholders.............................................................A-10
ARTICLE 4.............................................................................................A-10
EXCHANGE OF SHARES....................................................................................A-10
4.1 Exchange Procedures.................................................................A-10
4.2 Rights of Former Cardinal Shareholders..............................................A-11
ARTICLE 5.............................................................................................A-12
REPRESENTATIONS AND WARRANTIES OF CARDINAL............................................................A-12
5.1 Organization, Standing, and Power...................................................A-12
5.2 Authority; No Breach By Agreement...................................................A-12
5.3 Capital Stock.......................................................................A-13
5.4 Cardinal Subsidiaries...............................................................A-13
5.5 Financial Statements................................................................A-14
5.6 Absence of Undisclosed Liabilities..................................................A-14
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
5.7 Absence of Certain Changes or Events................................................A-14
5.8 Tax Matters.........................................................................A-15
5.9 Allowance for Possible Loan Losses..................................................A-15
5.10 Assets..............................................................................A-16
5.11 Environmental Matters...............................................................A-16
5.12 Compliance with Laws................................................................A-17
5.13 Labor Relations.....................................................................A-17
5.14 Employee Benefit Plans..............................................................A-17
5.15 Material Contracts..................................................................A-19
5.16 Legal Proceedings...................................................................A-20
5.17 Reports.............................................................................A-20
5.18 Statements True and Correct.........................................................A-20
5.19 Accounting, Tax and Regulatory Matters..............................................A-21
5.20 Charter Provisions..................................................................A-21
5.21 Derivatives Contracts...............................................................A-21
5.22 Fairness Opinion....................................................................A-21
ARTICLE 6.............................................................................................A-22
REPRESENTATIONS AND WARRANTIES OF AREA................................................................A-22
6.1 Organization, Standing, and Power...................................................A-22
6.2 Authority; No Breach By Agreement...................................................A-22
6.3 Capital Stock.......................................................................A-23
6.4 Area Subsidiaries...................................................................A-23
6.5 Financial Statements................................................................A-24
6.6 Absence of Undisclosed Liabilities..................................................A-24
6.7 Absence of Certain Changes or Events................................................A-24
6.8 Tax Matters.........................................................................A-25
6.9 Allowance for Possible Loan Losses..................................................A-25
6.10 Assets..............................................................................A-26
6.11 Environmental Matters...............................................................A-26
6.12 Compliance with Laws................................................................A-26
6.13 Labor Relations.....................................................................A-27
6.14 Employee Benefit Plans..............................................................A-27
6.15 Material Contracts..................................................................A-29
6.16 Legal Proceedings...................................................................A-30
6.17 Reports.............................................................................A-30
6.18 Statements True and Correct.........................................................A-30
6.19 Accounting, Tax and Regulatory Matters..............................................A-30
6.20 Charter Provisions..................................................................A-31
6.21 Derivatives Contracts...............................................................A-31
6.22 Fairness Opinion....................................................................A-31
6.23 Cardinal Common Stock...............................................................A-31
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 7.............................................................................................A-31
CONDUCT OF BUSINESS PENDING CONSUMMATION..............................................................A-31
7.1 Affirmative Covenants of Cardinal...................................................A-31
7.2 Negative Covenants of Cardinal......................................................A-32
7.3 Affirmative Covenants of Area.......................................................A-33
7.4 Negative Covenants of Area..........................................................A-34
7.5 Adverse Changes in Condition........................................................A-35
7.6 Reports.............................................................................A-36
ARTICLE 8.............................................................................................A-36
ADDITIONAL AGREEMENTS.................................................................................A-36
8.1 Registration Statement; Proxy Statement; Shareholder Approval.......................A-36
8.2 Exchange Listing....................................................................A-37
8.3 Applications........................................................................A-37
8.4 Filings with State Offices..........................................................A-37
8.5 Agreement as to Efforts to Consummate...............................................A-37
8.6 Investigation and Confidentiality...................................................A-37
8.7 Press Releases......................................................................A-38
8.8 Acquisition Proposals...............................................................A-38
8.9 Accounting and Tax Treatment........................................................A-39
8.10 Agreement of Affiliates.............................................................A-39
8.11 Indemnification.....................................................................A-39
8.12 Certain Modifications...............................................................A-40
8.13 Employee Benefits and Contracts.....................................................A-40
8.14 Delivery to Exchange Agent..........................................................A-41
ARTICLE 9.............................................................................................A-41
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.....................................................A-41
9.1 Conditions to Obligations of Each Party.............................................A-41
9.2 Conditions to Obligations of Area...................................................A-43
9.3 Conditions to Obligations of Cardinal...............................................A-44
ARTICLE 10............................................................................................A-44
TERMINATION...........................................................................................A-44
10.1 Termination.........................................................................A-44
10.2 Effect of Termination...............................................................A-46
10.3 Non-Survival of Representations and Covenants.......................................A-46
ARTICLE 11............................................................................................A-46
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C>
MISCELLANEOUS.........................................................................................A-46
11.1 Definitions.........................................................................A-46
11.2 Expenses............................................................................A-53
11.3 Brokers and Finders.................................................................A-53
11.4 Entire Agreement....................................................................A-54
11.5 Amendments..........................................................................A-54
11.6 Waivers.............................................................................A-54
11.7 Assignment..........................................................................A-54
11.8 Notices.............................................................................A-55
11.9 Governing Law.......................................................................A-56
11.10 Counterparts........................................................................A-56
11.11 Captions............................................................................A-56
11.12 Enforcement of Agreement............................................................A-56
11.13 Severability........................................................................A-56
</TABLE>
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LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
1. Form of Agreement of Affiliates of Cardinal. (ss. 8.10).
2. Form of Agreement of Affiliates of Area (ss. 8.10).
3. Form of Claims/Indemnification Letter (ss. 9.2(d)).
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of May 1, 1997 by and between AREA BANCSHARES CORPORATION
("Area"), a corporation organized and existing under the laws of the State of
Kentucky, with its principal office located in Owensboro, Kentucky, and CARDINAL
BANCSHARES, INC. ("Cardinal"), a corporation organized and existing under the
laws of the State of Kentucky, with its principal office located in Lexington,
Kentucky.
PREAMBLE
The Boards of Directors of Cardinal and Area are of the opinion that
the transactions described herein are in the best interests of the parties and
their respective shareholders. This Agreement provides for the merger of
Cardinal with a wholly-owned subsidiary of Area, with Cardinal being the
surviving corporation of the merger. As a result, shareholders of Cardinal will
become shareholders of Area, and each of the subsidiaries of Cardinal will
continue to conduct its business and operations as a wholly-owned subsidiary of
Area. The transactions described in this Agreement are subject to the approvals
of the shareholders of both Area and Cardinal, the Board of Governors of the
Federal Reserve System, the Kentucky Department of Financial Institutions and
the satisfaction of certain other conditions described in this Agreement. It is
the intention of the parties to this Agreement that the merger (i) for federal
income tax purposes shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code and (ii) for accounting purposes
shall be accounted for as a "pooling of interests."
Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, Area shall cause a wholly-owned subsidiary of Area
("Interim"), which will be incorporated under the laws of the State of Kentucky,
to be merged with and into Cardinal in accordance with the provisions of Section
271B.11-010 of the KBCA and with the effect provided in Section 271B.11-060 of
the KBCA (the "Merger"). Cardinal shall be the Surviving Corporation resulting
from the Merger. The Merger shall be consummated pursuant to the terms of this
Agreement, which has been approved and adopted by the respective Boards of
Directors of Cardinal and Area.
1.2 TIME AND PLACE OF CLOSING. The Closing will take place at
10:00 a.m. on the date that the Effective Time occurs (or the immediately
preceding day if the Effective Time is earlier than
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10:00 a.m.), or at such other time as the Parties, acting through their chief
executive officers may mutually agree. The place of Closing shall be at the
principal offices of Area, Owensboro, Kentucky, or such other place as may be
mutually agreed upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by
this Agreement shall become effective on the date and at the time the Articles
of Merger reflecting the Merger shall become effective with the Secretary of
State of the State of Kentucky (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the chief
executive officer of each Party, the Effective Time shall occur on the fifth
business day following the last to occur of (a) the effective date (including
expiration of any applicable waiting period) of the last required Consent of any
Regulatory Authority having authority over and approving or exempting the
Merger, (b) the date on which the shareholders of Area approve this Agreement to
the extent such approval is required by applicable Law, (c) the date on which
the shareholders of Cardinal approve this Agreement to the extent such approval
is required by applicable Law; or such other date as may be mutually agreed upon
in writing by the chief executive officer of each Party.
ARTICLE 2
TERMS OF MERGER
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of
Cardinal in effect immediately prior to the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation until otherwise amended or
repealed.
2.2 BYLAWS. The Bylaws of Cardinal in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until otherwise
amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of the Surviving Corporation
upon the Effective Time shall consist of the directors of Cardinal immediately
prior to the Effective Time, all of whom shall serve in accordance with the
Bylaws of the Surviving Corporation. The officers of the Surviving Corporation,
together with such additional persons as may thereafter be elected, shall serve
as the officers of the Surviving Corporation from and after the Effective Time
in accordance with the Bylaws of the Surviving Corporation.
2.4 NAME. At the Effective Time of the Merger, the Surviving
Corporation will continue to operate under the name "Cardinal Bancshares, Inc."
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article 3,
at the Effective Time, by virtue of the Merger and without any action on the
part of the holders thereof the shares of the constituent corporations shall be
converted as follows:
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(a) Each share of Interim capital stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(b) At the Effective Time, each share of Cardinal Common Stock
(other than Dissenting Shares (defined at Section 3.6 below) or shares canceled
pursuant to Section 3.3 below) shall be converted into 2.7391 shares (subject to
Section 3.5 hereof) of Area Common Stock (the "Exchange Ratio"), subject to
adjustment as hereinafter provided.
3.2 ANTI-DILUTION PROVISIONS. In the event Cardinal or Area changes the
number of shares of Cardinal Common Stock or Area Common Stock, respectively,
issued and outstanding prior to the Effective Time as a result of a stock split,
stock dividend or similar recapitalization with respect to such stock and the
record date therefor (in the case of a stock dividend) or the effective date
therefor (in the case of a stock split or similar recapitalization) shall be
prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.3 SHARES HELD BY CARDINAL OR AREA. Each of the shares of Cardinal
Common Stock held by any Cardinal Company or by any Area Company, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 CONVERSION OF STOCK OPTIONS; RESTRICTED STOCK.
(a) At the Effective Time, all rights with respect to Cardinal
Common Stock pursuant to stock options ("Cardinal Options") granted by Cardinal
under the Cardinal Stock Plans, which are outstanding at the Effective Time,
whether or not exercisable, shall be converted into and become rights with
respect to Area Common Stock, and Area shall assume each Cardinal Option, in
accordance with the terms of the Cardinal Stock Plan and stock option agreement
by which it is evidenced. From and after the Effective Time, (i) each Cardinal
Option assumed by Area may be exercised solely for shares of Area Common Stock,
(ii) the number of shares of Area Common Stock subject to such Cardinal Option
shall be equal to the number of shares of Cardinal Common Stock subject to such
Cardinal Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, and (iii) the per share exercise price under each such Cardinal
Option shall be adjusted by dividing the per share exercise price under each
such Cardinal Option by the Exchange Ratio and rounding down to the nearest
cent. Notwithstanding the provisions of clause (ii) of the preceding sentence,
Area shall not be obligated to issue any fraction of a share of Area Common
Stock upon exercise of a Cardinal Option, and any fraction of a share of Area
Common Stock that would otherwise be subject to a converted Cardinal Option
shall represent the right to receive a cash payment equal to the product of such
fraction and the difference between the "Market Value" of one share of Area
Common Stock and the per share exercise price of such Option. The "Market Value"
of one share of Area Common Stock shall be the last sales price of such common
stock on Nasdaq, or such other exchange or market system on which Area Common
Stock is then traded, (as reported by The Wall Street Journal or, if not
reported thereby, any other authoritative source selected by Area) on the last
trading day preceding the date of exercise. It is intended that the foregoing
assumption shall be undertaken in a manner that will not constitute a
"modification" as defined in Section 424 of the Internal Revenue Code, as to any
stock option which is an "incentive stock
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option." Cardinal and Area agree to take all necessary steps to effect the
provisions of this Section 3.4.
(b) All restrictions or limitations on transfer with respect
to Cardinal Common Stock awarded under the Cardinal Stock Plans or any other
plan, program or arrangement of any Cardinal Company, to the extent that such
restrictions or limitations shall not have already lapsed, and except as
otherwise expressly provided in such plan, program or arrangement, shall remain
in full force and effect with respect to shares of Area Common Stock into which
such restricted stock is converted pursuant to Section 3.1 of this Agreement.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Cardinal Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Area Common Stock (after taking into account all certificates delivered
by such holder) shall receive in lieu thereof cash (without interest) in an
amount equal to such fractional part of a share of Area Common Stock multiplied
by the Market Value of one share of Area Common Stock. No such holder will be
entitled to dividends, voting rights, or any other rights as a shareholder in
respect of any fractional shares.
3.6 DISSENTING SHAREHOLDERS. Any holder of shares of Cardinal Common
Stock ("Dissenting Shares") or Area Common Stock who perfects such holder's
dissenters' rights of appraisal in accordance with and as contemplated by
Subtitle 271B.13 of the KBCA shall be entitled to receive the value of such
shares in cash as determined pursuant to such provision of Law; provided, that
no such payment shall be made to any dissenting shareholder unless and until
such dissenting shareholder has complied with the applicable provisions of the
KBCA and surrendered to Cardinal or Area, as the case may be, the certificate or
certificates representing the shares for which payment is being made. In the
event that after the Effective Time a dissenting shareholder of Cardinal or
Area, as the case may be, fails to perfect, or effectively withdraws or loses,
such holder's right to appraisal and of payment for such holder's shares, Area
shall issue and deliver the consideration to which such holder of shares of
Cardinal Common Stock or Area Common Stock, as the case may be, is entitled
under this Article 3 (without interest) upon surrender by such holder of the
certificate or certificates representing shares of Cardinal Common Stock or Area
Common Stock, as the case may be, held by such holder.
ARTICLE 4
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Unless the parties otherwise agree, within
three business days after the Effective Time, Area shall cause a qualified
exchange agent (the "Exchange Agent") to mail to the former holders of Cardinal
Common Stock appropriate transmittal materials which shall specify that delivery
shall be effected, and risk of loss and title to the certificates theretofore
representing shares of Cardinal Common Stock shall pass, only upon proper
delivery of such certificates to the Exchange Agent. After the Effective Time,
each holder of shares of Cardinal Common Stock (other than shares to be canceled
pursuant to Section 3.3 of this Agreement or as to which dissenters' rights have
been perfected as provided in Section 3.6 of this Agreement) issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such
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shares to the Exchange Agent and shall promptly upon surrender thereof receive
in exchange therefor the consideration provided in Section 3.1 of this
Agreement, together with all undelivered dividends or distributions in respect
of such shares (without interest thereon) pursuant to Section 4.2 of this
Agreement. To the extent required by Section 3.5 of this Agreement, each holder
of shares of Cardinal Common Stock issued and outstanding at the Effective Time
also shall receive, upon surrender of the certificate or certificates
representing such shares, cash in lieu of any fractional share of Area Common
Stock to which such holder may otherwise be entitled (without interest). The
Exchange Agent shall not be obligated to deliver the consideration to which any
former holder of Cardinal Common Stock is entitled as a result of the Merger
until such holder surrenders his or her certificate or certificates representing
the shares of Cardinal Common Stock for exchange as provided in this Section
4.1. The certificate or certificates of Cardinal Common Stock so surrendered
shall be duly endorsed as the Exchange Agent may require. Any other provision of
this Agreement notwithstanding, Area shall not be liable to a holder of Cardinal
Common Stock for any amounts paid or property delivered in good faith to a
public official pursuant to any applicable abandoned property Law. The term of
the Exchange Agent shall be not less than 9 months.
4.2 RIGHTS OF FORMER CARDINAL SHAREHOLDERS. At the Effective Time, the
stock transfer books of Cardinal shall be closed as to holders of Cardinal
Common Stock immediately prior to the Effective Time and no transfer of Cardinal
Common Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1 of
this Agreement, each certificate theretofore representing shares of Cardinal
Common Stock (other than shares to be canceled pursuant to Section 3.3 or as to
which dissenters' rights have been perfected as provided in Section 3.6 of this
Agreement) shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 3.1 and 3.5 of
this Agreement in exchange therefor. To the extent permitted by Law, former
holders of record of Cardinal Common Stock shall be entitled to vote after the
Effective Time at any meeting of Area shareholders the number of whole shares of
Area Common Stock into which their respective shares of Cardinal Common Stock
are converted, regardless of whether such holders have exchanged their
certificates representing Cardinal Common Stock for certificates representing
Area Common Stock in accordance with the provisions of this Agreement. Whenever
a dividend or other distribution is declared by Area on Area Common Stock, the
record date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares issuable pursuant to this
Agreement, but no dividend or other distribution payable to the holders of
record of Area Common Stock as of any time subsequent to the Effective Time
shall be delivered to the holder of any certificate representing shares of
Cardinal Common Stock issued and outstanding at the Effective Time until such
holder surrenders such certificate for exchange as provided in Section 4.1 of
this Agreement. However, upon surrender of such Cardinal Common Stock
certificate, both the Area Common Stock certificate (together with all such
undelivered dividends or other distributions without interest) and any
undelivered dividends and cash payments to be paid for fractional share
interests (without interest) shall be delivered and paid with respect to each
share represented by such certificate.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CARDINAL
Cardinal hereby represents and warrants to Area as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Cardinal is a corporation
duly organized, validly existing, and in good standing under the Laws of the
State of Kentucky and is duly registered as a bank holding company under the
BHC Act. Cardinal has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its Assets. Cardinal is
duly qualified or licensed to transact business as a foreign corporation in
good standing in the states of the United States and foreign jurisdictions
where the character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
Cardinal.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Cardinal has the corporate power and authority necessary
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Cardinal,
subject to the approval of this Agreement and the transactions contemplated
hereby by the holders of a majority of the outstanding shares of Cardinal Common
Stock, which is the only shareholder vote required for approval of this
Agreement and consummation of the Merger by Cardinal. Subject to such requisite
shareholder approval and any approvals required of Regulatory Authorities, this
Agreement represents a legal, valid and binding obligation of Cardinal,
enforceable against Cardinal in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by
Cardinal, nor the consummation by Cardinal of the transactions contemplated
hereby, nor compliance by Cardinal with any of the provisions hereof will (i)
conflict with or result in a breach of any provision of Cardinal's Articles of
Incorporation or Bylaws, or (ii) constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of any Cardinal Company under, any Contract or Permit of any Cardinal
Company, where such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Cardinal, or (iii) subject to receipt of the requisite approvals
referred to in Section 9.1 (b) of this Agreement, violate any Law or Order
applicable to any Cardinal Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than
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Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other than Consents,
filings or notifications which, if not obtained or made, are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Cardinal, no notice to, filing with, or Consent of any public body or authority
is necessary for the consummation by Cardinal of the Merger and the other
transactions contemplated in this Agreement.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of Cardinal consists of
5,000,000 shares of Cardinal Common Stock, of which 1,593,757 shares are issued
and outstanding as of the date of this Agreement. All of the issued and
outstanding shares of capital stock of Cardinal are duly and validly issued and
outstanding and are fully paid and nonassessable under the KBCA. None of the
outstanding shares of capital stock of Cardinal has been issued in violation of
any preemptive rights of the current or past shareholders of Cardinal. Cardinal
has reserved 220,619 shares of Cardinal Common Stock for issuance under the
Cardinal Stock Plans, pursuant to which options to purchase not more than
211,698 shares of Cardinal Common Stock are outstanding as of the date of this
Agreement and at the Effective Time.
(b) Except as set forth in Section 5.3(a) of this Agreement,
or as disclosed in Section 5.3 of the Cardinal Disclosure Memorandum, there are
no shares of capital stock or other equity securities of Cardinal outstanding
and no outstanding Rights relating to the capital stock of Cardinal.
