<PAGE> 1
As Filed With the Securities And Exchange Commission on October 16, 1998;
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
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(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. Alan K. MacDonald, Esq.
Powell, Goldstein, Frazer & Murphy LLP Brown, Todd & Heyburn PLLC
Sixteenth Floor, 191 Peachtree Street, N.E. 32nd Floor, 400 West Market Street
Atlanta, Georgia 30303 Louisville, Kentucky 40202-3363
(404) 572-6952 (502) 568-0277
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(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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================== ====================== ====================== ====================== ======================
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 par 1,300,000(1) shares (2) (2) $4,126(2)
value
======================== ====================== ====================== ====================== ======================
</TABLE>
(1) This Registration Statement covers the maximum number of shares of the
common stock of the Registrant that is expected to be issued in connection
with the Merger.
(2) Pursuant to Rule 457(f)(2), the registration fee was computed on the basis
of the aggregate book value of the common stock of Peoples Bancorp of
Winchester, Inc. to be exchanged in the 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.
Exhibit Index on page 150.
<PAGE> 2
PEOPLES BANCORP OF WINCHESTER, INC.
MAPLE & BROADWAY
WINCHESTER, KENTUCKY 40392
(606) 744-3521
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Peoples Bancorp of Winchester, Inc.
("Peoples") and Area Bancshares Corporation have agreed on a Merger that will
result in Peoples being operated as a subsidiary of Area Bancshares
Corporation. Before we can complete this Merger, the agreement must be approved
by Peoples' shareholders. We are sending you this Proxy Statement/Prospectus to
ask you to vote in favor of the Merger.
Peoples' shareholders will receive 17.333333 shares of common stock of
Area Bancshares Corporation for each Peoples share they own just before the
Merger.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
special meeting, please take the time to vote by completing and mailing the
enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, we will vote your proxy in favor of the
Merger. If you do not return your card, the effect will be a vote against the
Merger.
The special meeting of Peoples shareholders will be held at the main
office of Peoples Commercial Bank, Maple & Broadway, Winchester, Kentucky 40392
at _____ _m., local time, on ____________, 1998.
This Proxy Statement/Prospectus provides you with detailed information
about the proposed Merger. You can also obtain information about Area
Bancshares Corporation from documents Area has filed with the Securities and
Exchange Commission. We encourage you to read this entire document carefully.
We are enthusiastic about this Merger and join with all of the other
directors in our unanimous recommendation that you vote in favor of the Merger.
- -------------------------------- ---------------------------------
William H. Pitt Ralph L. Oliver
Treasurer President and Chief Executive Officer
THIS PROXY STATEMENT/PROSPECTUS IS DATED ___________, 1998
AND WAS FIRST MAILED TO SHAREHOLDERS ON OR ABOUT ________, 1998.
<PAGE> 3
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS ABOUT THE MERGER OR OUR COMPANIES THAT DIFFERS FROM, OR ADDS
TO, THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
THAT ARE PUBLICLY FILED BY AREA BANCSHARES CORPORATION WITH THE SECURITIES AND
EXCHANGE COMMISSION. THEREFORE, IF ANYONE DOES GIVE YOU DIFFERENT OR ADDITIONAL
INFORMATION, YOU SHOULD NOT RELY ON IT.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT RELATE TO ANY RESALE OF AREA
BANCSHARES CORPORATION COMMON STOCK RECEIVED BY ANY PERSON UPON CONSUMMATION OF
THE MERGER, AND NO PERSON IS AUTHORIZED TO MAKE ANY USE OF THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH ANY SUCH RESALE.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS SPEAKS
ONLY AS OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER
DATE APPLIES.
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS ABOUT AREA BANCSHARES
CORPORATION HAS BEEN SUPPLIED BY AREA BANCSHARES CORPORATION, AND INFORMATION
ABOUT PEOPLES HAS BEEN SUPPLIED BY PEOPLES.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
EACH COMPANY MAKES FORWARD-LOOKING STATEMENTS IN THIS DOCUMENT, AND
AREA BANCSHARES CORPORATION MAKES FORWARD LOOKING STATEMENTS IN ITS PUBLIC
DOCUMENTS, THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING
STATEMENTS INCLUDE INFORMATION ABOUT POSSIBLE OR ASSUMED FUTURE RESULTS OF OUR
OPERATIONS. ALSO, WHEN WE USE ANY OF THE WORDS "BELIEVES," "EXPECTS,"
"ANTICIPATES" OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD-LOOKING STATEMENTS.
MANY POSSIBLE EVENTS OR FACTORS COULD AFFECT THE FINANCIAL RESULTS AND
PERFORMANCE OF EACH OF OUR COMPANIES. THIS COULD CAUSE RESULTS OR PERFORMANCES
TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN OUR FORWARD-LOOKING STATEMENTS.
YOU SHOULD CONSIDER THESE RISKS WHEN YOU VOTE ON THE MERGER. THESE POSSIBLE
EVENTS OR FACTORS INCLUDE THE FOLLOWING:
(1) WE COULD LOSE MORE DEPOSITS, CUSTOMERS, OR BUSINESS THAN WE EXPECT;
(2) COMPETITION IN THE BANKING INDUSTRY COULD INCREASE SIGNIFICANTLY;
(3) TECHNOLOGICAL CHANGES AND SYSTEMS INTEGRATION COULD BE HARDER TO
MAKE OR MORE EXPENSIVE THAN WE EXPECT;
(4) CHANGES IN THE INTEREST RATE ENVIRONMENT COULD REDUCE OUR MARGINS;
(5) GENERAL ECONOMIC OR BUSINESS CONDITIONS COULD BE WORSE THAN WE
EXPECT;
(6) LEGISLATIVE OR REGULATORY CHANGES COULD ADVERSELY AFFECT OUR
BUSINESS;
(7) CHANGES COULD OCCUR IN BUSINESS CONDITIONS AND INFLATION;
(8) CHANGES COULD OCCUR IN THE SECURITIES MARKETS; AND
(9) WE COULD HAVE MORE TROUBLE OBTAINING REGULATORY APPROVALS FOR THE
MERGER THAN WE EXPECT.
<PAGE> 4
PEOPLES BANCORP OF WINCHESTER, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Peoples Bancorp of Winchester, Inc. ("Peoples") will hold a special
meeting of its shareholders at the main office of Peoples Commercial Bank,
Maple & Broadway, Winchester, Kentucky 40392 on ____________, 1998, at _____
__.m., local time, for the following purposes:
1. APPROVE MERGER. To vote on the Agreement and Plan of Merger, dated
as of August 24, 1998 (the "Agreement"), between Area Bancshares Corporation
("Area") and Peoples. The Agreement provides that (1) Peoples will merge with
Area, and (2) each share of Peoples common stock will be converted into
17.333333 shares of Area common stock, subject to possible adjustment as
described in the accompanying Proxy Statement/Prospectus.