5.4 CARDINAL SUBSIDIARIES. Cardinal has disclosed in Section 5.4
of the Cardinal Disclosure Memorandum all of the Cardinal Subsidiaries
as of the date of this Agreement. Except as disclosed in Section 5.4 of the
Cardinal Disclosure Memorandum, Cardinal or one of its Subsidiaries owns all of
the issued and outstanding shares of capital stock of each Cardinal Subsidiary.
No equity securities of any Cardinal Subsidiary are or may become required to
be issued (other than to another Cardinal Company) by reason of any Rights, and
there are no Contracts by which any Cardinal Subsidiary is bound to issue
(other than to another Cardinal Company) additional shares of its capital stock
or Rights, or by which any Cardinal Company is or may be bound to transfer any
shares of the capital stock of any Cardinal Subsidiary (other than to another
Cardinal Company), and there are no Contracts by which any Cardinal Company is
bound to issue (other than to another Cardinal Company) additional shares of
its capital stock. There are no Contracts relating to the rights of any
Cardinal Company to vote or to dispose of any shares of the capital stock of
any Cardinal Subsidiary. All of the shares of capital stock of each Cardinal
Subsidiary held by a Cardinal Company are fully paid and nonassessable under
the applicable Law of the jurisdiction in which such Subsidiary is incorporated
or organized and are owned by the Cardinal Company free and clear of any Lien.
Each Cardinal Subsidiary is either a bank, a trust company, a savings
association or a corporation and is duly organized, validly existing, and (as
to corporations) in good standing under the Laws of the jurisdiction in which
it is organized and has the corporate power and authority necessary for it to
own, lease and operate its Assets and to carry on its business as now
conducted. Each Cardinal Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the United
States and foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or
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licensed, except for such jurisdictions in which the failure to be so qualified
or licensed is not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on Cardinal. Each Cardinal Subsidiary that is a
depository institution is an "insured institution" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder, and the deposits in
which are insured to applicable limits by the Bank Insurance Fund or the Savings
Association Insurance Fund, as appropriate.
5.5 FINANCIAL STATEMENTS. Cardinal has included in Section 5.5 of the
Cardinal Disclosure Memorandum copies of all Cardinal Financial Statements for
the periods ended on or before December 31, 1996 and will deliver to Area copies
of all Cardinal Financial Statements prepared subsequent to the date hereof. The
Cardinal Financial Statements (as of the dates thereof and for the periods
covered thereby) (a) are, or if dated after the date of this Agreement will be,
in accordance with the books and records of the Cardinal Companies, which are or
will be, as the case may be, complete and correct and which have been or will
have been, as the case may be, maintained in accordance with good business
practices, and (b) present or will present, as the case may be, fairly the
consolidated financial position of the Cardinal Companies as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity, and cash flows of the Cardinal Companies for the periods indicated, in
accordance with GAAP (subject to any exceptions as to consistency specified
therein or as may be indicated in the notes thereto or, in the case of interim
financial statements, to normal recurring year-end adjustments that are not
material in amount or effect).
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No Cardinal Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Cardinal except Liabilities which are
reflected or otherwise accrued or reserved against in the consolidated balance
sheets of Cardinal as of December 31, 1996, included in the Cardinal Financial
Statements or reflected in the notes thereto. No Cardinal Company has incurred
or paid any Liability since December 31, 1996, except for such Liabilities
reflected or otherwise accrued or reserved against in the Cardinal Financial
Statements, or as may have been incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Cardinal.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996,
except as disclosed in SEC Documents filed by Cardinal prior to the date of this
Agreement or in Section 5.7 of the Cardinal Disclosure Memorandum, (a) there
have been no events, changes or occurrences which have had, or are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Cardinal, and (b) the Cardinal Companies have not taken any action, or failed to
take any action, prior to the date of this Agreement, which action or failure,
if taken after the date of this Agreement, would represent or result in a
material breach or violation of any of the covenants and agreements of Cardinal
provided in Article 7 of this Agreement.
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5.8 TAX MATTERS.
(a) All Tax returns required to be filed by or on behalf of
any of the Cardinal Companies have been timely filed or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before December 31, 1996, except to the extent that all such failures to file,
taken together, are not reasonably likely to have a Material Adverse Effect on
Cardinal and all returns filed are complete and accurate in all material
respects to the Knowledge of Cardinal. All Taxes shown as due on filed returns
have been paid. There is no audit examination, deficiency or refund Litigation
with respect to any Taxes that is reasonably likely to result in a determination
that would have, individually or in the aggregate, a Material Adverse Effect on
Cardinal, except as reserved against in the Cardinal Financial Statements
delivered prior to the date of this Agreement or as disclosed in Section 5.8(a)
of the Cardinal Disclosure Memorandum. All material Taxes and other Liabilities
due with respect to completed and settled examinations or concluded Litigation
have been paid.
(b) Except as disclosed in Section 5.8(b) of the Cardinal
Disclosure Memorandum, none of the Cardinal Companies has executed an extension
or waiver of any statute of limitations on the assessment or collection of any
Tax due that is currently in effect, and no unpaid tax deficiency has been
asserted in writing against or with respect to any Cardinal Company, which
deficiency is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Cardinal.
(c) Adequate provision for any Taxes due or to become due for
any of the Cardinal Companies for the period or periods through and including
the date of the respective Cardinal Financial Statements has been made and is
reflected on such Cardinal Financial Statements.
(d) Deferred Taxes of the Cardinal Companies have been
provided for in accordance with GAAP.
(e) Each of the Cardinal Companies is in compliance in all
material respects with, and its records contain all information and documents
(including, without limitation, properly completed IRS Forms W-9) necessary to
comply in all material respects with, all applicable information reporting and
Tax withholding requirements under federal, state and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Cardinal.
5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan or credit losses (the "Allowance") shown on the
consolidated balance sheets of Cardinal included in the most recent Cardinal
Financial Statements dated prior to the date of this Agreement was, and the
Allowance shown on the consolidated balance sheets of Cardinal included in the
Cardinal Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of
GAAP and applicable regulatory requirements or guidelines) to provide for
losses relating to or inherent in the loan and lease portfolios (including
accrued interest receivables) of the Cardinal Companies and other extensions of
credit (including letters of credit and
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commitments to make loans or extend credit) by the Cardinal Companies as of the
dates thereof except where the failure of such Allowance to be so adequate is
not reasonably likely to have a Material Adverse Effect on Cardinal.
5.10 ASSETS. Except as disclosed in Section 5.10 of the Cardinal
Disclosure Memorandum or as disclosed or reserved against in the Cardinal
Financial Statements, the Cardinal Companies have good and marketable title,
free and clear of all Liens, to all of their respective Assets. All material
tangible properties used in the businesses of the Cardinal Companies are in good
condition, reasonable wear and tear excepted, and are usable in the ordinary
course of business consistent with Cardinal's past practices. All Assets which
are material to Cardinal's business on a consolidated basis, held under leases
or subleases by any of the Cardinal Companies, are held under valid Contracts
enforceable in accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceedings may be brought), and each such Contract is in full force and effect.
The policies of fire, theft, liability and other insurance maintained with
respect to the Assets or businesses of the Cardinal Companies provide adequate
coverage under current industry practices against loss or Liability, and the
fidelity and blanket bonds in effect as to which any of the Cardinal Companies
is a named insured are reasonably sufficient. The Assets of the Cardinal
Companies include all assets required to operate the business of the Cardinal
Companies as presently conducted.
5.11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Section 5.11(a) of the Cardinal
Disclosure Memorandum, to the Knowledge of Cardinal, each Cardinal Company, its
Participation Facilities and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Cardinal.
(b) To the Knowledge of Cardinal, there is no Litigation
pending or threatened before any court, governmental agency or authority or
other forum in which any Cardinal Company or any of its Loan Properties or
Participation Facilities has been or, with respect to threatened Litigation, may
be named as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law or (ii)
relating to the release into the environment of any Hazardous Material (as
defined below) or oil, whether or not occurring at, on, under or involving a
site owned, leased or operated by any Cardinal Company or any of its Loan
Properties or Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Cardinal and to the Knowledge of
Cardinal, there is no reasonable basis for any such Litigation.
(c) To the Knowledge of Cardinal, there have been no releases
of Hazardous Material or oil in, on, under or affecting any Participation
Facility or Loan Property, except such as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Cardinal.
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5.12 COMPLIANCE WITH LAWS. Each Cardinal Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Cardinal, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Cardinal. Except as disclosed in
Section 5.12 of the Cardinal Disclosure Memorandum, no Cardinal Company:
(a) is in violation of any Laws, Orders or Permits applicable
to its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Cardinal; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Cardinal Company is not in
compliance with any of the Laws or Orders which such governmental authority or
Regulatory Authority enforces, where such noncompliance is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Cardinal,
(ii) threatening to revoke any Permits, the revocation of which is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Cardinal, or (iii) requiring any Cardinal Company to enter into or consent to
the issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board resolution or
similar undertaking, which restricts materially the conduct of its business, or
in any manner relates to its capital adequacy, its credit or reserve policies,
its management, or the payment of dividends.
5.13 LABOR RELATIONS. No Cardinal Company is the subject of any
Litigation asserting that it or any other Cardinal Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Cardinal Company to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving any Cardinal Company,
pending or, to its Knowledge, threatened, nor, to its Knowledge, is there any
activity involving any Cardinal Company's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
5.14 EMPLOYEE BENEFIT PLANS.
(a) Cardinal has disclosed in Section 5.14 of the Cardinal
Disclosure Memorandum and delivered or made available to Area prior to the
execution of this Agreement copies in each case of all pension, retirement,
profit-sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, all other written
employee programs, arrangements, or agreements, all medical, vision, dental, or
other health plans, all life insurance plans, and all other employee benefit
plans or fringe benefit plans, including, without limitation, "employee benefit
plans" as that term is defined in Section 3(3) of ERISA, currently adopted,
maintained by, sponsored in whole or in part by, or contributed to by any
Cardinal Company or ERISA Affiliate thereof for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees,
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retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "Cardinal Benefit
Plans"). Any of the Cardinal Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "Cardinal ERISA Plan."
(b) Except as to those plans disclosed in Section 5.14(b) of
the Cardinal Disclosure Memorandum as tax-qualified Cardinal ERISA Plans (the
"Cardinal Qualified Plans"), no Cardinal Company maintains or previously
maintained during the six years preceding the date of this Agreement a Cardinal
Plan which meets or was intended to meet the requirements of Code Section
401(a). The Internal Revenue Service has issued favorable determination letters
to the effect that each Cardinal Qualified Plan qualifies under Code Section
401(a) and that any related trust is exempt from taxation under Code Section
501(a), and such determination letters remain in effect and have not been
revoked. Copies of the most recent determination letters and any outstanding
requests for a determination letter with respect to each Cardinal Qualified Plan
have been delivered or made available to Area. Except as disclosed in Section
5.14(b) of the Cardinal Disclosure Memorandum, no Cardinal Qualified Plan has
been amended since the issuance of each respective determination letter. The
Cardinal Qualified Plans currently comply in form with the requirements under
Code Section 401(a), other than changes required by statutes, regulations and
rulings for which amendments are not yet required. No issue concerning
qualification of the Cardinal Qualified Plans is pending before or is threatened
by the Internal Revenue Service. The Cardinal Qualified Plans have been
administered according to their terms (except for those terms which are
inconsistent with the changes required by statutes, regulations, and rulings for
which changes are not yet required to be made, in which case the Cardinal
Qualified Plans have been administered in accordance with the provisions of
those statutes, regulations and rulings) and in accordance with the requirements
of Code Section 401(a). No Cardinal Company, any ERISA Affiliate or any
fiduciary of any Cardinal Qualified Plan has done anything that would adversely
affect the qualified status of the Cardinal Qualified Plans or the related
trusts. Any Cardinal Qualified Plan which is required to satisfy Code Section
401(k)(3) and 401(m)(2) has been tested for compliance with, and has satisfied
the requirements of, Code Section 401(k)(3) and 401(m)(2) for each plan year
ending prior to the date of this Agreement.
(c) All Cardinal Benefit Plans are in compliance in all
material respects with the applicable terms of ERISA, the Internal Revenue Code,
and any other applicable Laws the breach or violation of which are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Cardinal. To the Knowledge of Cardinal, no Cardinal Company nor any other party
has engaged in a transaction with respect to any Cardinal Benefit Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
would subject any Cardinal Company to a tax or penalty imposed by either Section
4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts which
are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Cardinal.
(d) Neither Cardinal nor any ERISA Affiliate of Cardinal
maintains or has during the six years preceding the date of this Agreement
maintained an "employee benefit pension plan," within the meaning of Section
3(2) of ERISA that is or was subject to Title IV of ERISA.
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(e) Neither Cardinal nor any ERISA Affiliate of Cardinal has
any past, present or future obligation or liability to contribute to any
multi-employer plan, as defined in Section 3(37) of ERISA.
(f) Except as disclosed in Section 5.14(f) of the Cardinal
Disclosure Memorandum, (i) no Cardinal Company has any obligations for retiree
health and life benefits under any of the Cardinal Benefit Plans and (ii) there
are no restrictions on the rights of such Cardinal Company to amend or terminate
any such Plan without incurring any Liability thereunder, which Liability is
reasonably likely to have a Material Adverse Effect on Cardinal, other than for
benefits accrued before the date of such termination or amendment.
(g) Except as disclosed in Section 5.14(g) of the Cardinal
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
any Cardinal Company from any Cardinal Company under any Cardinal Benefit Plan
or otherwise, (ii) increase any benefits otherwise payable under any Cardinal
Benefit Plan, or (iii) result in any acceleration of the time of payment or
vesting of any such benefit.
(h) The actuarial present values of all accrued deferred
compensation entitlements (including, without limitation, entitlements under any
executive compensation, supplemental retirement, or employment agreement) of
employees and former employees of any Cardinal Company and their respective
beneficiaries, other than entitlements accrued pursuant to funded retirement
plans subject to the provisions of Section 412 of the Internal Revenue Code or
Section 302 of ERISA, have been reflected on the Cardinal Financial Statements
to the extent required by and in accordance with GAAP.
(i) Cardinal and each ERISA Affiliate of Cardinal has complied
in all material respects with applicable continuation of coverage requirements
of Section 1001 of the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended, and ERISA Sections 601 through 608.
(j) Except as disclosed in Section 5.14(j) of the Cardinal
Disclosure Memorandum, neither Cardinal nor any ERISA Affiliate of Cardinal is
obligated, contingently or otherwise, under any agreement to pay any amount
which would be treated as a "parachute payment," as defined in Section 280G(b)
of the Internal Revenue Code (determined without regard to Section
280G(b)(2)(A)(ii) of the Internal Revenue Code).
(k) Other than routine claims for benefits, there are no
actions, audits, investigations, suits or claims pending, or threatened against
any Cardinal Benefit Plan, any trust or other funding agency created thereunder,
or against any fiduciary of any Cardinal Benefit Plan or against the assets of
any Cardinal Benefit Plan.
5.15 MATERIAL CONTRACTS. Except as disclosed in Section 5.15 of the
Cardinal Disclosure Memorandum or otherwise reflected in the Cardinal Financial
Statements, none of the Cardinal Companies, nor any of their respective Assets,
businesses or operations, is a party to, or is bound or affected by, or receives
benefits under, (a) any employment, severance, termination, consulting
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or retirement Contract providing for aggregate payments to any Person in any
calendar year in excess of $25,000, excluding "at will" employment arrangements,
(b) any Contract relating to the borrowing of money by any Cardinal Company or
the guarantee by any Cardinal Company of any such obligation (other than
Contracts evidencing deposit liabilities, purchases of federal funds, Federal
Home Loan Bank advances, fully-secured repurchase agreements, trade payables,
and Contracts relating to borrowings or guarantees made in the ordinary course
of business), (c) any Contracts between or among Cardinal Companies, and (d) any
other Contract (excluding this Agreement) or amendment thereto that would be
required to be filed as an exhibit to a Form 10-K filed by Cardinal with the SEC
as of the date of this Agreement that has not been filed as an exhibit to
Cardinal's Form 10-K filed for the fiscal year ended December 31, 1996, or in an
SEC Document and identified to Area (together with all Contracts referred to in
Sections 5.10 and 5.14(a) of this Agreement, the "Cardinal Contracts"). None of
the Cardinal Companies is in Default under any Cardinal Contract, other than
Defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Cardinal. Except as to FHLB advances,
all of the indebtedness of any Cardinal Company for money borrowed is prepayable
at any time by such Cardinal Company without penalty or premium.
5.16 LEGAL PROCEEDINGS. Except as disclosed in Section 5.16 of the
Cardinal Disclosure Memorandum, there is no Litigation instituted or pending,
or, to the Knowledge of Cardinal, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any Cardinal Company, or against
any Asset, interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Cardinal, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Cardinal Company, that are reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Cardinal.
5.17 REPORTS. Since January 1, 1994, each Cardinal Company has timely
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with (a) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy
statements, (b) the Regulatory Authorities, and (c) any applicable state
securities or banking authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Cardinal). As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document to Cardinal's Knowledge did not, in any material respects, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
5.18 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument
or other writing furnished or to be furnished by any Cardinal Company to Area
pursuant to this Agreement contains or will contain any untrue statement of
material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any
Cardinal Company for inclusion in the Registration Statement to be filed by Area
with the SEC will, when the Registration
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Statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any Cardinal Company for inclusion in the Proxy Statement to be mailed to
Cardinal's shareholders in connection with the Cardinal Shareholders' Meeting,
and any other documents to be filed by any Cardinal Company with the SEC or any
other Regulatory Authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed, and with respect
to the Proxy Statement, when first mailed to the shareholders of Cardinal, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, at the time of
the Cardinal Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Cardinal Shareholders' Meeting. All documents that any Cardinal
Company is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
5.19 ACCOUNTING, TAX AND REGULATORY MATTERS. No Cardinal Company or, to
the Knowledge of Cardinal, any Affiliate thereof has taken any action, or agreed
to take any action, or has any Knowledge of any fact or circumstance that is
reasonably likely to (a) prevent the transactions contemplated hereby, including
the Merger, from qualifying for pooling-of-interests accounting treatment or
treatment as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, or (b) materially impede or delay receipt of any Consents
of Regulatory Authorities referred to in Section 9.1(b) of this Agreement or
result in the imposition of a condition or restriction of the type referred to
in the second sentence of such Section. To the Knowledge of Cardinal, there
exists no fact, circumstance, or reason attributable to Cardinal why the
requisite Consents referred to in Section 9.1(b) of this Agreement cannot be
received in a timely manner without the imposition of any condition or
restriction of the type described in the second sentence of such Section 9.1(b).
5.20 CHARTER PROVISIONS. Each Cardinal Company has taken all action so
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any Cardinal Company or restrict or
impair the ability of Area to vote, or otherwise to exercise the rights of a
shareholder with respect to, shares of any Cardinal Company that may be acquired
or controlled by it.
5.21 DERIVATIVES CONTRACTS. Except as set forth in Section 5.21 of the
Cardinal Disclosure Memorandum, neither Cardinal nor any of its Subsidiaries is
a party to or has agreed to enter into an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract, or any
other interest rate or foreign currency protection contract not included on its
balance sheet which is a financial derivative contract (including various
combinations thereof).
5.22 FAIRNESS OPINION. Cardinal has received an opinion from
Professional Bank Services, Inc. ("PBS") to the effect that, in its opinion, the
consideration to be paid to the shareholders hereunder is fair to such
shareholders from a financial point of view (the "PBS Fairness Opinion"), and
PBS has consented to the inclusion of the PBS Fairness Opinion in the
Registration Statement.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF AREA
Area hereby represents and warrants to Cardinal as follows:
6.1 ORGANIZATION, STANDING, AND POWER. Area is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Kentucky, and is duly registered as a bank holding company under the BHC Act.