2. APPROVE STOCKHOLDER AGREEMENT TERMINATION. To vote on terminating
the Amended and Restated Stockholder Agreement (the "Stockholder Agreement"),
dated as of November 21, 1997, among Peoples and its shareholders. The
Stockholder Agreement will be terminated only if and when the proposed Merger
is completed.
3. OTHER BUSINESS. To transact such other business as may properly
come before the special meeting, including adjourning the special meeting to
permit further solicitation of proxies, if necessary.
Only shareholders of record at the close of business on
_______________, 1998 are entitled to receive notice of and to vote at the
special meeting or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE MERGER AND "FOR" TERMINATION OF THE STOCKHOLDER AGREEMENT.
Peoples shareholders have the right to dissent to the Merger and
receive payment in cash for the fair value of their shares of Peoples common
stock by following the procedures described in Sections 271B.13-010 through
271B.13-280 of the Kentucky Business Corporation Act. A copy of these sections
is attached. See Appendix B hereto and "The Merger -- Dissenters' Rights" (page
___).
---------------------------------
S. Dudley Taylor
Secretary
Winchester, Kentucky
____________, 1998
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. THE ENCLOSED ENVELOPE
REQUIRES NO POSTAGE IF YOU MAIL IT IN THE UNITED STATES.
<PAGE> 5
<TABLE>
TABLE OF CONTENTS
<S> <C>
SUMMARY.......................................................................................... 1
The Companies and their Businesses....................................................... 1
Special Meeting of Peoples Shareholders.................................................. 1
Votes Required........................................................................... 2
What Peoples Shareholders will Receive................................................... 2
Possible Adjustment to the Conversion Ratio.............................................. 2
Our Reasons for the Merger............................................................... 2
Our Recommendation to Shareholders....................................................... 3
Fairness Opinion......................................................................... 3
Termination of the Stockholder Agreement................................................. 3
Effective Time of the Merger............................................................. 4
Exchange of Certificates................................................................. 4
Other Conditions to Completion of the Merger............................................. 4
Termination of the Agreement............................................................. 5
Interests of Persons Involved in the Merger that are Different from Yours................ 5
Certain Federal Income Tax Consequences.................................................. 6
Accounting Treatment..................................................................... 6
Certain Differences in Shareholders' Rights.............................................. 6
Dissenters' Rights....................................................................... 6
Comparative Market Prices of Common Stock................................................ 7
Unaudited Comparative Per Share Data..................................................... 7
Selected Historical Financial Data....................................................... 8
THE SPECIAL MEETING.............................................................................. 14
General.................................................................................. 14
Record Date; Vote Required............................................................... 15
THE MERGER....................................................................................... 16
General.................................................................................. 16
Background of and Reasons for the Merger................................................. 16
Fairness Opinion......................................................................... 20
Effective Time of the Merger............................................................. 24
Distribution of Stock Certificates After the Merger...................................... 25
Conditions to Consummation of the Merger................................................. 25
Regulatory Approvals..................................................................... 26
Waiver and Amendment of the Agreement.................................................... 27
Termination of the Agreement............................................................. 27
Conversion Ratio Adjustment.............................................................. 28
Conduct of Business Pending the Merger................................................... 28
Interests of Certain Persons in the Merger............................................... 29
Dissenters' Rights....................................................................... 30
Certain Federal Income Tax Consequences of the Merger.................................... 33
Accounting Treatment..................................................................... 35
Expenses and Fees........................................................................ 35
Resales of Area Common Stock............................................................. 36
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
COMPARATIVE MARKET PRICES AND DIVIDENDS.......................................................... 36
Market Prices............................................................................ 36
Shareholders of Record................................................................... 38
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS................................................... 38
Stockholder Agreement.................................................................... 38
Authorized Capital Stock................................................................. 38
Actions by Shareholders Without a Meeting................................................ 39
Special Meeting of Shareholders.......................................................... 39
Number of Directors...................................................................... 39
Cumulative Voting........................................................................ 40
Indemnification.......................................................................... 40
BUSINESS OF PEOPLES.............................................................................. 41
General.................................................................................. 41
Management and Principal Shareholders.................................................... 42
Executive Compensation................................................................... 43
Certain Transactions and Business Relationships.......................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 44
Business................................................................................. 44
Results of Operations - Comparison of Six Months Ended June 30, 1998 to June 30, 1997... 45
Financial Condition - Comparison of June 30, 1998 to December 31, 1997.................. 46
Results of Operations - Comparison of Year Ended December 31, 1997 to
December 31, 1996................................................................... 46
Financial Condition - Comparison of December 31, 1997 to December 31, 1996............... 47
Asset/Liability Management............................................................... 51
Liquidity................................................................................ 51
Capital Resources........................................................................ 52
Impact of Inflation...................................................................... 52
Year 2000................................................................................ 52
PROPOSAL TO TERMINATE THE STOCKHOLDER AGREEMENT.................................................. 53
PRO FORMA FINANCIAL INFORMATION.................................................................. 53
EXPERTS.......................................................................................... 53
OPINIONS......................................................................................... 54
ADJOURNMENT OF SPECIAL MEETING................................................................... 54
SHAREHOLDER PROPOSALS............................................................................ 54
OTHER MATTERS.................................................................................... 54
WHERE YOU CAN FIND MORE INFORMATION.............................................................. 54
</TABLE>
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<TABLE>
<S> <C>
INDEX TO FINANCIAL STATEMENTS................................................................... F-1
Appendix A - Agreement and Plan of Merger ...................................................... A-1
Appendix B - Subtitle 13 Dissenters' Rights .................................................... B-1
Appendix C - Professional Bank Services, Inc. Fairness Opinion ................................. C-1
</TABLE>
<PAGE> 8
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus. It does not contain all of the information that is
important to you. You should carefully read this entire document and the other
documents to which we refer. This will give you a more complete description of
the transactions we are proposing. For more information about Area, see "Where
You Can Find More Information" (page ___).
THE COMPANIES AND THEIR BUSINESSES
Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
(502) 926-3232
Area is a multi-bank holding company headquartered in Owensboro,
Kentucky. It owns eleven financial institutions with 54 banking facilities in
23 cities throughout Kentucky. As of June 30, 1998, Area had total consolidated
assets of about $1.9 billion, total deposits of $1.5 billion and total
shareholders' equity of $217.6 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.
Peoples Bancorp of Winchester, Inc.
Maple & Broadway
Winchester, Kentucky 40392
(606) 744-3521
Peoples is a one-bank holding company headquartered in Winchester,
Kentucky. It owns one financial institution, Peoples Commercial Bank, which has
two locations in Winchester. As of June 30, 1998, Peoples had total
consolidated assets of about $148.0 million, total deposits of $129.4 million
and total shareholders' equity of $13.7 million. Peoples was incorporated in
1989 under the laws of Kentucky and is a bank holding company under the Bank
Holding Company Act of 1956, as amended.
SPECIAL MEETING OF PEOPLES SHAREHOLDERS
The special meeting will be held at _____ __.m., local time, on
____________, 1998, at the main office of Peoples Commercial Bank, Maple &
Broadway, Winchester, Kentucky 40392, to consider approval of the Agreement and
termination of the Stockholder Agreement. Only holders of record of Peoples
common stock at the close of business on ____________, 1998, will be entitled
to vote at the special meeting.
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<PAGE> 9
VOTES REQUIRED
In order to approve the Merger, Peoples shareholders holding a
majority of the outstanding shares of Peoples common stock (37,501) must vote
for the Agreement. In order to approve the termination of the Stockholder
Agreement, Peoples shareholders holding 80% of the outstanding shares of
Peoples common stock (60,000) must vote to terminate the Stockholder Agreement.
All together, the directors and executive officers of Peoples can cast
about 72.9% of the votes (54,710) eligible to be cast at the Peoples special
meeting. We expect that they will vote all of their shares in favor of the
Merger and in favor of terminating the Stockholder Agreement. See "The Special
Meeting" (page ___).
Neither Area nor its directors and executive officers own any shares
of Peoples common stock. Approval of the Agreement by the holders of Area
common stock is not required and will not be sought.
WHAT PEOPLES SHAREHOLDERS WILL RECEIVE
If the Merger is completed, all holders of Peoples common stock,
except for dissenting shareholders, will receive 17.333333 shares of Area
common stock for each share of Peoples common stock held of record (the
"Conversion Ratio"), subject to possible adjustment. No fractional shares of
Area common stock will be issued in connection with the Merger. Cash (without
interest) will be paid instead of issuing fractional shares. See "The Merger -
General" (page ___).
POSSIBLE ADJUSTMENT TO THE CONVERSION RATIO
Peoples may terminate the Agreement if the Area Average Price (as
defined under "The Merger -- Conversion Ratio Adjustment") is less than $27.
Similarly, Area may terminate the Agreement if the Area Average Price is
greater than $36.
If the Area Average Price were $27, the indicated value of each share
of Peoples common stock would be $468 ($27 times 17.333333). Similarly, if the
Area Average Price were $36, the indicated value of each share of Peoples
common stock would be $624 ($36 times 17.333333).
If the Area Average Price is less than $27 or greater than $36, then
Area or Peoples, as the case may be, may keep the Agreement from being
terminated by adjusting the Conversion Ratio so that the indicated value of each
share of Area common stock to be received by Peoples' shareholders would equal
$468 or $624, as applicable. See "The Merger -- Conversion Ratio Adjustment"
(page ___).
REASONS FOR THE MERGER
Area'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, Area and its shareholders. In approving the Merger, Area's
directors considered Peoples' 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 Peoples and its compatibility with
that of Area. See "The Merger -- Background and Reasons for the Merger" (page
___).
2
<PAGE> 10
Peoples' 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, Peoples and its shareholders. Accordingly, Peoples' Board
unanimously recommends that Peoples' shareholders vote FOR approval of the
Agreement.
In making its recommendation, the Peoples Board believes that the
Merger presents an opportunity for Peoples shareholders to receive shares in a
publicly traded regional banking institution at an attractive price and in a
tax-free transaction. The Peoples Board also believes that Area's historical
policy of operating its affiliates as community banks is appropriate for
serving the banking needs of the Winchester and Clark County community. See
"The Merger -- Background of and Reasons for the Merger" (page ___) and "The
Merger -- Fairness Opinion"(page ___).
If it appears likely that the Average Area Price of Area common stock
will be less than $27, the Peoples Board will consider whether to terminate the
Agreement and whether to resolicit shareholders before proceeding. To make this
decision, the Peoples Board will consult with its financial, legal and other
advisors and will consider all information relevant to the decision, including
current business and stock price information about Area and other comparable
banking institutions. If the Peoples Board elects to terminate the Agreement,
Area would have the right to proceed with the Merger by increasing the
Conversion Ratio so that the indicated value of each share of Peoples common
stock would be $468. Area, however, would have no obligation to do so and could
allow the Agreement to terminate. See "The Merger--Background and Reasons for
the Merger" (page ___).
RECOMMENDATION TO SHAREHOLDERS
The Board of Directors of Peoples believes that the Merger is fair to
you and in your best interests, and unanimously recommends that you vote "FOR"
approval of the Merger. The Board of Directors of Peoples also unanimously
recommends that you vote "FOR" the termination of the Stockholder Agreement.
See "The Merger Background of and Reasons for the Merger" (page ___) and
"Proposal to Terminate the Stockholder Agreement" (page___).
FAIRNESS OPINION
In deciding to approve the Merger, the Peoples Board of Directors
considered the opinion of its financial advisor, Professional Bank Services,
Inc. ("PBS"), that, as of the date of the opinion, the proposed Conversion
Ratio was fair from a financial point of view to Peoples shareholders. We have
attached as Appendix C the written opinion of PBS dated the date of this Proxy
Statement/Prospectus. You should read it carefully to understand the
assumptions made, matters considered and limitation on the review undertaken by
PBS in providing its opinion.
TERMINATION OF THE STOCKHOLDER AGREEMENT
One of the conditions to completing the Merger is that the
shareholders of Peoples must vote to terminate the Stockholder Agreement. The
Stockholder Agreement can be terminated by the affirmative vote of 80% of the
outstanding shares of Peoples common stock. If approved by shareholders,
termination of the Stockholder Agreement would only take effect if and when the
Merger is completed. See "The Merger -- Conditions to Consummation of the
Merger" (page___) and "Proposal to Terminate the Stockholder Agreement" (page
___).
3
<PAGE> 11
EFFECTIVE TIME OF THE MERGER
The Merger will become effective when articles of merger are filed by
Area with the Kentucky Secretary of State, or on such later date as the
articles of merger may specify. Subject to the conditions specified in the
Agreement, the parties anticipate that the Merger will become effective on
January 4, 1999. There can be no assurances, however, as to whether or when the
Merger will occur. See "The Merger - Effective Time of the Merger" (page ___),
"-- Conditions to Consummation of the Merger" (page ___) and " -- Termination
of the Agreement" (page ___).
EXCHANGE OF CERTIFICATES
After the Merger is completed, shareholders of Peoples will need to
exchange their Peoples stock certificates for new certificates representing
Area common stock. Shortly after we complete the Merger, we will send
shareholders of Peoples detailed instructions on how to exchange their shares.
Please do not send us any stock certificates until you receive these
instructions. See "The Merger -- Distribution of Stock Certificates After the
Merger" (page ___).
OTHER CONDITIONS TO COMPLETION OF THE MERGER
The completion of the Merger depends on meeting a number of
conditions, including the following:
(1) Shareholders of Peoples must approve the Agreement;
(2) We must receive all required regulatory approvals and any
waiting periods required by law must have passed;
(3) There must be no governmental order blocking completion of
the Merger, and no proceedings by a government body trying to
block the Merger;
(4) We must receive a legal opinion confirming the tax-free
nature of the Merger;
(5) The Nasdaq National Market must approve for listing the
shares that Area will issue in the Merger;
(6) We must receive a letter from Area's independent public
accountants, KPMG Peat Marwick LLP, that the Merger will
qualify for "pooling-of-interests" accounting treatment under
generally accepted accounting principles; and
(7) The Stockholder Agreement must be terminated.