Area has the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. Area is duly qualified or
licensed to transact business as a foreign corporation in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Area.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Area has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Area,
subject to the approval of this Agreement and the transactions contemplated
hereby by the holders of a majority of the outstanding Area Common Stock, which
is the only shareholder vote required for approval of this Agreement and
consummation of the Merger by Area. Subject to such requisite shareholder
approval and any approvals required of Regulatory Authorities, this Agreement
represents a legal, valid and binding obligation of Area, enforceable against
Area in accordance with its terms (except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or similar Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). Subject to approval by the shareholders of Area of
an increase in the authorized shares of Area Common Stock referred to at Section
6.3(a) below, Area has reserved for issuance up to 4,750,983 shares of Area
Common Stock for consummation of the Merger and for issuance pursuant to
Cardinal Options.
(b) Neither the execution and delivery of this Agreement by
Area, nor the consummation by Area of the transactions contemplated hereby, nor
compliance by Area with any of the provisions hereof will (i) conflict with or
result in a breach of any provision of Area's Articles of Incorporation or
Bylaws, or (ii) constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of any Area
Company under, any Contract or Permit of any Area Company, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Area, or (iii)
subject to receipt of the requisite approvals referred to in Section 9.1(b) of
this Agreement, violate any Law or Order applicable to any Area Company or any
of their respective Assets.
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(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from Regulatory Authorities,
and other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Area, no notice to, filing with, or Consent of any
public body or authority is necessary for the consummation by Area of the Merger
and the other transactions contemplated in this Agreement.
6.3 CAPITAL STOCK.
(a) The authorized capital stock of Area consists of (i)
16,000,000 shares of Area Common Stock, of which 11,303,048 shares were issued
and outstanding as of the date of this Agreement and (ii) 500,000 shares of
preferred stock, no par value, none of which is issued and outstanding as of the
date of this Agreement. All of the issued and outstanding shares of Area Common
Stock are, and all of the shares of Area Common Stock to be issued in exchange
for shares of Cardinal Common Stock upon consummation of the Merger, when issued
in accordance with the terms of this Agreement, will be, duly and validly issued
and outstanding and fully paid and nonassessable under the KBCA. Subject to
approval by a majority of the issued and outstanding shares of Area Common
Stock, the board of directors of Area has approved an amendment to Area's
Articles of Incorporation to increase the number of authorized shares of Area
Common Stock to 50,000,000. None of the outstanding shares of Area Common Stock
has been, and none of the shares of Area Common Stock to be issued in exchange
for shares of Cardinal Common Stock upon consummation of the Merger will be,
issued in violation of any preemptive rights of the current or past shareholders
of Area. Area has reserved 97,313 shares of Area Common Stock for issuance under
the Area Stock Plans, pursuant to which options to purchase not more than 22,932
shares of Area Common Stock are outstanding as of the date of this Agreement and
at the Effective Time.
(b) Except as set forth in Section 6.3(a) of this Agreement,
or as disclosed in Section 6.3(b) of the Area Disclosure Memorandum, there are
no shares of capital stock or other equity securities of Area outstanding and no
outstanding Rights relating to the capital stock of Area.
6.4 AREA SUBSIDIARIES. Area has disclosed in Section 6.4 of the
Area Disclosure Memorandum all of the Area Subsidiaries as of the date of this
Agreement. Except as disclosed in Section 6.4 of the Area Disclosure
Memorandum, Area or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock of each Area Subsidiary. No equity
securities of any Area Subsidiary are or may become required to be issued
(other than to another Area Company) by reason of any Rights, and there are no
Contracts by which any Area Subsidiary is bound to issue (other than to another
Area Company) additional shares of its capital stock or Rights, or by which any
Area Company is or may be bound to transfer any shares of the capital stock of
any Area Subsidiary (other than to another Area Company), and there are no
Contracts by which any Area Company is bound to issue (other than to another
Area Company) additional shares of its capital stock. There are no Contracts
relating to the rights of any Area Company to vote or to dispose of any shares
of the capital stock of any Area Subsidiary. All of the shares of capital stock
of each Area Subsidiary held by a Area Company are fully paid and nonassessable
under the applicable Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the Area Company free and clear of
any Lien. Each Area Subsidiary is either a bank, a trust company, a savings
association or a corporation and is duly organized, validly existing, and (as
to corporations)
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in good standing under the Laws of the jurisdiction in which it is organized and
has the corporate power and authority necessary for it to own, lease and operate
its Assets and to carry on its business as now conducted. Each Area Subsidiary
is duly qualified or licensed to transact business as a foreign corporation in
good standing in the States of the United States and foreign jurisdictions where
the character of its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Area. Each Area
Subsidiary that is a depository institution is an "insured institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder, and the deposits in which are insured to applicable limits by the
Bank Insurance Fund or the Savings Association Insurance Fund, as appropriate.
6.5 FINANCIAL STATEMENTS. Area has included in Section 6.5 of the Area
Disclosure Memorandum copies of all Area Financial Statements for the periods
ended on or before December 31, 1996 and will deliver to Cardinal copies of all
Area Financial Statements prepared subsequent to the date hereof. The Area
Financial Statements (as of the dates thereof and for the periods covered
thereby) (a) are, or if dated after the date of this Agreement will be, in
accordance with the books and records of the Area Companies, which are or will
be, as the case may be, complete and correct and which have been or will have
been, as the case may be, maintained in accordance with good business practices,
and (b) present or will present, as the case may be, fairly the consolidated
financial position of the Area Companies as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity, and cash
flows of the Area Companies for the periods indicated, in accordance with GAAP
(subject to any exceptions as to consistency specified therein or as may be
indicated in the notes thereto or, in the case of interim financial statements,
to normal recurring year-end adjustments that are not material in amount or
effect).
6.6 ABSENCE OF UNDISCLOSED LIABILITIES. No Area Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Area, except Liabilities which are
reflected or otherwise accrued or reserved against in the consolidated balance
sheets of Area as of December 31, 1996, included in the Area Financial
Statements or reflected in the notes thereto. No Area Company has incurred or
paid any Liability since December 31, 1996, except for such Liabilities
reflected or otherwise accrued or reserved against in the Area Financial
Statements, or as may have been incurred or paid in the ordinary course of
business consistent with past business practice and which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Area.
6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1996,
except as disclosed in SEC Documents filed by Area prior to the date of this
Agreement or in Section 6.7 of the Area Disclosure Memorandum, (a) there have
been no events, changes or occurrences which have had, or are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Area,
and (b) the Area Companies have not taken any action, or failed to take any
action, prior to the date of this Agreement, which action or failure, if taken
after the date of this Agreement, would represent or result in a material breach
or violation of any of the covenants and agreements of Area provided in Article
7 of this Agreement.
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6.8 TAX MATTERS.
(a) All Tax returns required to be filed by or on behalf of
any of the Area Companies have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or before
December 31, 1996, except to the extent that all such failures to file, taken
together, are not reasonably likely to have a Material Adverse Effect on Area,
and all returns filed are complete and accurate in all material respects to the
Knowledge of Area. All Taxes shown as due on filed returns have been paid. There
is no audit examination, deficiency or refund Litigation with respect to any
Taxes that is reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on Area, except as
reserved against in the Area Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 6.8(a) of the Area Disclosure
Memorandum. All material Taxes and other Liabilities due with respect to
completed and settled examinations or concluded Litigation have been paid.
(b) Except as disclosed in Section 6.8(b) of the Area
Disclosure Memorandum none of the Area Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any Tax
due that is currently in effect, and no unpaid tax deficiency has been asserted
in writing against or with respect to any Area Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Area.
(c) Adequate provision for any Taxes due or to become due for
any of the Area Companies for the period or periods through and including the
date of the respective Area Financial Statements has been made and is reflected
on such Area Financial Statements.
(d) Deferred Taxes of the Area Companies have been
provided for in accordance with GAAP.
(e) Each of the Area Companies is in compliance in all
material respects with, and its records contain all information and documents
(including, without limitation, properly completed IRS Forms W-9) necessary to
comply in all material respects with, all applicable information reporting and
Tax withholding requirements under federal, state and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Area.
6.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The Allowance shown on the
consolidated balance sheets of Area included in the most recent Area Financial
Statements dated prior to the date of this Agreement was, and the Allowance
shown on the consolidated balance sheets of Area included in the Area Financial
Statements as of dates subsequent to the execution of this Agreement will be, as
of the dates thereof, adequate (within the meaning of GAAP and applicable
regulatory requirements or guidelines) to provide for losses relating to or
inherent in the loan and lease portfolios (including accrued interest
receivables) of the Area Companies and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by the Area
Companies as of the dates thereof except where the failure of such Allowance to
be so adequate is not reasonably likely to have a Material Adverse Effect on
Area.
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6.10 ASSETS. Except as disclosed in Section 6.10 of the Area
Disclosure Memorandum or as disclosed or reserved against in the Area
Financial Statements, the Area Companies have good and marketable title, free
and clear of all Liens, to all of their respective Assets. All tangible
properties used in the businesses of the Area Companies are in good condition,
reasonable wear and tear excepted, and are usable in the ordinary course of
business consistent with Area's past practices. All Assets which are material
to Area's business on a consolidated basis, held under leases or subleases by
any of the Area Companies, are held under valid Contracts enforceable in
accordance with their respective terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect. The
policies of fire, theft, liability and other insurance maintained with respect
to the Assets or businesses of the Area Companies provide adequate coverage
under current industry practices against loss or Liability, and the fidelity
and blanket bonds in effect as to which any of the Area Companies is a named
insured are reasonably sufficient. The Assets of the Area Companies include all
assets required to operate the business of the Area Companies as presently
conducted.
6.11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Section 6.11(a) of the Area
Disclosure Memorandum, to the Knowledge of Area, each Area Company, its
Participation Facilities and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Area.
(b) To the Knowledge of Area, there is no Litigation pending
or threatened before any court, governmental agency or authority or other forum
in which any Area Company or any of its Loan Properties or Participation
Facilities has been or, with respect to threatened Litigation, may be named as a
defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material (as defined below) or
oil, whether or not occurring at, on, under or involving a site owned, leased or
operated by any Area Company or any of its Loan Properties or Participation
Facilities, except for such Litigation pending or threatened that is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Area and to the Knowledge of Area, there is no reasonable basis for
any such Litigation.
(c) To the Knowledge of Area, there have been no releases of
Hazardous Material or oil in, on, under or affecting any Participation Facility
or Loan Property, except such as are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on Area.
6.12 COMPLIANCE WITH LAWS. Each Area Company has in effect all
Permits necessary for it to own, lease or operate its Assets and to carry
on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Area, and there has occurred no Default under any
such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Area. Except as
disclosed in Section 6.12 of the Area Disclosure Memorandum, no Area Company:
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(a) is in violation of any Laws, Orders or Permits applicable
to its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Area; and
(b) has received any notification or communication from any
agency or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Area Company is not in
compliance with any of the Laws or Orders which such governmental authority or
Regulatory Authority enforces, where such noncompliance is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Area, (ii)
threatening to revoke any Permits, the revocation of which is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Area, or
(iii) requiring any Area Company to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment or memorandum of
understanding, or to adopt any Board resolution or similar undertaking, which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies, its management, or the
payment of dividends.
6.13 LABOR RELATIONS. No Area Company is the subject of any
Litigation asserting that it or any other Area Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act
or comparable state law) or seeking to compel it or any other Area Company to
bargain with any labor organization as to wages or conditions of employment,
nor is there any strike or other labor dispute involving any Area Company,
pending or, to its Knowledge, threatened, nor, to its Knowledge, is there any
activity involving any Area Company's employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
6.14 EMPLOYEE BENEFIT PLANS.
(a) Area has disclosed in Section 6.14 of the Area Disclosure
Memorandum and delivered or made available to Cardinal prior to the execution of
this Agreement copies in each case of all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus, or other incentive plans, all other written employee programs,
arrangements, or agreements, all medical, vision, dental, or other health plans,
all life insurance plans, and all other employee benefit plans or fringe benefit
plans, including, without limitation, "employee benefit plans" as that term is
defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored in
whole or in part by, or contributed to by any Area Company or ERISA Affiliate
thereof for the benefit of employees, retirees, dependents, spouses, directors,
independent contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "Area Benefit
Plans"). Any of the Area Benefit Plans which is an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to herein
as a "Area ERISA Plan."
(b) Except as to those plans disclosed in Section 6.14(b) of
the Area Disclosure Memorandum as tax-qualified Area ERISA Plans (the "Area
Qualified Plans"), no Area Company maintains or previously maintained during the
six years preceding the date of this Agreement an Area Plan which meets or was
intended to meet the requirements of Code Section 401(a). The Internal Revenue
Service has issued favorable determination letters to the effect that each Area
Qualified Plan qualifies under Code Section 401(a) and that any related trust is
exempt from taxation under Code Section 501(a), and such determination letters
remain in effect and have not been revoked. Copies
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of the most recent determination letters and any outstanding requests for a
determination letter with respect to each Area Qualified Plan have been
delivered or made available to Cardinal. Except as disclosed in Section 6.14(b)
of the Area Disclosure Memorandum, no Area Qualified Plan has been amended since
the issuance of each respective determination letter. The Area Qualified Plans
currently comply in form with the requirements under Code Section 401(a), other
than changes required by statutes, regulations and rulings for which amendments
are not yet required. No issue concerning qualification of the Area Qualified
Plans is pending before or is threatened by the Internal Revenue Service. The
Area Qualified Plans have been administered according to their terms (except for
those terms which are inconsistent with the changes required by statutes,
regulations, and rulings for which changes are not yet required to be made, in
which case the Area Qualified Plans have been administered in accordance with
the provisions of those statutes, regulations and rulings) and in accordance
with the requirements of Code Section 401(a). No Area Company, any ERISA
Affiliate or any fiduciary of any Area Qualified Plan has done anything that
would adversely affect the qualified status of the Area Qualified Plans or the
related trusts. Any Area Qualified Plan which is required to satisfy Code
Section 401(k)(3) and 401(m)(2) has been tested for compliance with, and has
satisfied the requirements of, Code Section 401(k)(3) and 401(m)(2) for each
plan year ending prior to the date of this Agreement.
(c) All Area Benefit Plans are in compliance in all material
respects with the applicable terms of ERISA, the Internal Revenue Code, and any
other applicable Laws the breach or violation of which are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Area. To
the Knowledge of Area, no Area Company nor any other party has engaged in a
transaction with respect to any Area Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would subject any Area
Company to a tax or penalty imposed by either Section 4975 of the Internal
Revenue Code or Section 502(i) of ERISA in amounts which are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Area.
(d) Neither Area nor any ERISA Affiliate of Area maintains or
has during the six years preceding the date of this Agreement maintained an
"employee benefit pension plan," within the meaning of Section 3(2) of ERISA
that is or was subject to Title IV of ERISA.
(e) Neither Area nor any ERISA Affiliate of Area has any past,
present or future obligation or liability to contribute to any multi-employer
plan, as defined in Section 3(37) of ERISA.
(f) Except as disclosed in Section 6.14(f) of the Area
Disclosure Memorandum, (i) no Area Company has any obligations for retiree
health and life benefits under any of the Area Benefit Plans and (ii) there are
no restrictions on the rights of such Area Company to amend or terminate any
such Plan without incurring any Liability thereunder, which Liability is
reasonably likely to have a Material Adverse Effect on Area, other than for
benefits accrued before the date of such termination or amendment.
(g) Except as disclosed in Section 6.14(g) of the Area
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director or any employee of
any Area Company from any Area Company under any Area Benefit Plan or otherwise,
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(ii) increase any benefits otherwise payable under any Area Benefit Plan, or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit.
(h) The actuarial present values of all accrued deferred
compensation entitlements (including, without limitation, entitlements under any
executive compensation, supplemental retirement, or employment agreement) of
employees and former employees of any Area Company and their respective
beneficiaries, other than entitlements accrued pursuant to funded retirement
plans subject to the provisions of Section 412 of the Internal Revenue Code or
Section 302 of ERISA, have been reflected on the Area Financial Statements to
the extent required by and in accordance with GAAP.
(i) Area and each ERISA Affiliate of Area has complied in all
material respects with applicable continuation of coverage requirements of
Section 1001 of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and ERISA Sections 601 through 608.
(j) Except as disclosed in Section 6.14(j) of the Area
Disclosure Memorandum, neither Area nor any ERISA Affiliate of Area is
obligated, contingently or otherwise, under any agreement to pay any amount
which would be treated as a "parachute payment," as defined in Section 280G(b)
of the Internal Revenue Code (determined without regard to Section
280G(b)(2)(A)(ii) of the Internal Revenue Code).
(k) Other than routine claims for benefits, there are no
actions, audits, investigations, suits or claims pending, or threatened against
any Area Benefit Plan, any trust or other funding agency created thereunder, or
against any fiduciary of any Area Benefit Plan or against the assets of any Area
Benefit Plan.
6.15 MATERIAL CONTRACTS. Except as disclosed in Section 6.15 of the
Area Disclosure Memorandum or otherwise reflected in the Area Financial
Statements, none of the Area Companies, nor any of their respective Assets,
businesses or operations, is a party to, or is bound or affected by, or receives
benefits under, (a) any employment, severance, termination, consulting or
retirement Contract providing for aggregate payments to any Person in any
calendar year in excess of $25,000, excluding "at will" employment arrangements,
(b) any Contract relating to the borrowing of money by any Area Company or the
guarantee by any Area Company of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds, Federal Home Loan
Bank advances, fully-secured repurchase agreements, trade payables, and
Contracts relating to borrowings or guarantees made in the ordinary course of
business), (c) any Contracts between or among Area Companies, and (d) any other
Contract (excluding this Agreement) or amendment thereto that would be required
to be filed as an exhibit to a Form 10-K filed by Area with the SEC as of the
date of this Agreement that has not been filed as an exhibit to Area's Form 10-K
filed for the fiscal year ended December 31, 1996, or in an SEC Document and
identified to Area (together with all Contracts referred to in Sections 6.10 and
6.14(a) of this Agreement, the "Area Contracts"). None of the Area Companies is
in Default under any Area Contract, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
Area. Except as to FHLB advances, all of the indebtedness of any Area Company
for money borrowed is prepayable at any time by such Area Company without
penalty or premium.
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6.16 LEGAL PROCEEDINGS. Except as disclosed in Section 6.16 of the Area
Disclosure Memorandum, there is no Litigation instituted or pending, or, to the
Knowledge of Area, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any Area Company, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Area, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Area Company, that are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on Area.
6.17 REPORTS. Except as disclosed in Section 6.17 of the Area
Disclosure Memorandum, since January 1, 1994, each Area Company has timely filed
all reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (a) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (b)
other Regulatory Authorities, and (c) any applicable state securities or banking
authorities (except, in the case of state securities authorities, failures to
file which are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on Area). As of their respective dates, each of such
reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document to Area's Knowledge did
not, in any material respects, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
6.18 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument
or other writing furnished or to be furnished by any Area Company to Cardinal
pursuant to this Agreement contains or will contain any untrue statement of
material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any Area
Company for inclusion in the Registration Statement to be filed by Area with the
SEC, will, when the Registration Statement becomes effective, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein not misleading. None of the information
supplied or to be supplied by any Area Company for inclusion in the Proxy
Statement to be mailed to Area's shareholders in connection with the Area
Shareholders' Meeting, and any other documents to be filed by any Area Company
with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first mailed to the
shareholders of Area, be false or misleading with respect to any material fact,
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Area Shareholders' Meeting, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Area Shareholders' Meeting. All documents that
any Area Company is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
6.19 ACCOUNTING, TAX AND REGULATORY MATTERS. No Area Company or,
to the Knowledge of Area, any Affiliate thereof has taken any action, or agreed
to take any action, or has any
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Knowledge of any fact or circumstance that is reasonably likely to (a) prevent
the transactions contemplated hereby, including the Merger, from qualifying for
pooling-of-interests accounting treatment or treatment as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, or (b)
materially impede or delay receipt of any Consents of Regulatory Authorities
referred to in Section 9.1(b) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the second sentence of such
Section. To the Knowledge of Area, there exists no fact, circumstance, or reason
attributable to Area why the requisite Consents referred to in Section 9.1(b) of
this Agreement cannot be received in a timely manner without the imposition of
any condition or restriction of the type described in the second sentence of
such Section 9.1(b).
6.20 CHARTER PROVISIONS. Each Area Company has taken all action so that
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result in
the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any Area Company or restrict or impair
the ability of Area to vote, or otherwise to exercise the rights of a
shareholder with respect to, shares of any Area Company that may be acquired or
controlled by it.
6.21 DERIVATIVES CONTRACTS. Neither Area nor any of its Subsidiaries is
a party to or has agreed to enter into an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor or collar financial contract, or any
other interest rate or foreign currency protection contract not included on its
balance sheet which is a financial derivative contract (including various
combinations thereof).
6.22 FAIRNESS OPINION. Area has received an opinion from The Bank
Advisory Group, Inc. ("BAG") that, in its opinion, the consideration to be paid
by Area to shareholders of Cardinal hereunder is fair to Area from a financial
point of view (the "BAG Fairness Opinion"), and BAG has consented to the
conclusion of the BAG Fairness Opinion in the Registration Statement.
6.23 CARDINAL COMMON STOCK. Area owns of record 78,450 shares of
Cardinal Common Stock.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 AFFIRMATIVE COVENANTS OF CARDINAL. Unless the prior written consent
of Area shall have been obtained, and except as otherwise contemplated herein,
Cardinal shall, and shall cause each of its Subsidiaries, from the date of this
Agreement until the Effective Time or termination of this Agreement: (a) to
operate its business in the usual, regular and ordinary course; (b) to preserve
intact its business organization and Assets and maintain its rights and
franchises; (c) to use its reasonable efforts to cause its representations and
warranties to be correct at all times; and (d) to take no action which would (i)
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentence of Section 9.1(b) or
9.1(c) of this Agreement or (ii) adversely affect in any material respect the
ability of either Party to perform its covenants and agreements under this
Agreement.
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7.2 NEGATIVE COVENANTS OF CARDINAL. Except as contemplated
hereby , from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, Cardinal covenants and
agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following without the
prior written consent of the chief executive officer of Area, which consent
shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any Cardinal Company, or
(b) incur any additional debt obligation or other obligation
for borrowed money (other than indebtedness of a Cardinal Company to another
Cardinal Company) in excess of an aggregate of $100,000 (for the Cardinal
Companies on a consolidated basis) except in the ordinary course of the business
of Cardinal Companies consistent with past practices (which shall include, for
Cardinal, advances against its line of credit consistent with past practices,
and for any of its Subsidiaries, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Reserve Bank or Federal Home Loan Bank,
and entry into repurchase agreements fully secured by U.S. government or agency
securities), or impose, or suffer the imposition, on any Asset of any Cardinal
Company of any Lien or permit any such Lien to exist (other than in connection
with deposits, repurchase agreements, bankers acceptances, Federal Home Loan
Bank advances, "treasury tax and loan" accounts established in the ordinary
course of business, the satisfaction of legal requirements in the exercise of
trust powers, and Liens in effect as of the date hereof that are disclosed in
the Cardinal Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into any
shares, of the capital stock of any Cardinal Company, or declare or pay any
dividend or make any other distribution in respect of Cardinal's Common Stock;
provided that Cardinal may (to the extent legally and contractually permitted to
do so) continue to pay its regular quarterly cash dividend of up to $.20 per
share; it being understood that the parties hereto intend for Cardinal
shareholders to receive an amount equal to their regular quarterly cash
dividends as to any fiscal quarter which is at least half completed prior to the
Effective Time; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to the terms
thereof in existence on the date hereof, or as disclosed in Section 7.2(d) of
the Cardinal Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
issuance of or enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of or otherwise permit to become outstanding, any
additional shares of Cardinal Common Stock or any other capital stock of any
Cardinal Company, or any stock appreciation rights, or any option, warrant,
conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
(e) adjust, split, combine or reclassify any capital stock of
any Cardinal Company or issue or authorize the issuance of any other securities
in respect of or in substitution for shares of Cardinal Capital Stock or sell,
lease, mortgage or otherwise dispose of or otherwise encumber (i) any shares of
capital stock of any Cardinal Subsidiary (unless any such shares of stock are
sold or otherwise transferred to another Cardinal Company) or (ii) any Asset
having a book value in excess of $50,000 other than in the ordinary course of
business for reasonable and adequate consideration; or
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(f) except for purchases of U.S. Treasury securities, U.S.
Government agency securities or mortgage-backed securities of maturity or grade
consistent with past practices, purchase any securities or make any material
investment, either by purchase of stock or securities, contributions to capital,
Asset transfers, or purchase of any Assets, in any Person other than a
wholly-owned Cardinal Subsidiary; or otherwise acquire direct or indirect
control over any Person, other than in connection with (i) foreclosures in the
ordinary course of business, or (ii) acquisitions of control by a Cardinal
Subsidiary in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the
employees or officers of any Cardinal Company (including such discretionary
increases as may be contemplated by existing employment agreements), except in
accordance with past practice or previously approved by the Board of Directors
of Cardinal, in each case as disclosed in Section 7.2(g) of the Cardinal
Disclosure Memorandum or as required by Law; pay any severance or termination
pay or any bonus other than pursuant to written policies or written Contracts in
effect on the date of this Agreement and disclosed in Section 7.2(g) of the
Cardinal Disclosure Memorandum; enter into or amend any severance agreements
with officers of any Cardinal Company; grant any increase in fees or other
increases in compensation or other benefits to directors of any Cardinal
Company; or voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits; or
(h) enter into or amend any employment Contract between any
Cardinal Company and any Person (unless such amendment is required by Law) that
the Cardinal Company does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time on
or after the Effective Time; or
(i) adopt any new employee benefit plan of any Cardinal
Company or make any material change in or to any existing employee benefit plans
of any Cardinal Company other than any such change that is required by Law or
that, in the opinion of counsel, is necessary or advisable to maintain the tax
qualified status of any such plan; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be appropriate
to conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
(k) settle any Litigation involving any Liability of any
Cardinal Company for money damages in excess of $50,000 or material restrictions
upon the operations of any Cardinal Company; or
(l) except in the ordinary course of business, modify, amend
or terminate any material Contract or waive, release, compromise or assign any
material rights or claims.
7.3 AFFIRMATIVE COVENANTS OF AREA. Unless the prior written
consent of Cardinal shall have been obtained, and except as otherwise
contemplated herein, (a) Area shall, and shall cause each of its Subsidiaries,
from the date of this Agreement until the Effective Time or termination of this
Agreement: (i) to operate its business in the usual, regular and ordinary
course; (ii) to preserve intact its business organization and Assets and
maintain its rights and franchises; (iii) to use its reasonable efforts to
cause its representations and warranties to be correct at all times; (iv) to
take no action which would (A) adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type
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referred to in the last sentence of Section 9.1(b) or 9.1(c) of this Agreement
or (B) adversely affect in any material respect the ability of either Party to
perform its covenants and agreements under this Agreement; and (b) Area shall
cause Interim to be organized as a Kentucky corporation wholly-owned by Area,
shall cause Interim to execute an agreement of merger and any related documents
with Cardinal in a form to be mutually agreed upon by the Parties hereto, and
shall vote all of the issued and outstanding shares of Interim common stock held
by Area in favor of the Merger.
7.4 NEGATIVE COVENANTS OF AREA. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
Area covenants and agrees that it will not do or agree or commit to do, or
permit any of its Subsidiaries to do or agree or commit to do, any of the
following without the prior written consent of the chief executive officer
of Cardinal, which consent shall not be unreasonably withheld:
(a) amend the Articles of Incorporation, Bylaws or other
governing instruments of any Area Company, or
(b) incur any additional debt obligation or other obligation
for borrowed money (other than indebtedness of a Area Company to another Area
Company) in excess of an aggregate of $100,000 (for the Area Companies on a
consolidated basis) except in the ordinary course of the business of Area
Companies consistent with past practices (which shall include, for any of its
Subsidiaries, creation of deposit liabilities, purchases of federal funds,
advances from the Federal Reserve Bank or Federal Home Loan Bank, and entry into
repurchase agreements fully secured by U.S. government or agency securities), or
impose, or suffer the imposition, on any Asset of any Area Company of any Lien
or permit any such Lien to exist (other than in connection with deposits,
repurchase agreements, bankers acceptances, Federal Home Loan Bank advances,
"treasury tax and loan" accounts established in the ordinary course of business,
the satisfaction of legal requirements in the exercise of trust powers, and
Liens in effect as of the date hereof that are disclosed in the Area Disclosure
Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit plans),
directly or indirectly, any shares, or any securities convertible into any
shares, of the capital stock of any Area Company, or declare or pay any dividend
or make any other distribution in respect of Area's Common Stock; provided,
however, that Area may (to the extent legally and contractually permitted to do
so) continue to pay its regular quarterly cash dividends of up to $.04 per
share; or
(d) except for this Agreement, or pursuant to the exercise of
stock options outstanding as of the date hereof and pursuant to the terms
thereof in existence on the date hereof, or as disclosed in Section 7.4(d) of
the Area Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
issuance of or enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of or otherwise permit to become outstanding, any
additional shares of Area Common Stock or any other capital stock of any Area
Company, or any stock appreciation rights, or any option, warrant, conversion,
or other right to acquire any such stock, or any security convertible into any
such stock; or
(e) adjust, split, combine or reclassify any capital stock of
any Area Company or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Area Capital Stock or sell, lease,
mortgage or otherwise dispose of or otherwise encumber (i) any
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shares of capital stock of any Area Subsidiary (unless any such shares of stock
are sold or otherwise transferred to another Area Company) or (ii) any Asset
having a book value in excess of $50,000 other than in the ordinary course of
business for reasonable and adequate consideration; or
(f) except for purchases of U.S. Treasury securities, U.S.
Government agency securities or mortgage-backed securities of maturity or grade
consistent with past practices, purchase any securities or make any material
investment, either by purchase of stock or securities, contributions to capital,
Asset transfers, or purchase of any Assets, in any Person other than a
wholly-owned Area Subsidiary; or otherwise acquire direct or indirect control
over any Person, other than in connection with (i) foreclosures in the ordinary
course of business, or (ii) acquisitions of control by an Area Subsidiary in its
fiduciary capacity; or
(g) grant any increase in compensation or benefits to the
employees or officers of any Area Company (including such discretionary
increases as may be contemplated by existing employment agreements), except in
accordance with past practice or previously approved by the Board of Directors
of Area, in each case as disclosed in Section 7.4(g) of the Area Disclosure
Memorandum or as required by Law; pay any severance or termination pay or any
bonus other than pursuant to written policies or written Contracts in effect on
the date of this Agreement and disclosed in Section 7.4(g) of the Area
Disclosure Memorandum; enter into or amend any severance agreements with
officers of any Area Company; grant any increase in fees or other increases in
compensation or other benefits to directors of any Area Company; or voluntarily
accelerate the vesting of any stock options or other stock-based compensation or
employee benefits; or
(h) enter into or amend any employment Contract between any
Area Company and any Person (unless such amendment is required by Law) that the
Area Company does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time on
or after the Effective Time; or
(i) adopt any new employee benefit plan of any Area Company or
make any material change in or to any existing employee benefit plans of any
Area Company other than any such change that is required by Law or that, in the
opinion of counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; or
(j) make any significant change in any Tax or accounting
methods or systems of internal accounting controls, except as may be appropriate
to conform to changes in Tax Laws or regulatory accounting requirements or GAAP;
or
(k) settle any Litigation involving any Liability of any Area
Company for money damages in excess of $50,000 or material restrictions upon the
operations of any Area Company, except as disclosed in Section 7.14(k) of the
Area Disclosure Memorandum; or
(l) except in the ordinary course of business, modify, amend
or terminate any material Contract or waive, release, compromise or assign any
material rights or claims.
7.5 ADVERSE CHANGES IN CONDITION. Each Party agrees to give
written notice promptly to the other Party upon becoming aware of the occurrence
or impending occurrence of any event or
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circumstance relating to it or any of its Subsidiaries which (a) is reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
it or (b) is reasonably likely to cause or constitute a material breach of any
of its representations, warranties, or covenants contained herein, and to use
its reasonable efforts to prevent or promptly to remedy the same.
7.6 REPORTS. Each Party and its Subsidiaries shall file all
reports required to be filed by it with Regulatory Authorities between the date
of this Agreement and the Effective Time and shall deliver to the other Party
copies of all non-confidential portions of such reports promptly after
the same are filed.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; PROXY STATEMENT; SHAREHOLDER APPROVAL.
(a) As soon as practicable after execution of this Agreement,
Area shall file the Registration Statement with the SEC, and shall use its
reasonable efforts to cause the Registration Statement to become effective under
the 1933 Act and take any action required to be taken under the applicable state
Blue Sky or securities Laws in connection with the issuance of the shares of
Area Common Stock upon consummation of the Merger. Cardinal shall furnish all
information concerning it and the holders of its capital stock as Area may
reasonably request in connection with such action.
(b) Both Area and Cardinal shall call a Shareholders' Meeting,
to be held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon approval of this
Agreement and such other related matters as Area or Cardinal, as the case may
be, deems appropriate, including, without limitation, approval by shareholders
of Area of an amendment to Area's Articles of Incorporation to increase the
authorized number of shares of Area Common Stock to 50,000,000.
(c) In connection with the Cardinal Shareholders' Meeting, (i)
Area shall prepare and file with the SEC on Cardinal's behalf a Proxy Statement
(which shall be included in the Registration Statement) and mail it to
Cardinal's shareholders, (ii) the Parties shall furnish to each other all
information concerning them that they may reasonably request in connection with
such Proxy Statement, (iii) the Board of Directors of Cardinal shall recommend
(subject to compliance with the fiduciary duties of the members of the Board of
Directors as advised by counsel) to its shareholders the approval of this
Agreement and (iv) the Board of Directors and officers of Cardinal shall use
their reasonable efforts to obtain such shareholders' approval (subject to
compliance with their fiduciary duties as advised by counsel).
(d) In connection with the Area Shareholders' Meeting, (i)
Area shall prepare and file with the SEC on its own behalf a Proxy Statement
(which shall be included in the Registration Statement) and mail it to Area's
shareholders, (ii) the Parties shall furnish to each other all information
concerning them that they may reasonably request in connection with such Proxy
Statement, (iii) the Board of Directors of Area shall recommend (subject to
compliance with the fiduciary duties of the members of the Board of Directors as
advised by counsel) to its shareholders
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the approval of this Agreement and (iv) the Board of Directors and officers of
Area shall use their reasonable efforts to obtain such shareholders' approval
(subject to compliance with their fiduciary duties as advised by counsel).
8.2 EXCHANGE LISTING. Area shall list on Nasdaq the shares of
Area Common Stock to be issued to the holders of Cardinal Common Stock pursuant
to the Merger.
8.3 APPLICATIONS. Area shall promptly prepare and file, and
Cardinal shall cooperate in the preparation and, where appropriate, filing of,
any applications, including without limitation, those with the Board of
Governors of the Federal Reserve System and the Kentucky Department of
Financial Institutions, seeking the requisite Consents necessary to consummate
the transactions contemplated by this Agreement.
8.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, Area shall execute and file the Articles of Merger
with the Secretary of State of the State of Kentucky in connection with the
Closing.
8.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. No Party shall take, or
cause to be taken, any action which may reasonably be foreseen as delaying or
otherwise adversely impacting consummation of the Merger. No Area Company nor
Cardinal Company shall take any action which would cause the Merger not to be
treated as a pooling of interests. Subject to the terms and conditions of this
Agreement, each Party agrees to use, and to cause its Subsidiaries to use, its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
Laws, as promptly as practicable so as to permit consummation of the Merger at
the earliest possible date and to otherwise enable consummation of the
transactions contemplated hereby and shall cooperate fully with the other Party
hereto to that end (it being understood that any amendments to the Registration
Statement filed by Area in connection with the Area Common Stock to be issued in
the Merger shall not violate this covenant), including, without limitation,
using its reasonable efforts to lift or rescind any Order adversely affecting
its ability to consummate the transactions contemplated herein and to cause to
be satisfied the conditions referred to in Article 9 of this Agreement. Each
Party shall use, and shall cause each of its Subsidiaries to use, its reasonable
efforts to obtain all Consents necessary or desirable for the consummation of
the transactions contemplated by this Agreement.
8.6 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each Party will keep the
other Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause to
be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a Party shall affect
the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and
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its Subsidiaries' businesses, operations, and financial positions and shall not
use such information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return all documents and copies
thereof and all work papers containing confidential information received from
the other Party, except for one copy of any materials prepared by that Party or
any attorney for or other representative of that Party based upon such
confidential information.
(c) Each Party agrees to give the other Party notice as soon
as practicable after any determination by it of any fact or occurrence relating
to the other Party which it has discovered through the course of its
investigation and which represents, or is reasonably likely to represent, either
a material breach of any representation, warranty, covenant or agreement of the
other Party or which has had or is reasonably likely to have a Material Adverse
Effect on the other Party.
8.7 PRESS RELEASES. Prior to the Effective Time, Cardinal and Area
shall agree with each other as to the form and substance of any press release or
other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, however, that nothing in this Section
8.7 shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.8 ACQUISITION PROPOSALS.
(a) Except with respect to this Agreement and the transactions
contemplated hereby, no Cardinal Company nor Area Company nor any director,
employee, investment banker, attorney, accountant or other representative
thereof (collectively, "Representatives") retained by any Cardinal Company or
Area Company, as the case may be, shall directly or indirectly solicit any
Acquisition Proposal by any Person. Except to the extent necessary to comply
with the fiduciary duties of a Party's Board of Directors as advised by counsel,
no Cardinal Company nor Area Company nor Representative thereof, shall furnish
any non-public information that it is not legally obligated to furnish,
negotiate with respect to, or enter into any Contract with respect to, any
Acquisition Proposal, but a Party may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations as advised by
counsel. Each Party shall promptly notify the other orally and in writing in the
event that it receives any inquiry or proposal relating to any such transaction.
(b) Except as set forth herein, neither the Board of Directors
of Cardinal nor any committee thereof shall (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Area, the approval or
recommendation of such Board of Directors or any such committee of this
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal or (iii) enter into any agreement with
respect to any Acquisition Proposal. Notwithstanding the foregoing, if in the
opinion of the Cardinal Board of Directors, after consultation with counsel,
failure to do so would be inconsistent with its fiduciary duties to Cardinal
shareholders under applicable law, then, prior to the Shareholders' Meeting, the
Cardinal Board of Directors may (subject to the terms of this section (b))
withdraw or modify its approval or recommendation of this Agreement or the
Merger, approve or recommend an Acquisition Proposal, or enter into an agreement
with respect to an Acquisition Proposal, in each case at any time after the
second business day following Area's receipt of written notice (a "Notice of
Acquisition Proposal") advising Area
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that the Cardinal Board of Directors has received an Acquisition Proposal,
specifying the material terms and conditions of such proposal and identifying
the Person making such proposal; provided that Cardinal shall not enter into an
agreement with respect to an Acquisition Proposal unless Cardinal shall have
furnished Area with written notice no later than 12:00 noon Lexington, Kentucky
time one (1) day in advance of any date that it intends to enter into such
agreement.
(c) In addition to the obligations of Cardinal set forth in section (b)
above, Cardinal shall immediately advise Area orally and in writing of any
request for information or of any Acquisition Proposal, or any inquiry with
respect to or which could lead to an Acquisition Proposal, the material terms
and conditions of such request, Acquisition Proposal or inquiry, and the
identity of the Person making an Acquisition Proposal or inquiry. Cardinal shall
keep Area fully informed of the status and details (including amendments or
proposed amendments) of any such request, Acquisition Proposal or inquiry.