Unless prohibited by law, either Peoples or Area could elect to waive
a condition that has not been satisfied and complete the Merger anyway. We
cannot be certain whether or when any of these conditions will be satisfied, or
waived where permissible, or that we will complete the Merger. See "The Merger
- -- Conditions to Consummation of the Merger" (page ___).
TERMINATION OF THE AGREEMENT
Peoples and Area can agree at any time to terminate the Agreement
before completing the Merger, even if the shareholders of Peoples have already
voted to approve it.
4
<PAGE> 12
Either company can also terminate the Agreement:
(1) If the other company violates, in a material way, any of its
representations, warranties or obligations under the
Agreement;
(2) If any of the conditions to the obligations of either company
are not satisfied by the effective time of the Merger;
(3) If any government body whose approval is required to complete
the Merger, including the Board of Governors of the Federal
Reserve System, makes a final decision not to approve the
Merger;
(4) If the shareholders of Peoples do not approve the Agreement;
(5) If Peoples or Peoples Commercial Bank become subject to an
enforcement proceeding by one of their regulators and this
has a material adverse effect on Peoples; or
(6) If we do not complete the Merger by January 31, 1999.
Generally, a party seeking to terminate cannot itself have violated
the Agreement. See "The Merger -- Termination of the Agreement" (page ___).
Peoples may terminate the Agreement if the Area Average Price (as
defined under "The Merger -- Conversion Ratio Adjustment") is less than $27.
Similarly, Area may terminate the Agreement if the Area Average Price is
greater than $36. See "The Merger -- Conversion Ratio Adjustment" (page ___).
INTERESTS OF PERSONS INVOLVED IN THE MERGER THAT ARE DIFFERENT FROM YOURS
Certain executive officers and directors of Peoples have interests in
the Merger that are different from your interests. Ralph L. Oliver, currently
the President and Chief Executive Officer of Peoples, will be elected as a
director of Area. In addition, four current officers of Peoples, William H.
Pitt, William P. Shearer, S. Dudley Taylor and Randy L. Todd, who collectively
own 4% of Peoples' outstanding common stock, have entered into employment
letters with Area providing for their continued employment by Peoples
Commercial Bank. Also, Area will honor the indemnification arrangements and
benefit obligations which apply to the officers and directors of Peoples. The
Board of Directors of Peoples was aware of these interests and took them into
account in approving the Agreement. See "The Merger -- Interests of Certain
Persons in the Merger" (page ___).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We expect that the shareholders of Peoples will not recognize any gain
or loss for U.S. federal income tax purposes in the Merger, except in
connection with any cash that they receive as dissenting shareholders or with
respect to fractional shares. Both companies have received a legal opinion that
this will be the case. This legal opinion is filed as an exhibit to the
Registration Statement of which this Proxy Statement/ Prospectus forms a part.
The opinion will not bind the Internal Revenue Service, which could take a
different view.
5
<PAGE> 13
This tax treatment may not apply to some shareholders of Peoples,
including the type shareholders that we described on page ___, and will not
apply to any shareholder of Peoples who exercises dissenters' rights under
Kentucky law. Determining the actual tax consequences of the Merger to you as
an individual taxpayer can be complicated. The tax treatment will depend on
your specific situation and many variables not within our control. You should
consult your own tax advisor for a full understanding of the Merger's tax
consequences. See "The Merger -- Certain Federal Income Tax Consequences of the
Merger" (page ___).
ACCOUNTING TREATMENT
We expect the Merger to qualify as a "pooling of interests" under
generally accepted accounting principles, which means that we will treat our
companies as if they had always been one company for accounting and financial
reporting purposes. Area has the right not to complete the Merger if it does
not receive a letter from its independent public accountants that the Merger
will qualify as a "pooling of interests." See "The Merger -- Accounting
Treatment" (page ___).
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
Currently, the rights of shareholders of Peoples are governed by
Peoples' Articles of Incorporation and Bylaws. When the Merger is completed,
shareholders of Peoples will become shareholders of Area, and their rights will
be governed by Area's Articles of Incorporation and Bylaws. The rights of
shareholders of Area differ from the rights of shareholders of Peoples
principally with respect to the restrictions on the transfer of shares of
Peoples common stock contained in the Stockholder Agreement. See "Effect of the
Merger on the Rights of Shareholders" (page ___).
DISSENTERS' RIGHTS
The Kentucky Business Corporation Act entitles shareholders of Peoples
to statutory dissenters' rights of appraisal with respect to the Merger. You
may lose these dissenters' rights if you do not precisely follow the statutory
procedure for exercising dissenters' rights. See "The Merger - Dissenters
Rights" (page ___).
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<PAGE> 14
COMPARATIVE MARKET PRICES OF COMMON STOCK
The common stock of Area is traded on the Nasdaq National Market under
the symbol "AREA." On August 24, 1998, the last business day preceding the
public announcement of the Merger, Area common stock closed at $29.50.
On ____________, 1998, the closing price for Area common stock was $_____.
No established trading market for Peoples common stock exists.
Transactions in Peoples common stock are infrequent and are negotiated
privately between the persons involved in these transactions. These
transactions are not reported on an exchange or other organized trading
systems. To the best knowledge of management of Peoples, the last transaction
in Peoples common stock took place on July 10, 1997, at a price of $185 per
share.
The market value of 17.333333 shares of Area common stock would be
$511.33 based on Area's August 24, 1998 closing price and $_____ based on
Area's ___________, 1998 closing price. The market price of Area common stock
will fluctuate prior to and after completion of the Merger, but the exchange
ratio is fixed within certain parameters. See "The Merger -- Conversion Ratio
Adjustment" (page ___). You should obtain current stock price quotations for
Area common stock. You can get these quotes from a newspaper, on the Internet
or by calling your broker.
UNAUDITED COMPARATIVE PER SHARE DATA
The following tables show summary historical financial data for Area
and Peoples and also show similar information reflecting the Merger of our two
companies (which we refer to as "pro forma" information). In presenting the
comparative pro forma information for certain time periods, we assumed that
Area and Peoples had been merged throughout those periods. The following tables
show information about Area's and Peoples' historical income per share,
dividends per share and book value per share, and similar pro forma
information.
We also assumed that we will treat Area and Peoples as if they had
always been combined for accounting and financial reporting purposes (a method
known as "pooling-of-interests" accounting). We computed the information listed
as "pro forma equivalent" for Peoples by multiplying the pro forma amounts by
the exchange ratio of 17.333333. We present this information to reflect the
fact that Peoples shareholders will receive more than 17 shares of Area common
stock for each share of Peoples common stock they own before the Merger.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma information also
does not attempt to show how the combined company would actually have performed
had the companies been combined throughout these periods. All adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of results of the unaudited historical interim periods have been
included.