(d) Nothing contained in this Section 8.8 shall prohibit Cardinal from
making any disclosure to its shareholders if, in the opinion of the Cardinal
Board of Directors, after consultation with counsel, failure to so disclose
would be inconsistent with federal securities laws or its fiduciary duties to
its shareholders under applicable law; provided that Cardinal does not, except
as permitted by section (b) above, withdraw or modify, or propose to withdraw or
modify, its position with respect to the Merger or approve or recommend, or
propose to approve or recommend, an Acquisition Proposal.
8.9 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Merger, and to take no action
which would cause the Merger not, to qualify for treatment as a pooling of
interests for accounting purposes or as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes.
8.10 AGREEMENT OF AFFILIATES. Cardinal has disclosed in Section 8.10 of
the Cardinal Disclosure Memorandum all Persons whom it reasonably believes is an
"affiliate" of Cardinal for purposes of Rule 145 under the 1933 Act, and Area
has disclosed in Section 8.10 of the Area Disclosure Memorandum all Persons whom
it reasonably believes to be an "affiliate" of Area for purposes of Rule 145
under the 1933 Act. Each of Area and Cardinal shall use its reasonable efforts
to cause each such Person to deliver to Area and Cardinal, not later than thirty
(30) days after the date of this Agreement, a written agreement, substantially
in the form of Exhibit 1 as to Affiliates of Cardinal, and substantially in the
form of Exhibit 2 as to Affiliates of Area, providing that such Person will not
sell, pledge, transfer or otherwise dispose of the shares of Cardinal Common
Stock and/or Area Common Stock, as applicable, held by such Person except as
contemplated by such agreement or by this Agreement and will not sell, pledge,
transfer or otherwise dispose of the shares of Area Common Stock to be held upon
consummation of the Merger except in compliance with applicable provisions of
the 1933 Act and the rules and regulations thereunder. Area shall be entitled to
place restrictive legends upon certificates for shares of Area Common Stock
issued to Affiliates of Cardinal pursuant to this Agreement to enforce the
provisions of this Section 8.10. Area shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of Area Common Stock by such Affiliates.
8.11 INDEMNIFICATION.
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(a) Area shall indemnify, defend, and hold harmless the
present and former directors, officers, employees, and agents of the Cardinal
Companies (each, an "Indemnified Party") against all Liabilities arising out of
actions or omissions occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement) to the full extent permitted under
Kentucky Law and by Cardinal's Articles of Incorporation and Bylaws as in effect
on the date hereof, including provisions relating to advances of expenses
incurred in the defense of any Litigation. Without limiting the foregoing, in
any case in which approval by Area is required to effectuate any
indemnification, Area shall direct, at the election of the Indemnified Party,
that the determination of any such approval shall be made by independent counsel
mutually agreed upon between Area and the Indemnified Party.
(b) If Area or any of its successors or assigns shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving Person of such consolidation or merger or shall transfer all or
substantially all of its assets to any Person, then and in each case, proper
provision shall be made so that the successors and assigns of Area shall assume
the obligations set forth in this Section 8.11.
(c) The provisions of this Section 8.11 are intended to be for
the benefit of and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives.
8.12 CERTAIN MODIFICATIONS. Area and Cardinal shall consult with
respect to their loan, litigation, and real estate valuation policies and
practices (including loan classifications and levels of reserves) and Cardinal
shall make such modifications or changes to its policies and practices, if any,
prior to the Effective Time, as may be mutually agreed upon. Area and Cardinal
also shall consult with respect to the character, amount, and timing of
restructuring and Merger-related expense charges to be taken by each of the
Parties in connection with the transactions contemplated by this Agreement and
shall take charges in accordance with GAAP, prior to the Effective Time, as may
be mutually agreed upon by the Parties. Neither Parties' representations,
warranties, and covenants contained in this Agreement shall be deemed to be
inaccurate or breached in any respect as a consequence of any modifications or
charges undertaken solely on account of this Section 8.12.
8.13 EMPLOYEE BENEFITS AND CONTRACTS. Following the Effective Time,
Area shall provide generally to officers and employees of the Cardinal Companies
who continue employment with Area or its Subsidiaries following the Effective
Time employee benefits under employee benefit plans, on terms and conditions
which when taken as a whole are substantially similar to those currently
provided by the Area Companies to their similarly situated officers and
employees. For purposes of participation and vesting (but not accrual of
benefits) under such employee benefit plans, (a) service under any qualified
defined benefit plans of Cardinal shall be treated as service under Area's
qualified defined benefit plans, (b) service under any qualified defined
contribution plans of Cardinal shall be treated as service under Area's
qualified defined contribution plans, and (c) service under any other employee
benefit plans of Cardinal shall be treated as service under any similar employee
benefit plans maintained by Area. Area and its Subsidiaries also shall honor in
accordance with their terms all employment, severance, consulting and other
compensation Contracts disclosed in Section 8.13 of the Cardinal Disclosure
Memorandum to Area between any Cardinal Company and any current or former
director, officer, or employee thereof and all provisions for vested benefits
accrued through the Effective Time under the Cardinal Benefit Plans; it being
understood
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that the Contracts to be assumed by Area must be specifically listed or cross
referenced at Section 8.13 of the Cardinal Disclosure Memorandum and that no
other Contracts of the type referenced in Section 8.13 of the Cardinal
Disclosure Memorandum shall be deemed to be assumed by Area as a result of this
Section 8.13. As soon as reasonably practical following the Effective Time, Area
shall register under the 1933 Act and any applicable state securities laws, the
shares of Area Common Stock issuable pursuant to Cardinal Options.
8.14 DELIVERY TO EXCHANGE AGENT. Area shall have delivered to the
Exchange Agent a sufficient number of shares of Area Common Stock to make the
payment contemplated by Section 3.1 hereof, and sufficient cash to make the
payment contemplated by Section 3.5 hereof.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by both Parties pursuant to Section
11.6 of this Agreement:
(A) SHAREHOLDER APPROVAL. The shareholders of both Cardinal
and Area shall have approved this Agreement, and the consummation of the
transactions contemplated hereby, including the Merger, as and to the extent
required by Law, or by the provisions of any governing instruments. The
shareholders of Area shall have approved the amendments to Area's Articles of
Incorporation referenced at Section 6.2 above to increase the authorized shares
of Area Common Stock to 50,000,000.
(B) REGULATORY APPROVALS. All Consents of, filings and
registrations with, and notifications to all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in full
force and effect and all waiting periods required by Law shall have expired. No
Consent obtained from any Regulatory Authority which is necessary to consummate
the transactions contemplated hereby shall be conditioned or restricted in a
manner (including, without limitation, requirements relating to the raising of
additional capital or the disposition of Assets) which in the reasonable
judgment of the Board of Directors of either Party would so materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement as to render inadvisable the consummation of the Merger.
Notwithstanding the foregoing, the Parties hereto acknowledge and agree that any
condition of the Board of Governors of the Federal Reserve System (i) related to
the participation of Area, or any of its directors, officers or affiliates, in
the affairs of Security First Network Bank, or any of Security First Network
Bank's subsidiaries or affiliates, shall not be deemed to adversely impact the
benefits of the transactions contemplated by this Agreement, and (ii) related to
the participation of any of the directors or officers of any Cardinal Company in
the affairs of any Area Company or Cardinal Company following the Merger shall
not be deemed to adversely impact the benefits of the transactions contemplated
by this Agreement.
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(C) CONSENTS AND APPROVALS. Each Party shall have obtained any
and all Consents required for consummation of the Merger (other than those
referred to in Section 9.1(b) of this Agreement) or for the preventing of any
Default under any Contract or Permit of such Party which, if not obtained or
made, is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on such Party. No Consent so obtained which is necessary to
consummate the transactions contemplated hereby shall be conditioned or
restricted in a manner which in the reasonable judgment of the Board of
Directors of either party would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement as to
render inadvisable the consummation of the Merger.
(D) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Law or Order (whether temporary, preliminary or
permanent) or taken any other action which prohibits, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
(E) REGISTRATION STATEMENT. The Registration Statement shall
be effective under the 1933 Act, no stop orders suspending the effectiveness of
the Registration Statement shall have been issued, no action, suit, proceeding
or investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the
shares of Area Common Stock issuable pursuant to the Merger shall have been
received.
(F) EXCHANGE LISTING. The shares of Area Common Stock
issuable pursuant to the Merger shall have been approved for listing on Nasdaq.
(G) TAX MATTERS. Cardinal and Area shall have received a
written opinion of counsel from Powell, Goldstein, Frazer & Murphy LLP, in form
reasonably satisfactory to them (the "Tax Opinion"), to the effect that for
federal income tax purposes (i) the Merger is a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, (ii) the exchange in the
Merger of Cardinal Common Stock for Area Common Stock will not give rise to gain
or loss to the shareholders of Cardinal with respect to such exchange (except to
the extent of any cash received), (iii) the adjusted tax basis of whole shares
of Area Common Stock received by shareholders of Cardinal who exchange shares of
Cardinal Common Stock in the Merger will be the same as the adjusted tax basis
of the shares of Cardinal Common Stock exchanged therefor (reduced by any amount
allocable to a fractional share interest for which cash is received), (iv) the
holding period of the shares of Area Common Stock received in the Merger will
include the period during which the shares of Cardinal Common Stock exchanged
therefor were held, provided such shares of Area Common Stock were held as
capital assets at the Effective Time, (v) the payment of cash to a Cardinal
shareholder in lieu of a fractional share interest in Area Common Stock will be
treated as if the fractional share had been distributed as part of the exchange
and then redeemed by the Area, and (vi) neither Cardinal nor Area will recognize
gain or loss as a consequence of the Merger (except for income and deferred gain
recognized pursuant to Treasury regulations issued under Section 1502 of the
Internal Revenue Code). In rendering such Tax Opinion, counsel shall be entitled
to rely upon representations of officers of Cardinal and Area reasonably
satisfactory in form and substance to such counsel.
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(H) POOLING LETTER. The Parties shall have received a letter
from KPMG Peat Marwick LLP, dated as of the Effective Time, to the effect that
the Merger will qualify for pooling-of-interests accounting treatment under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement.
9.2 CONDITIONS TO OBLIGATIONS OF AREA. The obligations of Area to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by Area pursuant to Section 11.6(a) of this Agreement:
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.2(a), the accuracy of the representations and warranties of Cardinal
set forth or referred to in this Agreement shall be assessed as of the date of
this Agreement and as of immediately prior to the Effective Time with the same
effect as though all such representations and warranties had been made on and as
of immediately prior to the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as of such
date). The representations and warranties of Cardinal set forth in Section 5.3
of this Agreement shall be true and correct (except for inaccuracies which are
de minimus in amount or effect). The representations and warranties of Cardinal
set forth in Sections 5.19 and 5.20 of this Agreement shall be true and correct
in all material respects. There shall not exist inaccuracies in the
representations and warranties of Cardinal set forth in this Agreement
(excluding the representations and warranties set forth in Sections 5.3, 5.19
and 5.20) such that the aggregate effect of such inaccuracies would have, or is
reasonably likely to have, a Material Adverse Effect on Cardinal; provided that,
for purposes of this sentence only, those representations and warranties which
are qualified by references to "material" or "Material Adverse Effect" shall be
deemed not to include such qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Cardinal to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby prior to
the Effective Time shall have been duly performed and complied with in all
material respects.
(C) CERTIFICATES. Cardinal shall have delivered to Area (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Sections 9.2(a) and 9.2(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by Cardinal's Board of Directors and shareholders evidencing the taking
of all corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Area and its counsel shall
request.
(D) CLAIMS/INDEMNIFICATION LETTERS. Each of the directors and
officers of Cardinal shall have executed and delivered to Area letters in
substantially the form of Exhibit 3.
(E) AFFILIATE AGREEMENTS. Area shall have received from each
affiliate of Cardinal the affiliate letter referred to in Section 8.10 hereof.
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9.3 CONDITIONS TO OBLIGATIONS OF CARDINAL. The obligations of
Cardinal to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions,unless waived by Cardinal pursuant to Section 11.6(b)
of this Agreement:
(A) REPRESENTATIONS AND WARRANTIES. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of Area set
forth or referred to in this Agreement shall be assessed as of the date of this
Agreement and as of immediately prior to the Effective Time with the same effect
as though all such representations and warranties had been made on and as of
immediately prior to the Effective Time (provided that representations and
warranties which are confined to a specified date shall speak only as of such
date). The representations and warranties of Area set forth in Section 6.3 of
this Agreement shall be true and correct (except for inaccuracies which are de
minimus in amount or effect). The representations and warranties of Area set
forth in Section 6.19 and 6.20 of this Agreement shall be true and correct in
all material respects. There shall not exist inaccuracies in the representations
and warranties set forth in this Agreement (excluding the representations and
warranties set forth in Sections 6.3, 6.19 and 6.20) such that the aggregate
effect of such inaccuracies would have, or is reasonably likely to have a
Material Adverse Effect on Area; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by reference to
"material" or "Material Adverse Effect" shall be deemed not to include such
qualifications.
(B) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of Area to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all material
respects.
(C) CERTIFICATES. Area shall have delivered to Cardinal (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions of its obligations set forth in Section 9.3(a) and 9.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions duly
adopted by Area's Board of Directors evidencing the taking of all corporate
action necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as Cardinal and its counsel shall request.
(D) AFFILIATE AGREEMENTS. Cardinal shall have received
from each affiliate of Area the affiliate letter referred to in Section 8.10
hereof.
ARTICLE 10
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of Area and Cardinal, this Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time:
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(a) By mutual consent of the Board of Directors of Area
and the Board of Directors of Cardinal; or
(b) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of Cardinal and Section 9.3(a) in the case
of Area or in the material breach of any covenant or other covenant or agreement
contained in this Agreement) in the event of a material breach by the other
Party of any representation or warranty contained in this Agreement which cannot
be or has not been cured within thirty (30) days after the giving of written
notice to the breaching Party of such breach and which breach would provide the
non-breaching Party the ability to refuse to consummate the Merger under the
standard set forth in Section 9.2(a) of this Agreement in the case of Area and
Section 9.3(a) of this Agreement in the case of Cardinal; or
(c) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of Cardinal and Section 9.3(a) in the case
of Area or in the material breach of any covenant or other covenant or agreement
contained in this Agreement) in the event of a material breach by the other
Party of any covenant or agreement contained in this Agreement which cannot be
or has not been cured within thirty (30) days after the giving of written notice
to the breaching Party of such breach; or
(d) By the Board of Directors of either Party in the event
(provided that the terminating Party is not then in breach of any representation
or warranty contained in this Agreement under the applicable standard set forth
in Section 9.2(a) of this Agreement in the case of Cardinal and Section 9.3(a)
in the case of Area or in the material breach of any covenant or other covenant
or agreement contained in this Agreement) (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final nonappealable action of such
authority or if any action taken by such authority is not appealed within the
time limit for appeal, or (ii) if the shareholders of Cardinal fail to vote
their approval of this Agreement and the transactions contemplated hereby as
required by the KBCA at the Shareholders' Meeting where the transactions were
presented to such shareholders for approval and voted upon; or (iii) if the
shareholders of Area fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by the KBCA, and the increase in
authorized Area Common Stock, as contemplated by Section 6.3 above, at the
Shareholders' Meeting where the transactions were presented to such shareholders
for approval and voted upon; or
(e) By the Board of Directors of either Party in the event
that the Merger shall not have been consummated on or before December 31, 1997,
but only if the failure to consummate the transactions contemplated hereby on or
before such date is not caused by any breach of this Agreement by the Party
electing to terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in Section
9.2(a) of this Agreement in the case of Cardinal and Section 9.3(a) in the case
of Area or in the material breach of any covenant or other covenant or agreement
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contained in this Agreement) in the event that any of the conditions precedent
to the obligations of such Party to consummate the Merger (other than as
contemplated by Section 10.1(d) of this Agreement) cannot be satisfied or
fulfilled by the date specified in Section 10.1(e) of this Agreement; or
(g) By the Board of Directors of Cardinal in connection with
entering into a definitive agreement in accordance with Section 8.8(b), provided
that it has complied with all provisions thereof, including the notice
provisions therein, and that it makes simultaneous payment of the Termination
Fee.
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, this
Agreement shall become void and have no effect, except that the provisions of
this Section 10.2 and Sections 11.1 and 11.2 and 8.6(b) of this Agreement shall
survive any such termination and abandonment.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except for this Section 10.3 and
Articles 2, 3 and 4 and Sections 8.10, 8.11, 8.13, 11.1 and 11.2 of this
Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 DEFINITIONS. Except as otherwise provided herein, the capitalized
terms set forth below (in their singular and plural forms as applicable) shall
have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"ACQUISITION PROPOSAL" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger (other than
the Merger), acquisition of all of the stock or Assets of, or other
business combination involving such Party or any of its Subsidiaries or
the acquisition of a substantial equity interest in, or a substantial
portion of the Assets of such Party or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean any person who is an
affiliate for purposes of Rule 145 under the 1933 Act and for purposes
of qualifying the Merger for pooling of interests accounting treatment.
"AGREEMENT" shall mean this Agreement and Plan of Merger,
including the Exhibits delivered pursuant hereto and incorporated
herein by reference.
"ALLOWANCE" shall have the meaning provided in Section 5.9 of
this Agreement.
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"AREA BENEFIT PLANS" shall have the meaning set forth in
Section 6.14 of this Agreement.
"AREA CAPITAL STOCK" shall mean, collectively, the Area Common
Stock and any other class or series of capital stock of Area.
"AREA COMMON STOCK" shall mean the no par value common stock
of Area.
"AREA COMPANIES" shall mean, collectively, Area and all Area
Subsidiaries.
"AREA DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Area Disclosure Memorandum" delivered on or prior
to the date of this Agreement to Cardinal describing in reasonable
detail the matters contained therein.
"AREA FINANCIAL STATEMENTS" shall mean (a) the consolidated
balance sheets (including related notes and schedules, if any) of Area
as of December 31, 1996 and 1995, and the related statements of income,
changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) for each of the three years ended December
31, 1996, 1995 and 1994, as filed by Area in SEC Documents and (b) the
consolidated balance sheets (including related notes and schedules, if
any) of Area and related statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any)
included in SEC Documents filed with respect to periods ended
subsequent to December 31, 1996.
"AREA STOCK PLANS" shall mean the existing stock option and
other stock-based compensation plans and agreements of Area disclosed
in Section 6.14 of the Area Disclosure Memorandum.
"AREA SUBSIDIARIES" shall mean the direct and indirect
Subsidiaries of Area.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character
and description, whether real, personal or mixed, tangible or
intangible, accrued or contingent, or otherwise relating to or utilized
in such Person's business, directly or indirectly, in whole or in part,
whether or not carried on the books and records of such Person, and
whether or not owned in the name of such Person or any Affiliate of
such Person and wherever located.
"BHC ACT" shall mean the federal Bank Holding Company Act of
1956, as amended.
"CARDINAL BENEFIT PLANS" shall have the meaning set forth in
Section 5.14 of this Agreement.
"CARDINAL COMMON STOCK" shall mean the no par value common
stock of Cardinal.
"CARDINAL COMPANIES" shall mean, collectively, Cardinal and
all Cardinal Subsidiaries.
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"CARDINAL DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Cardinal Disclosure Memorandum" delivered on or
prior to the date of this Agreement to Area describing in reasonable
detail the matters contained therein.
"CARDINAL FINANCIAL STATEMENTS" shall mean (a) the
consolidated balance sheets (including related notes and schedules, if
any) of Cardinal as of December 31, 1996 and 1995, and the related
statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) for each of the three
years ended December 31, 1996, 1995 and 1994, as filed by Cardinal in
SEC Documents, and (b) the consolidated balance sheets (including
related notes and schedules, if any) of Cardinal and related statements
of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) filed with respect to periods
ended subsequent to December 31, 1996.
"CARDINAL OPTIONS" shall have the meaning set forth in Section
3.4 of this Agreement.