We base the information in the following tables on the historical
financial information of Area which is presented in its prior filings with the
Securities and Exchange Commission and of Peoples some of which is included in
this Proxy Statement/Prospectus. When you read the summary financial
information we provide in the following tables, you should also read the
historical financial information of Peoples, which you can find beginning at
page F-1, as well as the historical financial information of Area in the other
documents to which we refer. See "Where You Can Find More Information" on page
__. Area's audited historical financial statements were audited by KPMG Peat
7
<PAGE> 15
Marwick LLP, independent accountants, and Peoples audited historical financial
statements were audited by Eskew & Gresham, PSC, independent accountants.
The following unaudited comparative per share data is derived from the
historical financial statements of Area and Peoples.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ------------------------------------
1998 1997 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME PER SHARE
Area historical - Diluted $ .80 $ .68 $ 1.33 $ 1.26 $ .79
Peoples historical -Diluted 14.63 13.13 26.17 26.01 22.36
Area and Peoples pro forma
combined (1) - Diluted .81 .69 1.34 1.28 .83
Peoples pro forma Merger
equivalent (2) - Diluted 14.04 11.96 23.23 22.19 14.39
DIVIDENDS DECLARED PER
COMMON SHARE
Area historical .07 .06 .125 .107 .09
Peoples historical (3) 10.00 5.00 5.00 7.50 -
Area and Peoples pro forma
combined (1) .109 .077 .138 .132 .083
Peoples pro forma Merger
equivalent (2) 1.89 1.33 2.39 2.29 1.44
BOOK VALUE PER SHARE
(PERIOD END)
Area historical 13.91 11.70 12.62 10.92 9.68
Peoples historical 182.80 171.15 184.20 162.94 144.78
Area and Peoples pro forma
combined (1) 13.65 11.56 12.46 10.80 9.58
Peoples pro forma Merger
equivalent (2) 236.60 200.43 215.97 187.20 166.05
</TABLE>
- ------------------------------
(1) Represents the combined results of Area and Peoples 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 Conversion
Ratio of 17.333333 shares of Area common stock for each share of
Peoples common stock.
(3) Dividends for the six-month period ended June 30, 1998 do not include
$6.11 per share for amounts representing estimated liability for taxes
as a result of Peoples' status as an S Corporation.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial information for Area and
Peoples is based on the consolidated financial statements of Area and Peoples.
Interim unaudited data for the six months ended June 30, 1998 and 1997 of Area
and Peoples reflect, in the opinion of the respective managements of Area and
Peoples, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the six months
ended June 30, 1998 are not necessarily indicative of results which may be
expected for any other interim period or for the year as a whole.
8
<PAGE> 16
AREA BANCSHARES CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------ -----------------------------------------------------
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
- ---------------------------------------- ------------------------------ ------------ ------------ ------------ -------------
1998 1997 1997 1996 1995 1994
- ---------------------------------------- ------------------------------ ------------ ------------ ------------ -------------
(UNAUDITED)
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
INCOME STATEMENT DATA:
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Total interest income 70,670 67,838 139,249 136,835 132,088 102,975
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Total interest expense 33,314 30,656 63,643 64,410 64,330 42,452
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Net interest income 37,356 37,182 75,606 72,425 67,758 60,523
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Provision for loan losses 713 1,285 3,271 4,849 4,824 4,976
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Net interest income after loan loss
provision 36,643 35,897 72,335 67,576 62,934 55,547
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Total noninterest income excluding
securities gains (losses) 12,080 9,167 18,301 24,973 17,274 15,323
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Security gains (losses) 125 7 21 3,265 1,139 (1,519)
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Total noninterest expense 30,626 29,755 61,357 65,912 64,414 61,099
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Income tax expense (benefit) 5,464 4,544 8,491 10,016 4,487 1,278
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Income (loss) before cumulative
effect of change in accounting
principle 12,758 10,772 20,809 19,886 12,446 6,974
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Cumulative effect of change in
accounting for income taxes - - - - - -
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Net income (loss) 12,758 10,772 20,809 19,886 12,446 6,974
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
PER SHARE DATA:
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Income (loss) per common share
before cumulative effect of
change in accounting principle $ .80 $ .68 $ 1.33 $ 1.26 $ .79 $ .45
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Cumulative effect of change in
accounting for income taxes - - - - - -
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Net income (loss) - Diluted .80 .68 1.33 1.26 .79 .45
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Cash dividends .07 .06 .125 .107 .09 .08
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Book value 13.91 11.70 12.62 10.92 9.68 8.43
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
OTHER INFORMATION:
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Average number of shares outstanding 15,905 15,812 15,648 15,783 15,706 15,571
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
BALANCE SHEET DATA
(PERIOD ENDED):
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Total assets $ 1,909,477 $ 1,836,906 $1,901,449 $ 1,796,290 $ 1,778,559 $ 1,622,509
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Securities 539,477 441,586 459,324 417,533 449,232 435,715
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Loans, net of unearned income
(including loans held for sale) 1,208,048 1,174,158 1,227,307 1,147,060 1,091,867 983,049
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Total deposits 1,475,025 1,383,688 1,433,132 1,394,399 1,223,556 1,175,373
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Total debt 196,372 254,051 252,866 213,916 232,756 258,939
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
Stockholders' equity 217,584 181,671 196,549 169,383 149,724 128,373
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
<CAPTION>
- ---------------------------------------- -------------
- ---------------------------------------- ------------
1993
- ---------------------------------------- ------------
- ---------------------------------------- ------------
INCOME STATEMENT DATA:
- ---------------------------------------- ------------
<S> <C>
Total interest income 99,006
- ---------------------------------------- ------------
Total interest expense 43,471
- ---------------------------------------- ------------
Net interest income 55,535
- ---------------------------------------- ------------
Provision for loan losses 3,751
- ---------------------------------------- ------------
Net interest income after loan loss
provision 51,784
- ---------------------------------------- ------------
Total noninterest income excluding
securities gains (losses) 18,592
- ---------------------------------------- ------------
Security gains (losses) 88
- ---------------------------------------- ------------
Total noninterest expense 47,528
- ---------------------------------------- ------------
Income tax expense (benefit) 6,077
- ---------------------------------------- ------------
Income (loss) before cumulative
effect of change in accounting
principle 16,859
- ---------------------------------------- ------------
Cumulative effect of change in
accounting for income taxes 729
- ---------------------------------------- ------------
Net income (loss) 17,568
- ---------------------------------------- ------------
- ---------------------------------------- ------------
PER SHARE DATA:
- ---------------------------------------- ------------
Income (loss) per common share
before cumulative effect of
change in accounting principle $ 1.16
- ---------------------------------------- ------------
Cumulative effect of change in
accounting for income taxes .05
- ---------------------------------------- ------------
Net income (loss) - Diluted 1.21
- ---------------------------------------- ------------
- ---------------------------------------- ------------
Cash dividends .07
- ---------------------------------------- ------------
Book value 8.44
- ---------------------------------------- ------------
- ---------------------------------------- ------------
OTHER INFORMATION:
- ---------------------------------------- ------------