"CARDINAL STOCK PLANS" shall mean the existing stock option
and other stock-based compensation plans and agreements of Cardinal
disclosed in Section 5.14 of the Cardinal Disclosure Memorandum.
"CARDINAL SUBSIDIARIES" shall mean the direct and indirect
subsidiaries of Cardinal.
"CLOSING" shall mean the closing of the transactions
contemplated hereby, as described in Section 1.2 of this Agreement.
"CLOSING DATE" shall mean the date on which the Closing
occurs.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice, restriction,
understanding or undertaking of any kind or character, or other
document to which any Person is a party or that is binding on any
Person or its capital stock, Assets or business.
"DEFAULT" shall mean (a) any breach or violation of or default
under any Contract, Order or Permit, (b) any occurrence of any event
that with the passage of time or the giving of notice or both would
constitute a breach or violation of or default under any Contract,
Order or Permit, or (c) any occurrence of any event that with or
without the passage of time or the giving of notice would give rise to
a right to terminate or revoke, change the current terms of, or
renegotiate, or to accelerate, increase, or impose any Liability under,
any Contract, Order or Permit.
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"EFFECTIVE TIME" shall mean the date and time at which the
Merger becomes effective as defined in Section 1.3 of this Agreement.
"ENVIRONMENTAL LAWS" shall mean all Laws pertaining to
pollution or protection of the environment and which are administered,
interpreted or enforced by the United States Environmental Protection
Agency and state and local agencies with primary jurisdiction over
pollution or protection of the environment.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA AFFILIATE" shall refer to a relationship between
entities such that the entities would, now or at any time in the past,
constitute a "single employer" within the meaning of Section 414 of the
Code.
"ERISA PLAN" shall have the meaning provided in Section 5.14
of this Agreement.
"EXCHANGE RATIO" shall have the meaning provided in Section
3.1(b) of this Agreement.
"EXHIBITS" 1 and 2, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits
are hereby incorporated by reference herein and made a part hereof and
may be referred to in this Agreement and any other related instrument
or document without being attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant, or
toxic or hazardous substance, pollutant, chemical or waste within the
meaning of the Comprehensive Environment Response, Compensation, and
Liability Act, 42 U.S.C. ss. 9601 et seq., or any similar federal,
state or local Law (and specifically shall include asbestos requiring
abatement, removal or encapsulation pursuant to the requirements of
governmental authorities, polychlorinated biphenyls, and petroleum and
petroleum products).
"HOLA" shall mean the Home Owners' Loan Act of 1933, as
amended.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated
thereunder.
"KBCA" shall mean the Kentucky Business Corporation Act.
"KENTUCKY ARTICLES OF MERGER" shall mean the Articles of
Merger to be filed with the Secretary of State of the State of Kentucky
relating to the Merger as contemplated by Section 1.1 of this Agreement.
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"KNOWLEDGE" as used with respect to Cardinal or Area, as the
case may be, shall mean the actual knowledge of the Chairman,
President, Chief Financial Officer, Chief Accounting Officer, Chief
Credit Officer, General Counsel, any Assistant or Deputy General
Counsel, or any Senior or Executive Vice President of such Person.
"LAW" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a
Person or its Assets, Liabilities or business, including, without
limitation, those promulgated, interpreted or enforced by any of the
Regulatory Authorities.
"LIABILITY" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost or
expense (including, without limitation, costs of investigation,
collection and defense), claim, deficiency, guaranty or endorsement of
or by any Person (other than endorsements of notes, bills, checks, and
drafts presented for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or contingent,
liquidated or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation, restriction,
security interest, title retention or other security arrangement, or
any adverse right or interest, charge, or claim of any nature
whatsoever of on, or with respect to any property or property interest,
other than (i) Liens for current property Taxes not yet due and
payable. (ii) for depository institution Subsidiaries of a Party,
pledges to secure deposits and other Liens incurred in the ordinary
course of the banking business.
"LITIGATION" shall mean any action, arbitration, cause of
action, claim, complaint, criminal prosecution, demand letter,
governmental or other examination or investigation, hearing, inquiry,
administrative or other proceeding, or notice (written or oral) by any
Person alleging potential Liability or requesting information relating
to or affecting a Party, its business, its Assets (including, without
limitation, Contracts related to it), or the transactions contemplated
by this Agreement, but shall not include regular, periodic examinations
of depository institutions and their Affiliates by Regulatory
Authorities.
"LOAN PROPERTY" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property.
"MATERIAL" for purposes of this Agreement shall be determined
in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement
shall determine materiality in that instance.
"MATERIAL ADVERSE EFFECT" on a Party shall mean an event,
change or occurrence which has a material adverse impact on (a) the
financial position, business, or results of operations of such Party
and its Subsidiaries, taken as a whole, or (b) the ability of such
Party to perform its obligations under this Agreement or to consummate
the Merger or the
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other transactions contemplated by this Agreement, provided that
"material adverse impact" shall not be deemed to include the impact of
(v) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (w)
changes in GAAP or regulatory accounting principles generally
applicable to banks and their holding companies, (x) actions and
omissions of a Party (or any of its Subsidiaries) taken with the prior
informed consent of the other Party in contemplation of the
transactions contemplated hereby, (y) the Merger and compliance with
the provisions of this Agreement on the operating performance of the
Parties or (z) changes in economic or other conditions affecting the
banking industry in general.
"MERGER" shall mean the merger of Interim with and into
Cardinal referred to in Section 1.1 of this Agreement.
"NASD" shall mean the National Association of Securities
Dealers, Inc., including the Nasdaq.
"NASDAQ" shall mean the National Market System of the Nasdaq
Stock Market.
"ORDER" shall mean any administrative decision or award,
decree, injunction, judgment, order, quasi-judicial decision or award,
ruling, or writ of any federal, state, local or foreign or other court,
arbitrator, mediator, tribunal, administrative agency or Regulatory
Authority.
"PARTICIPATION FACILITY" shall mean any facility or property
in which the Party in question or any of its Subsidiaries participates
in the management (including any property or facility held in a joint
venture) and, where required by the context, said term means the owner
or operator of such facility or property, but only with respect to such
facility or property.
"PARTY" shall mean either Cardinal or Area, and "Parties"
shall mean both Cardinal and Area.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person or its securities, Assets, Liabilities, or business.
"PERSON" shall mean a natural person or any legal, commercial
or governmental entity, such as, but not limited to, a corporation,
general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in
concert, or any person acting in a representative capacity.
"PROXY STATEMENT" shall mean (a) the proxy statement used by
Cardinal to solicit the approval of its shareholders of the
transactions contemplated by this Agreement and (b) the proxy statement
used by Area to solicit the approval of its shareholders of the
transactions
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contemplated by this Agreement, both of which shall be included in the
prospectus of Area relating to shares of Area Common Stock to be issued
to the shareholders of Cardinal.
"REGISTRATION STATEMENT" shall mean the Registration Statement
on Form S-4, or other appropriate form, filed with the SEC by Area
under the 1933 Act with respect to the shares of Area Common Stock to
be issued to the shareholders of Cardinal in connection with the
transactions contemplated by this Agreement and which shall include the
Proxy Statements.
"REGULATORY AUTHORITIES" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board of
the Governors of the Federal Reserve System, the Office of Thrift
Supervision (including its predecessor, the Federal Home Loan Bank
Board), the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation, all state regulatory agencies having
jurisdiction over the Parties and their respective Subsidiaries, the
NASD and the SEC.
"RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants or other binding obligations of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of a Person or by which a Person is or
may be bound to issue additional shares of its capital stock or other
Rights.
"SEC" shall mean the United States Securities and Exchange
Commission.
"SEC DOCUMENTS" shall mean all forms, proxy statements,
registration statements, reports, schedules and other documents filed,
or required to be filed, by a Party or any of its Subsidiaries with any
Regulatory Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act
of 1940, as amended, the Trust Indenture Act of 1939, as amended, and
the rules and regulations of any Regulatory Authority promulgated
thereunder.
"SHAREHOLDERS' MEETING" shall mean the meeting of the
shareholders of Cardinal or the meeting of the shareholders of Area to
be held pursuant to Section 8.1 of this Agreement, including any
adjournment or adjournments thereof.
"SUBSIDIARIES" shall mean all those corporations, banks,
associations, partnerships or other entities or ventures of which the
entity in question owns or controls 50% or more of the outstanding
equity securities or the ownership interest, as the case may be, either
directly or through an unbroken chain of entities as to each of which
50% or more of the outstanding equity securities is owned directly or
indirectly by its parent; provided, however, there shall not be
included any such entity acquired through foreclosure or any such
entity the equity securities of which are owned or controlled in a
fiduciary capacity.
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"SURVIVING CORPORATION" shall mean Cardinal as the surviving
corporation resulting from the Merger.
"TAX" OR "TAXES" shall mean any federal, state, county, local
or foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy and other
taxes, assessments, charges, fares or impositions, including interest,
penalties and additions imposed thereon or with respect thereto.
Any singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular. Whenever the words "include," "includes," or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation."
11.2 EXPENSES.
(a) Except as otherwise provided in this Section 11.2, each of
the Parties shall bear and pay all direct costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants and counsel, except that each of the Parties shall bear and pay (i)
one-half of the filing fees payable in connection with the Registration
Statement and the applications filed with other Regulatory Authorities, and (ii)
one-half of the costs incurred in connection with the printing or copying of the
Proxy Statements.
(b) Cardinal shall pay, or cause to be paid, in same day funds
to Area the sum of $7 million (the "Termination Fee") upon demand (i) if
Cardinal terminates this Agreement pursuant to Section 10.1(g), or (ii) if prior
to the termination of this Agreement solely as a result of Cardinal shareholders
not having approved the Merger by the requisite vote, a bona fide publicly
disclosed Acquisition Proposal shall have been made and not publicly withrawn
prior to the meeting of Cardinal shareholders to consider the Merger and within
18 months after such termination, Cardinal consummates the transaction which was
the subject of such or any other Acquisition Proposal for consideration to
Cardinal shareholders which is at least equal to $63 per share.
(c) Nothing in this Section 11.2 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of the
terms of this Agreement or otherwise limit the rights of the non-breaching
Party.
11.3 BROKERS AND FINDERS. Except as set forth in the Area or
Cardinal Disclosure Memorandum, each of the Parties represents and warrants
that neither it nor any of its officers, directors, employees or Affiliates has
employed any broker or finder or incurred any Liability for any financial
advisory fees, investment bankers' fees, brokerage fees, commissions, or
finders' fees in connection with this Agreement or the transactions
contemplated hereby. In the event of a claim by any broker or finder based upon
his or its representing or being retained by or allegedly representing or being
retained by Cardinal or Area, each of Cardinal and Area, as the case may be,
agrees to indemnify and hold the other Party harmless of and from any Liability
in respect of any such claim.
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11.4 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Nothing in this
Agreement expressed or implied, is intended to confer upon any Person, other
than the Parties or their respective successors, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, other than as
provided in Section 8.10 and Section 8.13 of this Agreement.
11.5 AMENDMENTS. To the extent permitted by Law, this Agreement
may be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties; provided, however,
that after any such approval by the holders of Cardinal Common Stock or Area
Common Stock, there shall be made no amendment that pursuant to the KBCA
requires further approval by such shareholders without the further
approval of such shareholders.
11.6 WAIVERS.
(a) Prior to or at the Effective Time, Area, acting through
its Board of Directors, chief executive officer or other authorized officer,
shall have the right to waive any Default in the performance of any term of this
Agreement by Cardinal, to waive or extend the time for the compliance or
fulfillment by Cardinal of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of Area
under this Agreement, except any condition which, if not satisfied, would result
in the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of Area.
(b) Prior to or at the Effective Time, Cardinal, acting
through its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the performance of any
term of this Agreement by Area, to waive or extend the time for the compliance
or fulfillment by Area of any and all of its obligations under this Agreement,
and to waive any or all of the conditions precedent to the obligations of
Cardinal under this Agreement, except any condition which, if not satisfied,
would result in the violation of any Law. No such waiver shall be effective
unless in writing signed by a duly authorized officer of Cardinal.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of such
Party at a later time to enforce the same or any other provision of this
Agreement. No waiver of any condition or of the breach of any term contained in
this Agreement in one or more instances shall be deemed to be or construed as a
further or continuing waiver of such condition or breach or a waiver of any
other condition or of the breach of any other term of this Agreement.
11.7 ASSIGNMENT. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any Party hereto (whether by operation of Law or otherwise)
without the prior written consent of the other Party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the Parties and their respective successors and assigns.
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11.8 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
Area: Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
Attn: Thomas R. Brumley
President and CEO
With a copy (which shall not constitute notice) to:
Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
Attn: Timothy O. Shelburne, Esq.
General Counsel
and: Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Kathryn L. Knudson, Esq.
Cardinal: Cardinal Bancshares, Inc.
400 East Vine Street
Suite 300
Lexington, Kentucky 40507
Attn: John S. Penn
President and CEO
With a copy (which shall not constitute notice):
Hogan and Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004
Attn: Stuart G. Stein, Esq.
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11.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Kentucky, without regard to any
applicable conflicts of Laws, except to the extent that the federal laws of the
United States may apply to the Merger.
11.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
11.13 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: AREA BANCSHARES CORPORATION
/s/ Judith R. Windle By: /s/ Thomas R. Brumley
- ----------------------------- ----------------------
Secretary Thomas R. Brumley
President and CEO
[CORPORATE SEAL]
ATTEST: CARDINAL BANCSHARES, INC.
/s/ Carolyn L. Gabriel By: /s/ John S. Penn
- ---------------------------- ----------------------
Secretary John S. Penn
President and CEO
[CORPORATE SEAL]
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APPENDIX B
SUBTITLE 13. DISSENTERS' RIGHTS
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
271B.13-010. -- DEFINITIONS. As used in this subtitle:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under KRS 271B.13-020 and who exercises that right when and in
the manner required by KRS 271B.13-200 to 271B.13-280.
(3) "Fair value" with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable. In
any transaction subject to the requirements of KRS 271B.12- 210 or exempted by
KRS 271B.12-220(2), "fair value" shall be at least an amount required to be paid
under KRS 271B.12-220(2) in order to be exempt from the requirements of KRS
271B.12- 210.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder. (Enact. Acts 1988, ch. 23, ss. 123, effective January 1, 1989).
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271B.13-020. RIGHT TO DISSENT.
(1) A shareholder shall be entitled to dissent from, and obtain
payment of the fair value of his shares in the event of, any
of the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party:
1. If shareholder approval is required for the
merger by KRS 271B.11-030 or the articles
of incorporation and the shareholder is
entitled to vote on the merger; or
2. If the corporation is a subsidiary that is
merged with its parent under KRS
271B.11-040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose
shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation
other than in the usual and regular course of
business, if the shareholder is entitled to vote on
the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by
which all or substantially all of the net proceeds of
the sale will be distributed to the shareholders
within one (1) year after the date of sale;
(d) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of
a dissenter's shares because it:
1. Alters or abolishes a preferential right of
the shares to a distribution or in
dissolution;
2. Creates, alters, or abolishes a right in
respect of redemption, including a provision
respecting a sinking fund for the redemption
or repurchase, of the shares;
3. Excludes or limits the right of the shares
to vote on any matter other than a
limitation by dilution through issuance of
shares or other securities with similar
voting rights; or
4. Reduces the number of shares owned by the
shareholder to a fraction of a share if the
fractional share so created is to be
acquired for cash under KRS 271B.6-040;
(e) Any transaction subject to the requirements of KRS
271B.12-210 or exempted by KRS 271B.12-220(2); or
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(f) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their
shares.
(2) A shareholder entitled to dissent and obtain payment for his
shares under this chapter shall not challenge the corporate
action creating his entitlement unless the action is unlawful
or fraudulent with respect to the shareholder or the
corporation.
(Enact. Acts 1988, ch. 23, ss. 124, effective January 1, 1989.)
271B.13-030. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -- (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he shall dissent with respect to all shares
beneficially owned by any one (1) person and notify the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection shall be
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(a) He submits to the corporation the record
shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters'
rights; and
(b) He does so with respect to all shares of which he is
the beneficial shareholder or over which he has power to
direct the vote. (Enact. Acts 1988, ch. 23, ss. 125, effective
January 1, 1989.)
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
271B.13-200. NOTICE OF DISSENTERS' RIGHTS. -- (1) If proposed corporate
action creating dissenters' rights under KRS 271B.13-020 is submitted to a vote
at a shareholders' meeting, the meeting notice must state that shareholders are
or may be entitled to assert dissenters' rights under this subtitle and the
corporation shall undertake to provide a copy of this subtitle to any
shareholder entitled to vote at the shareholders' meeting upon request of that
shareholder.
(2) If corporate action creating dissenters' rights under KRS
271B.13-020 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in KRS
271B.13-220. (Enact. Acts 1988, ch. 23, ss. 126, effective January 1, 1989.)
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271B.13-210. NOTICE OF INTENT TO DEMAND PAYMENT. -- (1) If
proposed action creating dissenters' rights under KRS 271B.13-020 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights:
(a) Shall deliver to the corporation before the vote is
taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated; and
(b) Shall not vote his shares in favor of the proposed
action.
(2) A shareholder who does not satisfy the requirements of
subsection (1) of this section shall not be entitled to payment for his shares
under this chapter. (Enact. Acts 1988, ch. 23, ss. 127, effective January 1,
1989.)
271B.13-220. DISSENTERS' NOTICE. -- (1) If proposed corporate
action creating dissenters' rights under KRS 271B.13-020 is authorized
at a shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of KRS 271B.13-210.
(2) The dissenters' notice shall be sent no later than ten (10)
days after the date the proposed corporate action was authorized by the
shareholders, or, if no shareholder authorization was obtained, by the board of
directors, and shall:
(a) State where the payment demand must be sent and where
and when certificates for certificated shares must be
deposited;
(b) Inform holders of uncertificated shares to what
extent transfer of the shares will be restricted after a
payment demand is received;
(c) Supply a form for demanding payment that includes
the date of the first announcement to news media or
shareholders of the terms of the proposed corporate action
and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of
the shares before that date;
(d) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty (30),
nor more than sixty (60) days after the date the notice
provided in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this subtitle. (Enact.
Acts 1988; ch. 23, ss. 128, effective January 1, 1989.)
271B.13-230. DUTY TO DEMAND PAYMENT. -- (1) A shareholder who is
sent a dissenters' notice described in KRS 271B.13-220 shall demand payment,
certify whether he acquired ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to subsection (2)(c) of
KRS 271B.13-220, and deposit his certificates in accordance with the terms of
the notice.
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(2) The shareholder who demands payment and deposits his share
certificates under subsection (1) of this section shall retain all other rights
of a shareholder until these rights are cancelled or modified by the taking of
the proposed corporate action.
(3) A shareholder who does not demand payment or deposit his
share certificates where required, each by the date set in the dissenters'
notice, shall not be entitled to payment for his shares under this
subtitle. (Enact. Acts 1988, ch. 23, ss. 129, effective January 1, 1989.)
271B.13-240. SHARE RESTRICTIONS. -- (1) The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received until the proposed corporate action is taken or the
restrictions released under KRS 271B.13-260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares shall retain all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(Enact. Acts 1988, ch. 23, ss. 130, effective January 1, 1989.)
271B.13-250. PAYMENT. -- (1) Except as provided in KRS
271B.13-270, as soon as the proposed corporate action is taken, or upon receipt
of a payment demand, the corporation shall pay each dissenter who complied with
KRS 271B.13-230 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(3) The payment shall be accompanied by:
(a) The corporation's balance sheet as of the end of the
fiscal year ending not more than sixteen (16) months before
the date of payment, an income statement for that year, a
statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
and
(d) A statement of the dissenter's right to demand
payment under KRS 271B.13-280. (Enact. Acts 1988, ch. 23, ss.
131, effective January 1, 1989.)