Average number of shares outstanding 14,573
- ---------------------------------------- ------------
- ---------------------------------------- ------------
BALANCE SHEET DATA
(PERIOD ENDED):
- ---------------------------------------- ------------
Total assets $ 1,458,428
- ---------------------------------------- ------------
Securities 315,339
- ---------------------------------------- ------------
Loans, net of unearned income
(including loans held for sale) 830,757
- ---------------------------------------- ------------
Total deposits 1,029,344
- ---------------------------------------- ------------
Total debt 141,071
- ---------------------------------------- ------------
Stockholders' equity 129,411
- ---------------------------------------- ------------
</TABLE>
9
<PAGE> 17
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------------ ----------------------------------------------------
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
- ---------------------------------------- ------------------------------ ------------ ------------ ------------ -------------
1998 1997 1997 1996 1995 1994
- ---------------------------------------- ------------------------------ ------------ ------------ ------------ -------------
(UNAUDITED)
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
PERFORMANCE RATIOS:
- ---------------------------------------- -------------- --------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Return on average assets 1.39% 1.24% 1.18% 1.15% .75% .47%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
Return on average stockholders'
equity 12.57% 12.24% 11.32% 12.38% 9.04% 5.27%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
Net interest margin 4.55% 4.80% 4.77% 4.69% 4.59% 4.78%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
Dividend payout 8.56% 12.24% 9.26% 7.79% 8.88% 12.24%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
CAPITAL RATIOS:
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
Average stockholders' equity to
average assets 11.07% 10.15% 10.39% 9.28% 8.26% 8.85%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
Tier 1 risk-based capital (1) 14.14% 13.79% 13.24% 14.33% 13.59% 12.74%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
Total risk-based capital (1) 15.40% 15.04% 14.50% 15.58% 14.85% 13.99%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
Tier 1 leverage (1) 9.87% 9.71% 9.54% 9.88% 8.64% 8.41%
- ---------------------------------------- ---------- ----------- --------- ---------- ---------- -----------
<CAPTION>
- ----------------------------------------
- ----------------------------------------
-------------
- ---------------------------------------- 1993
-------------
- ----------------------------------------
PERFORMANCE RATIOS:
- ---------------------------------------- -------------
<S> <C>
Return on average assets 1.18%
- ---------------------------------------- -----------
Return on average stockholders'
equity 15.41%
- ---------------------------------------- -----------
Net interest margin 4.00%
- ---------------------------------------- -----------
Dividend payout 5.98%
- ---------------------------------------- -----------
- ---------------------------------------- -----------
CAPITAL RATIOS:
- ---------------------------------------- -----------
Average stockholders' equity to
average assets 7.67%
- ---------------------------------------- -----------
Tier 1 risk-based capital (1) 13.00%
- ---------------------------------------- -----------
Total risk-based capital (1) 14.23%
- ---------------------------------------- -----------
Tier 1 leverage (1) 8.23%
- ---------------------------------------- -----------
</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.
10
<PAGE> 18
PEOPLES BANCORP OF WINCHESTER, INC.
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- ----------------------------------------- ----------------------------- -- ------------------------------------------------
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
- ----------------------------------------- ----------------------------- ------------- ----------- ------------ -----------
1998 1997 1997 1996 1995 1994
- ----------------------------------------- ----------------------------- ------------- ----------- ------------ -----------
(UNAUDITED)
- ----------------------------------------- ----------------------------- ------------- ----------- ------------ -----------
INCOME STATEMENT DATA:
- ----------------------------------------- ------------- --------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 5,525 $ 4,952 $ 10,438 $ 9,304 $ 8,592 $ 7,369
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Total interest expense 2,694 2,169 4,786 4,114 3,809 3,107
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Net interest income 2,831 2,783 5,652 5,190 4,783 4,262
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Provision for loan losses 63 50 100 20 120 360
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Net interest income after loan loss
provision 2,768 2,733 5,552 5,170 4,663 3,902
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Total noninterest income excluding
securities gains 417 369 731 705 613 625
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Security gains - 1 - 7 26 3
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Total noninterest expense 1,838 1,652 3,385 2,976 2,824 2,684
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Income tax expense (benefit) (1) 250 466 935 956 802 572
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Income before cumulative effect of
change in accounting principle (1) 1,097 985 1,963 1,950 1,676 1,274
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Cumulative effect of change in
accounting for income taxes - - - - - -
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Net income (1) 1,097 985 1,963 1,950 1,676 1,274
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
PER SHARE DATA:
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Income per common share before
cumulative effect of change in
accounting principle (1) $ 14.63 $ 13.13 $ 26.17 $ 26.01 $ 22.36 $ 16.99
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Cumulative effect of change in
accounting for income taxes - - - - - -
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Net income (1) 14.63 13.13 26.17 26.01 22.36 16.99
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Cash dividends (4) 10.00 5.00 5.00 7.50 - -
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Book value 182.80 171.15 184.20 162.94 144.78 121.70
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
OTHER INFORMATION:
- ----------------------------------------- ------------- --------------- ------------- ----------- ------------ ----------
Average number of shares outstanding 75 75 75 75 75 75
- ----------------------------------------- ------------- --------------- ------------- ----------- ------------ ----------
- ----------------------------------------- ------------- --------------- ------------- ----------- ------------ ----------
BALANCE SHEET DATA
(PERIOD ENDED):
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Total assets $ 148,048 $ 132,049 $ 142,155 $ 126,802 $ 112,134 $ 112,543
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Securities 25,374 26,338 26,490 28,725 24,166 25,382
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Loans, net of unearned income
(including loans held for sale) 101,565 93,715 98,337 84,503 71,954 70,007
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Total deposits 129,432 112,215 123,548 109,355 95,479 92,962
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Total debt 3,871 6,421 3,916 4,463 5,097 9,748
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Stockholders' equity 13,710 12,836 13,815 12,220 10,859 9,127
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
<CAPTION>
- ----------------------------------------- ------------
- ----------------------------------------- ------------
1993
- ----------------------------------------- ------------
- ----------------------------------------- ------------
INCOME STATEMENT DATA:
- ----------------------------------------- ------------
<S> <C>
Total interest income $ 6,883
- ----------------------------------------- -----------
Total interest expense 3,036
- ----------------------------------------- -----------
Net interest income 3,847
- ----------------------------------------- -----------
Provision for loan losses 360
- ----------------------------------------- -----------
Net interest income after loan loss
provision 3,487
- ----------------------------------------- -----------
Total noninterest income excluding
securities gains 604
- ----------------------------------------- -----------
Security gains 14
- ----------------------------------------- -----------
Total noninterest expense 2,590
- ----------------------------------------- -----------
Income tax expense (benefit) (1) 373
- ----------------------------------------- -----------
Income before cumulative effect of
change in accounting principle (1) 1,142
- ----------------------------------------- -----------
Cumulative effect of change in
accounting for income taxes -
- ----------------------------------------- -----------
Net income (1) 1,142
- ----------------------------------------- -----------
- ----------------------------------------- -----------
PER SHARE DATA:
- ----------------------------------------- -----------
Income per common share before
cumulative effect of change in
accounting principle (1) $ 15.23
- ----------------------------------------- -----------
Cumulative effect of change in
accounting for income taxes -
- ----------------------------------------- -----------
Net income (1) 15.23
- ----------------------------------------- -----------
- ----------------------------------------- -----------
Cash dividends (4) -
- ----------------------------------------- -----------
Book value 105.08
- ----------------------------------------- -----------
- ----------------------------------------- -----------
OTHER INFORMATION:
- ----------------------------------------- -----------
Average number of shares outstanding 75
- ----------------------------------------- -----------
- ----------------------------------------- -----------
BALANCE SHEET DATA
(PERIOD ENDED):
- ----------------------------------------- -----------
Total assets $ 109,677
- ----------------------------------------- -----------
Securities 31,110
- ----------------------------------------- -----------
Loans, net of unearned income
(including loans held for sale) 65,627
- ----------------------------------------- -----------
Total deposits 83,704
- ----------------------------------------- -----------
Total debt 17,497
- ----------------------------------------- -----------
Stockholders' equity 7,881
- ----------------------------------------- -----------
</TABLE>
11
<PAGE> 19
<TABLE>
- ------------------------------------ ----------------------------- -- ------------------------------------------------------------
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
- ------------------------------------ ----------------------------- ------------- ----------- ------------ ----------- ------------
1998 1997 1997 1996 1995 1994 1993
- ------------------------------------ ----------------------------- ------------- ----------- ------------ ----------- ------------
(UNAUDITED)
- ------------------------------------ ----------------------------- ------------- ----------- ------------ ----------- ------------
PERFORMANCE RATIOS:
- ------------------------------------ ------------- --------------- ------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average assets (2) 1.26% 1.52% 1.46% 1.63% 1.49% 1.15% 1.06%
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Return on average stockholders'
equity (2) 13.13% 15.72% 15.15% 16.85% 16.77% 14.98% 15.62%
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Net interest margin 4.23% 4.72% 4.63% 4.18% 4.22% 4.07% 3.71%
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Dividend payout (2) 132.37% 38.08% 19.10% 28.84% - - -
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
CAPITAL RATIOS:
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Average stockholders' equity to
average assets 9.67% 9.68% 9.63% 9.75% 8.90% 7.65% 6.81%
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Tier 1 risk-based capital (3) 11.35% 11.85% 11.81% 12.07% 11.57% 9.03% 7.29%
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Total risk-based capital (3) 12.61% 13.11% 13.06% 13.33% 12.82% 10.28% 8.54%
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
Tier 1 leverage (3) 7.72% 7.90% 8.03% 7.82% 7.41% 5.79% 4.68%
- ------------------------------------ ----------- ------------- ----------- --------- ---------- --------- ----------
</TABLE>
(1) Peoples elected S Corporation status effective January 1, 1998. See
"Federal Income Tax Consequences of the Merger" (page __). The following
amounts represent pro forma income taxes, pro forma income before
cumulative effect of change in accounting principle, pro forma net income,
pro forma income per common share before cumulative effect of change in
accounting principle and pro forma net income per share that would have
been reported if C Corporation status had been maintained:
<TABLE>
<CAPTION>
- ----------------------------------------- ----------------------------- -- ------------------------------------------------
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31,
- ----------------------------------------- ----------------------------- ------------- ----------- ------------ -----------
1998 1997 1997 1996 1995 1994
- ----------------------------------------- ----------------------------- ------------- ----------- ------------ -----------
(UNAUDITED)
- ----------------------------------------- ------------- --------------- ------------- ----------- ------------ -----------
Pro Forma Income Tax Expense $ 434 $ 466 $ 935 $ 956 $ 802 $ 572
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Pro Forma Income Before Cumulative
Effect of Change in Accounting Principle 913 985 1,963 1,950 1,676 1,274
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Pro Forma Net Income 913 985 1,963 1,950 1,676 1,274
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
PER SHARE DATA:
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Pro Forma Income Per Common Share
Before Cumulative Effect of Change in
Accounting Principle $ 12.18 $ 13.13 $ 26.17 $ 26.01 $ 22.36 $ 16.99
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
Pro Forma Net Income 12.18 13.13 26.17 26.01 22.36 16.99
- ----------------------------------------- ------------ -------------- ------------ ---------- ----------- ----------
<CAPTION>
- ----------------------------------------- ------------
- ----------------------------------------- ------------
1993
- ----------------------------------------- ------------
- ----------------------------------------- ------------
<S> <C>
Pro Forma Income Tax Expense $ 373
- ----------------------------------------- -----------
Pro Forma Income Before Cumulative
Effect of Change in Accounting Principle 1,142
- ----------------------------------------- -----------
Pro Forma Net Income 1,142
- ----------------------------------------- -----------
PER SHARE DATA:
- ----------------------------------------- -----------
Pro Forma Income Per Common Share
Before Cumulative Effect of Change in
Accounting Principle $ 15.23
- ----------------------------------------- -----------
Pro Forma Net Income 15.23
- ----------------------------------------- -----------
</TABLE>
(2) Ratios for the period ended June 30, 1998 have been computed as if C
Corporation status had been maintained for purposes of comparability.
(3) 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.
(4) Dividends for the six-month period ended June 30, 1998 do not include
$6.11 per share for amounts representing estimated liability for taxes as
a result of Peoples' status as an S Corporation.
12
<PAGE> 20
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the shareholders
of Peoples in connection with the solicitation by the Board of Directors of
Peoples of proxies for use at the special meeting. At the special meeting,
shareholders will be asked to vote upon proposals to approve the Agreement and
to terminate the Stockholder Agreement. The special meeting will be held at
____ _.m., local time, on ___________, 1998, at the main office of Peoples
Commercial Bank (the "Bank"), Maple & Broadway, Winchester, Kentucky 40392.
Peoples shareholders are requested promptly to sign, date, and return
the accompanying proxy card to Peoples in the enclosed postage-paid, addressed
envelope.
Any Peoples 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 Peoples a signed proxy card bearing a later date, provided that such notice
or proxy card is actually received by Peoples before the shareholder vote is
taken at the special meeting. Any notice of revocation should be sent to
Peoples Bancorp of Winchester, Inc., Maple & Broadway, Winchester, Kentucky
40392, Attention: S. Dudley Taylor, Corporate Secretary. A proxy will not be
revoked by death or supervening incapacity of the shareholder 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 special 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 TERMINATION OF
THE STOCKHOLDER AGREEMENT AND IN THE DISCRETION OF THE PROXY HOLDER AS TO ANY
OTHER MATTERS THAT PROPERLY MAY COME BEFORE THE SPECIAL 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 BOTH THE
AGREEMENT AND TERMINATION OF THE STOCKHOLDER AGREEMENT. As of the date of this
Proxy Statement/Prospectus, Peoples is unaware of any other matter to be
presented at the special meeting.
The cost of soliciting proxies will be borne by Peoples. 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 Peoples, 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.
SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IF THE MERGER IS COMPLETED, THE EXCHANGE AGENT WILL SEND A LETTER
OF TRANSMITTAL TO SHAREHOLDERS PROMPTLY AFTER THE EFFECTIVE TIME OF THE MERGER.