271B.13-260. FAILURE TO TAKE ACTION. -- (1) If the corporation
does not take the proposed action within sixty (60) days after the date set for
demanding payment and depositing share certificates, the corporation
shall return the deposited certificates and release the transfer restrictions
imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it shall
send a new dissenters' notice under KRS 271B.13- 220 and repeat the payment
demand procedure. (Enact. Acts 1988, ch. 23, ss. 132, effective January 1,
1989.)
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271B.13-270 AFTER-ACQUIRED SHARES. -- (1) A corporation may elect to
withhold payment required by KRS 271B.13-250 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under KRS
271B.13-280. (Enact. Acts 1988, ch. 23, ss. 133, effective January 1, 1989.)
271B.13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER. -- (1) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under KRS 271B.13-250), or reject the
corporation's offer under KRS 271B.13-270 and demand payment of the fair value
of his shares and interest due, if:
(a) The dissenter believes that the amount paid under KRS
271B.13-250 or offered under KRS 271B.13-270 is less than the
fair value of his shares or that the interest due is
incorrectly calculated;
(b) The corporation fails to make payment under KRS
271B.13-250 within sixty (60) days after the date set for
demanding payment; or
(c) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release
the transfer restrictions imposed on uncertificated shares
within sixty (60) days after the date set for demanding
payment.
(2) A dissenter waives his right to demand payment under this
section unless he shall notify the corporation of his demand in writing under
subsection (1) of this section within thirty (30) days after the corporation
made or offered payment for his shares. (Enact. Acts 1988, ch. 23, ss. 134,
effective January 1, 1989.)
JUDICIAL APPRAISAL OF SHARES
271B.13-300 COURT ACTION. -- (1) If a demand for payment under KRS
271B.13-280 remains unsettled, the corporation shall commence a proceeding
within sixty (60) days after receiving the payment demand and petition the court
to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
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(2) The corporation shall commence the proceeding in the circuit court
of the county where a corporation's principal office (or, if none in the state,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters (whether or not residents
of this state) whose demands remained unsettled parties to the proceeding as in
an action against their shares and all parties shall be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section shall be plenary and exclusive. The court
may appoint one (1) or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters shall be entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding shall be
entitled to judgment:
(a) For the amount, if any, by which the court finds the
fair value of his shares, plus interest, exceeds the amount
paid by the corporation; or
(b) For the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to
withhold payment under KRS 271B.13-270. (Enact. Acts 1988, ch.
23, ss. 135, effective January 1, 1989.)
271B.13-310. COURT COSTS AND COUNSEL FEES. -- (1) The court in an
appraisal proceeding commenced under KRS 271B.13-300 shall determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under KRS 271B.13-280.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all
dissenters, if the court finds the corporation did not
substantially comply with the requirements of KRS 271B.13-200
to 271B.13-280; or
(b) Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by this subtitle.
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(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited. (Enact. Acts 1988, ch. 23, ss. 136,
effective January 1, 1989.)
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APPENDIX C
_________, 1997
Board of Directors
Area Bancshares Corporation
Owensboro, Kentucky
Gentlemen:
You have requested that The Bank Advisory Group, Inc. act as an independent
financial analyst and advisor to the common shareholders of Area Bancshares
Corporation, a Kentucky corporation ("Area"). Specifically, we have been asked
to render advice and analysis in connection with the proposed merger (the
"Merger") of Cardinal Bancshares, Inc., Lexington, Kentucky ("Cardinal") with
Area. In our role as an independent financial analyst, you have requested our
opinion with regard to the fairness - from the perspective of the common
shareholders of Area - of the financial terms of the proposed merger pursuant to
the provisions of the Agreement and Plan of Merger (the "Agreement") dated April
30, 1997.
In conjunction with our review of the Agreement, our understanding is that Area
proposes to consummate the Merger pursuant to the following financial terms:
- Holders of Cardinal Common Stock at the effective time of the
Merger (the "Effective Time"), other than the holders who have
duly exercised and perfected their dissenters' rights, shall
receive 2.7391 shares of Area Common Stock in exchange for
each share of Cardinal Common Stock they hold immediately
prior to the Effective Time.
- All rights to Cardinal Common Stock with respect to options
granted by Cardinal which are outstanding at the Effective
Time shall be converted into and become rights with respect to
Area Common Stock; and, the number of shares of Area Common
Stock subject to such options shall be equal to the number of
Cardinal Common Stock subject to such Cardinal Options times
2.7391.
- No fractional shares of Area Common Stock will be issued and,
in lieu thereof, holders of shares of Cardinal Common Stock
who would otherwise be entitled to a fractional share interest
will be paid an amount in cash based on the Market Value of
one share of Area Common Stock.
The Bank Advisory Group, Inc., as part of its line of professional services,
specializes in rendering valuation opinions of banks and bank holding companies
in connection with mergers and acquisitions nationwide. Prior to our retention
for this assignment, The Bank Advisory Group provided financial advisory
services to Area; however, the revenues derived from the delivery of such
services are insignificant when compared to The Bank Advisory Group's total
gross revenues. The Bank Advisory Group has not previously provided any services
to Cardinal Bancshares, Inc.
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In connection with this opinion and with respect to Area we have reviewed, among
other things:
1. Audited consolidated financial statements, in Annual Report
Form and on Form 10-K, for the years ended December 31, 1996,
1995, and 1994;
2. Quarterly financial statements, on Form 10-Q, for the
three-month period ended March 31, 1997;
3. Consolidated financial statements, on form F.R. Y-9C, for the
years ended December 31, 1996, 1995, and 1994, and for the
three-month period ended March 31, 1997, as filed with the
Federal Reserve System;
4. Parent company only financial statements, on form F.R. Y-9LP,
for the years ended December 31, 1996, 1995, and 1994, and for
the three-month period ended March 31, 1997, as filed with the
Federal Reserve System;
5. The condition of the commercial banking industry, as indicated
in financial reports filed with various federal bank
regulatory authorities by all federally-insured commercial
banks;
6. Certain internal financial analyses and forecasts prepared by
the management of Area, including projections of future
performance;
7. Certain other summary materials and analyses with respect to
Area's loan portfolio, securities portfolio, deposit base,
fixed assets, and operations including, but not limited to:(i)
schedules of loans and other assets identified by management
as deserving special attention or monitoring given the
characteristics of the loan/asset and the local economy, (ii)
analyses concerning the adequacy of the loan loss reserve,
(iii)schedules of "other real estate owned," including current
carrying values and recent appraisals, and (iv) schedules of
securities, detailing book values, market values, and lengths
to maturity; and,
8. Such other information - including financial and economic
studies, analyses and investigations - that we deem relevant
to this assignment.
In connection with this opinion and with respect to Cardinal, we have reviewed,
among other things:
1. Audited consolidated financial statements, in Annual Report
Form and on Form 10-K, for the years ended December 31, 1996,
1995, and 1994;
2. Quarterly financial statements, on Form 10-Q, for the
three-month period ended March 31, 1997;
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3. Consolidated financial statements, on form F.R. Y-9C, for the
years ended 1996, 1995, and 1994, and for the three-month
period ended March 31, 1997, as filed with the Federal Reserve
System;
4. Parent company only financial statements, on form F.R. Y-9LP,
for the years ended December 31, 1996, 1995, and 1994, and for
the three-month period ended March 31, 1997, as filed with the
Federal Reserve System;
5. The condition of the commercial banking industry, as indicated
in financial reports filed with various federal bank
regulatory authorities by all federally-insured commercial
banks;
6. Certain internal financial analyses and forecasts prepared by
the management of Cardinal, including projections of future
performance;
7. Certain other summary materials and analyses with respect to
Cardinal's loan portfolio, securities portfolio, deposit base,
fixed assets, and operations including, but not limited to:
(i) schedules of loans and other assets identified by
management as deserving special attention or monitoring given
the characteristics of the loan/asset and the local economy,
(ii) analyses concerning the adequacy of the loan loss
reserve, (iii) schedules of "other real estate owned,"
including current carrying values and recent appraisals, and
(iv) schedules of securities, detailing book values, market
values, and lengths to maturity; and,
8. Such other information including financial and economic
studies, analyses and investigations that we deem relevant to
this assignment.
In connection with this opinion and with respect to the proposed Merger, we have
reviewed, among other things:
1. The Agreement, and any amendments thereto, that sets forth,
among other items, the terms, conditions to closing, pending
litigation against both Area and Cardinal, and representations
and warranties of Area and Cardinal with respect to the
proposed Merger;
2. The Joint Proxy Statement/Prospectus, to which this opinion is
appended, that is being furnished to the shareholders of Area
and Cardinal in connection with the proposed Merger;
3. The financial terms and price levels for thirteen commercial
banking organizations with assets between $400 million and
$900 million recently acquired for 100% stock in the United
States during 1996 and the first calendar quarter of 1997,
together with the financial performance and condition of such
banks;
4. Such other information - including financial and economic
studies, analyses and investigations - that we deem relevant
to this assignment.
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Based on our experience, we believe our review of, among other things, the
aforementioned items provides a reasonable basis for our opinion, recognizing
that we are expressing an informed professional opinion-not a certification of
value.
We have relied upon the information provided by the management of Area and
Cardinal, or otherwise publicly-available, and reviewed by us, as being complete
and accurate in all material respects. Furthermore, we have not verified through
independent inspection or examination the specific assets or liabilities of Area
and Cardinal, or their subsidiary banks. We have also assumed that there has
been no material change in the assets, financial condition, results of
operations, or business prospects of Area and Cardinal since the date of the
last financial statements made available to us. We have met with the managements
of both Area and Cardinal for the purpose of discussing the relevant information
that has been provided to us.
Based on all factors that we deem relevant and assuming the accuracy and
completeness of the information and data provided to us, we conclude that the
terms of the proposed Merger, as outlined herein, are fair, from a financial
standpoint, to the common shareholders of Area Bancshares Corporation.
This opinion is available for disclosure to the shareholders of Area.
Accordingly, we hereby consent to the inclusion of our opinion as an appendix to
the Proxy Statement/Prospectus relating to the proposed Merger, and to the
reference of our firm in the Proxy Statement/Prospectus.
Respectfully submitted,
/s/ THE BANK ADVISORY GROUP, INC.
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APPENDIX D
April 30, 1997
Board of Directors
Cardinal Bancshares, Inc.
400 East Vine Street
Suite 300
Lexington, Kentucky 40507
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of Cardinal Bancshares, Inc.,
Lexington, Kentucky (the "Company" or "Cardinal") of the proposed merger of the
Company with Area Bancshares Corporation, Owensboro, Kentucky ("AREA"). In the
proposed merger, Company shareholders will receive 2.7391 shares of AREA common
stock for each Company common share outstanding. In addition, each outstanding
Company option of Company common stock will be converted into an option to
purchase 2.7391 shares of AREA common stock at a strike price which will be
adjusted by dividing the current Company option strike price by 2.7391, as
further defined in the Agreement and Plan of Merger between AREA and the Company
(the "Agreement"). The closing price of AREA common stock on April 23, 1997 was
$23.00 indicating a per share transaction value of $63.00.
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as part
of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiaries: The Vine
Street Trust Company and its subsidiary VST Financial Services; HNB Bank, N.A.;
Alliance Bank, FSB; First & Peoples Bank; The Jefferson Banking Company; and
Cardinal Data Services Corporation, which are collectively known as (the
"Subsidiaries), contained in: (i) December 31, 1994, 1995, and 1996 annual
reports and Form 10Ks filed by the Company with the SEC; (ii) March 31, 1997
unaudited financial statements of the Company; (iii) March 31, 1996, June 30,
1996 and September 30, 1996 Forms 10Q filed by the Company with the SEC; (iv)
the 1994, 1995 and 1996 Notice of Annual Shareholders Meetings for the Company;
and (v) the December 31, 1996 Uniform Bank Performance Reports and Uniform
Holding Company Performance Report of the Company and Subsidiary Banks. We have
reviewed and tabulated statistical data regarding the loan portfolio, securities
portfolio and other performance ratios and statistics. Financial projections
were prepared and analyzed as well as other financial studies, analyses and
investigations as deemed relevant for the purposes of this opinion. In review of
the aforementioned information, we have taken into account our assessment of
general market
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and financial conditions, our experience in other transactions, and our
knowledge of the banking industry generally.
We have not compiled, reviewed or audited the financial statements of the
Company, the Subsidiaries or AREA, nor have we independently verified any of the
information reviewed; we have relied upon such information as being complete and
accurate in all material respects. We have not made independent evaluation of
the assets of the Company, the Subsidiaries or AREA.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the consideration proposed
to be received by the shareholders of the Company under the Agreement is fair
and equitable from a financial perspective.
Very truly yours,
/s/ Christopher L. Hargrove
-----------------------------------
PROFESSIONAL BANK SERVICES, INC.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provisions of the Kentucky Business Corporation Act (the "Kentucky
Act") and the Registrant's Articles of Incorporation set forth the extent to
which the Registrant's directors and officers may be indemnified against
liabilities they may incur while serving in such capacities. The Registrant's
Articles of Incorporation provide that the Registrant shall indemnify its
officers and directors in accordance with Section 271B.8-510 of the Kentucky
Act. Section 271B.8-510 provides that a corporation may indemnify its officers
and directors against reasonable expenses (including attorneys' fees) incurred
by them in the defense of any action, suit or proceeding to which they were made
a party, or in defense of any claim, issue or matter therein, by reason of the
fact that they are or were officers, directors, of the corporation, to the
extent that they have been successful, on the merits or otherwise, in such
defense. Section 271B.8-510 also permits indemnification of its directors and
officers against any liability incurred in connection with any threatened,
pending or completed action, suit or proceeding by reason of the fact that they
are or were directors or officers of the Registrant or who, while directors or
officers of the Registrant, are or were serving at the Registrant's request as
directors, officers, partners, trustees, employees or agents of another entity,
if they acted in a manner they believed in good faith to be in, or not opposed
to, the best interests of the Registrant, or, with respect to any criminal
proceeding, had no reasonable cause to believe their conduct was unlawful, if a
determination has been made that they have met these standards of conduct. Such
indemnification in connection with a proceeding by or in the right of the
Registrant, however, is limited to reasonable expenses, including attorneys'
fees, incurred in connection with the proceeding. The Registrant may also
advance expenses incurred by any director or officer in defending any such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such officer or director to repay such advances unless it is ultimately
determined that he or she is not entitled to indemnification by the Registrant.
The Registrant may not indemnify a director or officer in connection
with a proceeding by or in the right of the Registrant in which the director or
officer was adjudged liable to the Registrant or in connection with a proceeding
in which he or she was adjudged liable on the basis that he or she improperly
received a personal benefit.
The Registrant maintains an insurance policy insuring the Registrant and
its directors and officers against certain liabilities, including liabilities
under the Securities Act of 1933.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
1 -- Agreement and Plan of Merger, dated May 1, 1997, between Area and
Cardinal (included as Appendix A to the Joint Proxy
Statement/Prospectus contained herein).
3.1 -- Articles of Incorporation of the Registrant, as amended.(1)
3.2 -- Bylaws of the Registrant, as amended.(1)
5.1 -- Opinion of Timothy O. Shelburne, Esq., including consent.
8.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP, including
consent.
10.1 -- Form of Restricted Stock Plan Agreement.(1)(2)
10.2 -- Form of 1994 Stock Option Plan.(1)(2)
10.3 -- Memorandum dated September 18, 1996 regarding executive officer
incentive compensation.(2)(3)
23.1 -- Consent of Timothy O. Shelburne, Esq. (included in Exhibit 5.1).
23.2 -- Consent of Powell, Goldstein, Frazer & Murphy LLP (included in
Exhibit 8.1).
23.3 -- Consent of KPMG Peat Marwick LLP regarding Area consolidated
financial statements.
23.4 -- Consent of KPMG Peat Marwick LLP regarding Cardinal consolidated
financial statements.
23.5 -- Consent of The Bank Advisory Group, Inc.
23.6 -- Consent of Professional Bank Services, Inc.
24 -- Power of Attorney (see signature page to the Registration
Statement).
- --------------------
(1) Incorporated by reference to the exhibit of the same number to the
Registrant's Form 10-A1, filed with the Commission on June 30, 1995.
(File No. 0-26032).
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(2) The indicated exhibit is a compensatory plan required to be filed as
an exhibit.
(3) Incorporated by reference to Exhibit 10.1 of the Registrant's
Quarterly Report on Form 10-Q, dated September 30, 1996.
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not
applicable, or the required information is shown in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission (the "Commission")
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant
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pursuant to the foregoing provisions (see Item 20), or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Owensboro, State of
Kentucky, on June 16, 1997.
AREA BANCSHARES CORPORATION
By: /s/Thomas R. Brumley
--------------------------------------
Thomas R. Brumley
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears on the signature pages to this Registration Statement constitutes and
appoints Thomas R. Brumley and Timothy O. Shelburne, and each of them, his or
her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement, and to file the same, with all exhibits hereto and
other documents in connection herewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents and each of them,
full power and authority to do so and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Anthony G. Bittel Director June 16, 1997
- ---------------------------
Anthony G. Bittel
/s/ Thomas R. Brumley President, Chief Executive June 16, 1997
- --------------------------- Officer and Director
Thomas R. Brumley principal executive officer)
/s/ C.M. Gatton Chairman of the Board of Directors June 16, 1997
- ---------------------------
C.M. Gatton
II-5
<PAGE> 147
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gary H. Latham Director June 16, 1997
- -------------------------
Gary H. Latham
/s/ Raymond McKinney Vice Chairman of the Board June 16, 1997
- ------------------------- of Directors
Raymond McKinney
/s/ John A. Ray Senior Vice President and Chief June 16, 1997
- ------------------------- Financial Officer (principal
John A. Ray financial and accounting officer)
/s/ Allan R. Rhodes Director June 16, 1997
- -------------------------
Allan R. Rhodes
/s/ David W. Smith, Jr. Director June 16, 1997
- -------------------------
David W. Smith, Jr.
/s/ William H. Thompson Director June 16, 1997
- -------------------------
William H. Thompson
/s/ Pollard White Director June 16, 1997
- -------------------------
Pollard White
II-6
<PAGE> 148
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
1 -- Agreement and Plan of Merger, dated May 1, 1997, between Area and
Cardinal (included as Appendix A to the Joint Proxy
Statement/Prospectus contained herein).
3.1 -- Articles of Incorporation of the Registrant, as amended.(1)
3.2 -- Bylaws of the Registrant, as amended.(1)
5.1 -- Opinion of Timothy O. Shelburne, Esq. including consent.
8.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP, including
consent.
10.1 -- Form of Restricted Stock Plan Agreement.(1)(2)
10.2 -- Form of 1994 Stock Option Plan.(1)(2)
10.3 -- Memorandum dated September 18, 1996 regarding executive officer
incentive compensation.(2)(3)
23.1 -- Consent of Timothy O. Shelburne, Esq. (included in Exhibit 5.1).
23.2 -- Consent of Powell, Goldstein, Frazer & Murphy LLP (included in
Exhibit 8.1).
23.3 -- Consent of KPMG Peat Marwick LLP regarding Area financial
statements.
23.4 -- Consent of KPMG Peat Marwick LLP regarding Cardinal financial
statements
23.5 -- Consent of The Bank Advisory Group, Inc.
23.6 -- Consent of Professional Bank Services, Inc.
24 -- Power of Attorney (see signature page to the Registration
Statement).
- --------------------
(1) Incorporated by reference to the exhibit of the same number to the
Registrant's Form 10-A1, filed with the Commission on June 30, 1995.
(File No. 0-26032).
(2) The indicated exhibit is a compensatory plan required to be filed as
an exhibit.
(3) Incorporated by reference to Exhibit 10.1 of the Registrants Quarterly
Report on Form 10-Q, dated September 30, 1996.
<PAGE> 1
EXHIBIT 5.1
June 16, 1997
Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
Ladies and Gentlemen:
This opinion is given in connection with the filing by Area Bancshares
Corporation ("Area"), a corporation organized and existing under the laws of the
State of Kentucky, with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, of a Registration Statement on Form S-4
("Registration Statement") with respect to the shares of no par value common
stock of Area ("Area Common Stock") to be issued in connection with the proposed
merger of Cardinal Bancshares, Inc.("Cardinal") with Interim Area Corporation, a
wholly-owned subsidiary of Area (the "Merger").
The Merger is intended to be effected pursuant to an Agreement and Plan
of Merger dated as of May 1, 1997 (the "Agreement") between Area and Cardinal,
pursuant to which each outstanding share of no par value common stock of
Cardinal (other than shares held by Cardinal, Area or their subsidiaries or by
shareholders who perfect their dissenters' rights) will be converted into and
exchanged for the right to receive 2.7391 shares of Area Common Stock.
In rendering this opinion, I have examined such corporate records and
documents, including the Agreement, as I have deemed relevant and necessary as
the basis for the opinion set forth herein.
Based upon the foregoing, it is my opinion that the shares of Area
Common Stock, when issued to the holders of Cardinal Common Stock on the terms
and upon the fulfillment of the conditions set forth in the Agreement, will be
validly issued, fully paid and non-assessable under the Kentucky Business
Corporation Act.
I hereby consent to the use of this opinion and to the reference made
to me under the caption "Legal Matters" in the Joint Proxy Statement/Prospectus
constituting part of the Registration Statement.
Very truly yours,
/s/ Timothy O. Shelburne
<PAGE> 1
EXHIBIT 8.1
June 16, 1997
Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
Cardinal Bancshares, Inc.
400 East Vine Street
Suite 300
Lexington, Kentucky 40507
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of the proposed merger of Cardinal Bancshares, Inc., a
corporation organized and existing under the laws of the State of Kentucky
("Cardinal"), with Interim Area Corporation (Interim"), a corporation organized
and existing under the laws of the State of Kentucky and a wholly-owned
subsidiary of Area Bancshares Corporation ("Area"). For purposes of rendering
this opinion, we have reviewed and relied on the Agreement and Plan of Merger by
and between Cardinal and Area, dated as of May 1, 1997, (the "Merger
Agreement"), the Form S-4 Registration Statement filed with the Securities and
Exchange Commission (the "S-4") relating to the Area securities to be issued
pursuant to the Merger Agreement, the certificates attached hereto, and such
other documents as we have considered appropriate. Unless otherwise indicated,
terms used in this opinion have the same meaning as in the Merger Agreement.
For purposes of this opinion, we have assumed that the Merger will be
consummated at the Effective Time pursuant to the terms and conditions set forth
in the Merger Agreement. We have assumed that there is no plan or intention on
the part of the shareholders of Cardinal to sell, exchange or otherwise dispose
of a number of shares of Area Common Stock received in the Merger that would
reduce the Cardinal shareholders' ownership of Area Common Stock to a number of
shares having a value, determined as of the Effective Time, of less than fifty
percent (50%) of the value of all of the formerly outstanding shares of Cardinal
Common Stock as of the Effective Time taking into account shares of Cardinal
Common Stock exchanged for cash in lieu of fractional shares and shares
<PAGE> 2
Area Bancshares Corporation
June 16, 1997
Page 2
of Cardinal Common Stock sold, redeemed or disposed of prior to and in
contemplation of the Merger.
In addition, we have assumed with your permission that the facts and
representations certified to us in writing by Cardinal and Area which are set
forth in the certificates attached hereto, will apply as of the Effective Time.
Copies of such certificates are attached hereto and incorporated herein by
reference. We have neither investigated nor verified the accuracy of any of the
facts which have been certified to us, upon which this opinion is based.
This opinion is based also on the Internal Revenue Code, Treasury
Regulations, Internal Revenue Service rulings, judicial decisions, and other
applicable authority, all as in effect on the date of this opinion. The legal
authorities on which this opinion is based may change at any time. Any such
change may be applied retroactively and could modify the opinions expressed
herein. This opinion does not address any tax considerations under foreign,
state, or local laws, or the tax considerations to certain Cardinal shareholders
in light of their particular circumstances, including persons who are not United
States persons, dealers in securities, tax-exempt entities, shareholders who do
not hold Cardinal Common Stock as a "capital asset" within the meaning of
Section 1221 of the Internal Revenue Code, and shareholders who acquired their
shares of Cardinal Common Stock pursuant to the exercise of Cardinal options or
otherwise as compensation.
Based upon and subject to the foregoing, we are of the opinion that
provided the Merger qualifies as a statutory merger under the Kentucky Business
Corporation Act, the Merger will constitute a reorganization within the meaning
of Section 368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code, and that the
following are certain federal income tax consequences which will result:
(a) No gain or loss will be recognized for federal income tax
purposes by Cardinal shareholders upon the exchange of their shares of
Cardinal Common Stock for shares of Area Common Stock. Each Cardinal
shareholder's basis in the Area Common Stock received in the exchange
will be equal to such shareholder's basis in the Cardinal Common Stock
surrendered in exchange for Area Common Stock in the Merger. Each
Cardinal shareholder's holding period for the Area Common Stock (for
purposes of determining whether gain or loss on a subsequent sale of
such stock is long-term or short-term gain or loss) will include the
period that such shareholder held his or her Cardinal Common Stock
surrendered in exchange for Area Common Stock in the Merger provided
that the Cardinal Common Stock was a capital asset in the hands of such
shareholder.
(b) The payment of cash in lieu of fractional shares of Area
Common Stock will be treated as if the fractional shares were issued as
part of the exchange and then redeemed by Area. These cash payments
will be treated as having been received as distributions in full
payment in exchange for the fractional shares of Area
<PAGE> 3
Area Bancshares Corporation
June 16, 1997
Page 3
Common Stock redeemed as provided under Section 302 of the Code.
Generally, any gain or loss recognized will be capital gain or loss,
provided the fractional share constitutes a capital asset in the hands
of the exchanging shareholder and the requirements of Section 302(b)(1)
are met. Cardinal shareholders receiving cash in lieu of fractional
shares should consult their own tax advisors as to the tax treatment in
their particular circumstances (i.e., exchange treatment or dividend).
(c) Cardinal shareholders who receive solely cash pursuant to
their statutory right to dissent will be treated as having received
such payment in redemption of their stock, as provided in Section
302(a) of the Internal Revenue Code. Generally, any gain or loss
recognized by any such Cardinal shareholder will be capital gain or
loss, provided (i) the Cardinal Common Stock constitutes a capital
asset in the hands of such shareholder, and (ii) the requirements of
Section 302(b)(1), (2) or (3) of the Internal Revenue Code are met.
Cardinal shareholders electing to exercise dissenters' rights should
consult their own tax advisors as to the tax treatment in their
particular circumstances (i.e. exchange treatment or dividend).
(d) No income, gain or loss will be recognized for federal
income tax purposes by Area or Cardinal as a consequence of the Merger.
This opinion is being rendered solely to the parties to whom it is
addressed and may be relied upon by them and by the shareholders of Cardinal.
This opinion may not be relied upon by any other party without the express
written permission of our Firm. We hereby consent to the reference to our Firm
in, and to the filing of this opinion as an exhibit to, the S-4.
Very truly yours,
/s/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE> 4
CERTIFICATE OF
AREA BANCSHARES CORPORATION
In connection with the merger of Interim Area Corporation
("Interim"), a wholly-owned subsidiary of Area Bancshares Corporation ("Area"),
with and into Cardinal Bancshares, Inc. ("Cardinal") with Cardinal as the
surviving entity, and in accordance with the Agreement and Plan of Merger dated
as of May 1, 1997 by and between Area and Cardinal (the "Merger Agreement"),
Timothy O. Shelburne and John A. Ray, the General Counsel and Chief Financial
Officer, respectively, of Area make the following certifications. Unless
otherwise indicated, terms used in this certificate have the same meaning as in
the Merger Agreement.
1. The undersigned Timothy O. Shelburne and John A. Ray are
the General Counsel and Chief Financial Officer, respectively, of Area, a
corporation organized and existing under the laws of the State of Kentucky, and
in such capacities have access to the information contained herein.
2. The following facts and representations made on behalf of
the management of Area and presented to Powell, Goldstein, Frazer & Murphy LLP
in connection with rendering the tax opinion referred to in the Merger
Agreement, are on the date hereof true, correct, and complete.
3. The fair market value of the Area Common Stock and other
consideration to be received by the shareholders of Cardinal will be, in each
instance, approximately equal to the fair market value of the Cardinal Common
Stock surrendered in exchange therefor.
4. Following the Merger, Cardinal will hold at least 90% of
the fair market value of its net assets and at least 70% of the fair market
value of its gross assets, and at least 90% of Interim's net assets and at least
70% of Interim's gross assets held immediately prior to the Merger. For purposes
of this representation, amounts paid by Cardinal or Interim for fractional
shares, to dissenters and for reorganization expenses will be included as assets
of Cardinal or Interim, respectively.
5. Prior to the Merger, Area will be in control of Interim.
For purposes of the foregoing "control" means ownership of stock possessing at
least eighty percent (80%) of the total combined voting power of all classes of
stock entitled to vote and at least eighty percent (80%) of the total number of
all other classes of stock.
6. Area has no present plan or intention to reacquire any of
its Common Stock issued in the Merger.
7. Area has no plan or intention to liquidate Cardinal; to
merge Cardinal with or into another corporation; to cause Cardinal to sell or
otherwise dispose of any of its assets or of any of the assets acquired from
Interim, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation controlled by Cardinal; or to sell or
otherwise dispose of any of the Cardinal Common Stock acquired in the Merger
except for transfers to corporations controlled by Area. For purposes of the
foregoing, "control" means ownership of stock possessing
<PAGE> 5
at least eighty percent (80%) of the total combined voting power of all classes
of stock entitled to vote and at least eighty percent (80%) of the total number
of all other classes of stock.
8. Interim will have no liabilities assumed by Cardinal, and
will not transfer to Cardinal any assets subject to liabilities.
9. Following the Merger, Area intends to cause Cardinal to
continue its historic business or use a significant portion of its historic
business assets in a business.
10. Area has paid or will pay expenses it incurred in
connection with the Merger. Area did not and will not pay the expenses of
Cardinal or any shareholder of Cardinal incurred in connection with the Merger.
11. There is no indebtedness outstanding between Area and
Cardinal or between Interim and Cardinal which was issued, acquired, or will be
settled at a discount.
12. In the Merger, shares of Cardinal stock representing
control will be exchanged solely for voting stock of Area. For purposes of the
foregoing, "control" means ownership of stock possessing at least eighty percent
(80%) of the total combined voting power of all classes of stock entitled to
vote, and at least eighty percent (80%) of the total number of all other classes
of stock.
13. Area does not own, nor has it owned during the past five
years more than twenty percent (20%) of any class of capital stock of Cardinal.
14. Not more than twenty-five percent (25%) of the fair market
value of Area's total assets consist of stock and securities of any one issuer,
and not more than fifty percent (50%) of the fair market value of its total
assets consists of stock and securities of five or fewer issuers. For purposes
of the preceding sentence, (a) a corporation's total assets exclude cash, cash
items (including accounts receivable and cash equivalents), and United States
government securities, (b) a corporation's total assets exclude stock and
securities issued by any subsidiary at least fifty percent (50%) of the voting
power or fifty percent (50%) of the total fair market value of the stock of
which is owned by the corporation, but the corporation is treated as owning
directly a ratable share (based on the percentage of the fair market value of
the subsidiary's stock owned by the corporation) of the assets owned by any such
subsidiary, and (c) all corporations that are members of the same "controlled
group" within the meaning of section 1563(a) of the Code are treated as a single
issuer.
15. The payment of cash in lieu of fractional shares of Area
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Area of issuing fractional shares and is not separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
the Cardinal shareholders in lieu of issuing fractional shares of Area Common
Stock will not exceed one percent (1%) of the total consideration that will be
issued in the Merger to the Cardinal shareholders in exchange for their shares
of Cardinal Common Stock. The fractional share interests of each Cardinal
shareholder will be aggregated, and no Cardinal shareholder will receive cash in
an amount equal to or greater than the value of one full share of Area Common
Stock.
2
<PAGE> 6
16. None of the shares of Area Common Stock or cash, if any,
received by any shareholder-employees of Cardinal is separate consideration for,
or allocable to, any employment agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands as of this 16th day of June, 1997.
/s/ Timothy O. Shelburne
--------------------------
Timothy O. Shelburne
/s/ John A. Ray
--------------------------
John A. Ray
3
<PAGE> 7
CERTIFICATE OF
CARDINAL BANCSHARES, INC.
In connection with the merger ("Merger") of Interim Area
Corporation ("Interim"), a wholly-owned subsidiary of Area Bancshares
Corporation ("Area"), with and into Cardinal Bancshares, Inc. ("Cardinal") with
Cardinal as the surviving entity, and in accordance with the Agreement and Plan
of Merger dated as of May 1, 1997 by and between Area and Cardinal (the "Merger
Agreement"), John S. Penn and Jack H. Brown, the President and Chief Executive
Officer, and Chief Financial Officer, respectively, of Cardinal make the
following certifications. Unless otherwise indicated, terms used in this
certificate have the same meaning as in the Merger Agreement.
1. The undersigned John S. Penn and Jack H. Brown are the
President and Chief Executive Officer, and Chief Financial Officer,
respectively, of Cardinal, a corporation organized and existing under the laws
of the State of Kentucky, and in such capacities have access to the information
contained herein.
2. The following facts and representations made on behalf of
the management of Cardinal and presented to Powell, Goldstein, Frazer & Murphy
LLP in connection with rendering the tax opinion referred to in the Merger
Agreement, are on the date hereof true, correct, and complete.
3. The fair market value of the Area Common Stock and other
consideration received by the shareholders of Cardinal will be, in each
instance, approximately equal to the fair market value of the Cardinal Common
Stock surrendered in exchange therefor pursuant to the Merger Agreement.
4. To the best of the knowledge of the undersigned, there is
no plan or intention on the part of the shareholders of Cardinal to sell,
exchange or otherwise dispose of a number of shares of Area Common Stock
received in the Merger that would reduce Cardinal shareholders' ownership of
Area Common Stock to a number of shares having a value, as of the Effective
Time, of less than fifty percent of the aggregate fair market value, immediately
prior to the Merger, of all outstanding shares of Cardinal Common Stock. For
purposes of this representation, fractional shares of Area Common Stock that are
deemed to be received in the Merger and exchanged for cash will be treated as
outstanding Cardinal Common Stock exchanged for Area Common Stock in the Merger
and then disposed of pursuant to a plan. Additionally, for purposes of this
representation, shares of Cardinal Common Stock held by Cardinal shareholders
and otherwise sold, redeemed or disposed of prior to and in contemplation of the
Merger shall be considered shares of Cardinal Common Stock exchanged for Area
Common Stock in the Merger and then disposed of pursuant to a plan.
5. Upon the Merger, Cardinal will hold at least 90% of the
fair market value of its net assets and at least 70% of the fair market value of
its gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by Cardinal for fractional shares, to dissenters,
and for reorganization expenses will be included as assets of Cardinal.
<PAGE> 8
6. Prior to the Merger, Cardinal has no plan or intention to
issue additional shares of its stock that would result in Area losing control of
Cardinal. For purposes of the foregoing, "control" means ownership of stock
possessing at least eighty percent (80%) of the total combined voting power of
all classes of stock entitled to vote, and a least eighty percent (80%) of the
total number of all other classes of stock.
7. Cardinal has paid or will pay expenses it incurred in
connection with the Merger. Cardinal did not and will not pay the expenses of
Area, Interim or any shareholder of Cardinal incurred in connection with the
Merger.
8. There is no indebtedness outstanding between Area and
Cardinal or Interim and Cardinal, which was issued, acquired, or will be settled
at a discount.
9. In the Merger, shares of Cardinal stock representing
control will be exchanged solely for voting stock of Area. For purposes of the
foregoing, "control" means ownership of stock possessing at least eighty percent
(80%) of the total combined voting power of all classes of stock entitled to
vote, and at least eighty percent (80%) of the number of all other classes of
stock.
10. At the time of the Merger, Cardinal will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Cardinal that, if
exercised or converted, would affect Area's acquisition or retention of control
of Cardinal. For purposes of the foregoing, "control" means ownership of stock
possessing at least eighty percent (80%) of the total combined voting power of
all classes of stock entitled to vote, and at least eighty percent (80%) of the
total number of all other classes of stock.
11. Not more than twenty-five percent (25%) of the fair market
value of Cardinal's total assets consist of stock and securities of any one
issuer, and not more than fifty percent (50%) of the fair market value of its
total assets consists of stock and securities of five or fewer issuers. For
purposes of the preceding sentence, (a) a corporation's total assets exclude
cash, cash items (including accounts receivable and cash equivalents), and
United States government securities, (b) a corporation's total assets exclude
stock and securities issued by any subsidiary at least fifty percent (50%) of
the voting power or fifty percent (50%) of the total fair market value of the
stock of which is owned by the corporation, but the corporation is treated as
owning directly a ratable share (based on the percentage of the fair market
value of the subsidiary's stock owned by the corporation) of the assets owned by
any such subsidiary, and (c) all corporations that are members of the same
"controlled group" within the meaning of section 1563(a) of the Code are treated
as a single issuer.
12. On the date of the Merger, the fair market value of the
assets of Cardinal will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
13. None of the compensation received by any
shareholder-employees of Cardinal was or will be separate consideration for, or
allocable to, any of their shares of Cardinal Common Stock; none of the shares
of Area Common Stock or cash, if any, received by any shareholder-employees of
Cardinal is separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employees of Cardinal is
or will be for services actually
5
<PAGE> 9
rendered and was or will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
14. The payment of cash in lieu of fractional shares of Area
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Area of issuing fractional shares and is not separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
the Cardinal shareholders in lieu of issuing fractional shares of Area Common
Stock will not exceed one percent (1%) of the total consideration that will be
issued in the Merger to the Cardinal shareholders in exchange for their shares
of Cardinal Common Stock. The fractional share interests of each Cardinal
shareholder will be aggregated, and no Cardinal shareholder will receive cash in
an amount equal to or greater than the value of one full share of Area Common
Stock.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands as of this 16th day of June, 1997.
/s/ John S. Penn
--------------------------
John S. Penn
/s/ Jack H. Brown
--------------------------
Jack H. Brown
6
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Cardinal Bancshares, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report refers to a change in the method of accounting for certain
investments in debt and equity securities in 1994.
Lexington, Kentucky
June 16, 1997 /s/ KPMG PEAT MARWICK LLP
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Area Bancshares Corporation
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report refers to a change in the method of accounting for certain
investments in debt and equity securities in 1994.
Louisville, Kentucky
June 16, 1997 /s/ KPMG PEAT MARWICK LLP
<PAGE> 1
EXHIBIT 23.5
CONSENT OF THE BANK ADVISORY GROUP, INC.
In connection with the proposed merger of Cardinal Bancshares, Inc.,
Lexington, Kentucky, and Interim Area Corporation, a wholly-owned subsidiary of
Area Bancshares Corporation, Owensboro, Kentucky, the undersigned, acting as an
independent financial analyst to the common shareholders of Area Bancshares
Corporation hereby consents to the reference to our firm in the Joint Proxy
Statement/Prospectus and to the inclusion of our fairness opinion as an Appendix
to the Joint Proxy Statement/Prospectus.
June 16, 1997
/s/ THE BANK ADVISORY GROUP, INC.
<PAGE> 1
EXHIBIT 23.6
CONSENT OF PROFESSIONAL BANK SERVICES, INC.
In connection with the proposed merger of Cardinal Bancshares, Inc.,
Lexington, Kentucky, and Interim Area Corporation, a wholly-owned subsidiary of
Area Bancshares Corporation, Owensboro, Kentucky, the undersigned, acting as an
independent financial analyst to the common shareholders of Cardinal Bancshares,
Inc. hereby consents to the reference to our firm in the Joint Proxy
Statement/Prospectus and to the inclusion of our fairness opinion as an Appendix
to the Joint Proxy Statement/Prospectus.
June 16, 1997
/s/ PROFESSIONAL BANK SERVICES, INC.