THE LETTER OF TRANSMITTAL WILL CONTAIN INSTRUCTIONS FOR THE DELIVERY OF STOCK
CERTIFICATES FOR EXCHANGE INTO STOCK CERTIFICATES REPRESENTING AREA COMMON
STOCK.
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RECORD DATE; VOTE REQUIRED
Peoples' Board of Directors has established the close of business on
_____________, 1998, as the Record Date for determining the shareholders
entitled to notice of and to vote at the special meeting. Only record holders
of Peoples common stock as of _________________, 1998 will be entitled to vote
at the special meeting. Approval of the Agreement requires the affirmative vote
of a majority of the outstanding shares of Peoples common stock, and approval
of the Stockholder Agreement termination requires the affirmative vote of 80%
of the outstanding shares of Peoples common stock. Approval of any other matter
presented requires that more votes be cast in favor of the proposal than
against it. An abstention or failure to return a properly executed proxy card
will have the same effect as a vote against both the Agreement and the
termination of the Stockholder 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 Peoples common stock, and termination of
the Stockholder Agreement requires the affirmative vote of at least 80% of the
outstanding shares of Peoples common stock, abstentions and broker non-votes
will have the same effect as a vote against the Agreement and against
termination of the Stockholder Agreement. As of _________________, 1998 there
were approximately 48 holders of 75,000 shares of Peoples common stock
outstanding and entitled to vote at the special meeting, with each share
entitled to one vote.
The presence, in person or by proxy, of a majority of the outstanding
shares of Peoples common stock is necessary to constitute a quorum of the
shareholders in order to take action at the special meeting. For these
purposes, shares of Peoples common stock that are present or represented by
proxy at the special meeting will be counted for quorum purposes whether or not
the holder of the shares or proxy fails to vote on the Agreement or the
termination of the Stockholder Agreement.
As of _________________, 1998, the directors and executive officers of
Peoples and their affiliates beneficially owned 54,710 shares (or approximately
72.9% of the outstanding shares) of Peoples common stock.
As of _________________, 1998, neither Area nor its directors and
executive officers owned any shares of Peoples common stock.
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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 Proxy Statement/Prospectus and is incorporated herein by
reference. All shareholders are urged to read the Appendices in their entirety.
GENERAL
The Agreement provides for the Merger of Peoples and Area. At the
effective time of the Merger, each share of Peoples common stock (excluding any
shares held by Peoples, 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 17.333333 shares of
Area common stock (the "Conversion Ratio"), subject to adjustment in the event
of a stock dividend, stock split or similar stock reclassification. The
Conversion Ratio is also subject to adjustment under certain other
circumstances. See "--Conversion Ratio Adjustment" (page ___). Each share of
Area common stock outstanding immediately prior to the effective time of the
Merger will remain outstanding and unchanged as a result of the Merger.
No fractional shares of Area common stock will be issued. Instead,
cash (without interest) will be paid in lieu of any fractional share interest
to which a Peoples shareholder would be entitled upon consummation of the
Merger, in an amount equal to fractional share of Area common stock multiplied
by the market value of one share of Area common stock at the effective time of
the Merger. The market value of one share of Area common stock at the effective
time of the Merger will be the closing sale price of Area common stock on the
Nasdaq National Market as reported by The Wall Street Journal (Midwest Edition)
on the last trading day preceding the effective time of the Merger.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. Peoples was organized in 1989 by a group of
Clark County investors led by Ralph L. Oliver after the former majority owner
of Peoples Commercial Bank expressed its desire to sell its controlling
interest. At that time, the shareholders of Peoples entered into a Stockholder
Agreement among themselves which, among other things, gave every stockholder
the right to purchase a pro rata portion of the shares that might otherwise be
sold to nonstockholders other than the seller's descendants.
The principal objective of the Peoples Board during the past nine
years has been to operate the Bank profitably as a community bank dedicated to
serving the Winchester and Clark County community. From time to time during
that period, the Peoples Board of Directors has reevaluated its strategic plan
for the Bank's future in response to the Bank's capital position, the needs of
customers and shareholders, developments in the local banking environment, and
trends in the national banking industry, generally.
Since 1994, as the consolidation of the banking industry has
increased, the Board has considered longer-term strategic options from time to
time, including the possible acquisition of other financial institutions,
exploring the interest of other institutions in acquiring Peoples, a possible
Merger of equals with a comparably sized banking institution in a nearby
banking market, and
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remaining an independent community banking institution. In its periodic
evaluation of these strategic options, the Board considered such issues as the
additional capital that would be required to support possible acquisitions by
Peoples, the dilutive impact of issuing more shares to raise the required
capital, the prices paid from time to time to acquire other comparable banking
institutions, the closely held ownership of Peoples, estate planning issues for
its shareholders (particularly its majority shareholder), and the absence of a
market for Peoples common stock.
In 1997, following a change in the law, the Peoples Board elected to
be taxed as an S Corporation beginning with Peoples' 1998 fiscal year. The
Peoples Board believed that so long as the best interests of Peoples, its
shareholders and the communities served by the Bank were best achieved by
Peoples' remaining as an independent financial institution, S Corporation
status could increase shareholder value. As an S Corporation, however, Peoples
could have no more than 75 shareholders, and the Stockholder Agreement was
amended to impose additional restrictions on the transfer of shares by
shareholders needed to avoid termination of Peoples' S Corporation status.
Throughout 1997 and early 1998, the multiples of earnings and book
value being paid in acquisitions of community banking institutions comparable
to Peoples continued to increase. In early April 1998, representatives of a
large regional bank holding company contacted Mr. Oliver to inquire about
interest in a possible acquisition. Mr. Oliver expressed to other Peoples Board
members his sense it was appropriate to reevaluate Peoples' strategic plan in
light of the increase in consideration being paid for comparable community
banking institutions, the illiquidity of Peoples common stock, personal estate
planning concerns and long-term operational issues. Mr. Oliver held preliminary
discussions with the representatives of this institution, during which a price
of approximately $30 million for all Peoples common stock was offered. The
Peoples Board met shortly thereafter to discuss the offer, and agreed to allow
the offeror to conduct a due diligence examination of the Bank while the
Peoples Board continued to evaluate the offer with its financial, accounting
and legal advisors. On April 9, 1998 Peoples entered into a confidentiality
agreement with the offeror, and the offeror conducted its examination for
several days thereafter.
At a meeting of the Peoples Board on May 27, 1998, representatives of
the investment banking firm of Professional Bank Services, Inc. and the law
firm of Brown, Todd & Heyburn PLLC reviewed the proposal with the directors of
Peoples. After considerable analysis and discussion of the terms of the offer
and the other strategic options available to Peoples in the present banking
environment, the Peoples Board determined to negotiate exclusively with the
offeror only if the proposed purchase price were increased significantly. The
Peoples Board delivered a response to this effect to the offeror, and the
offeror elected not to proceed with further negotiations.
The Peoples Board continued to analyze strategic options and
authorized Investment Bank Services, Inc. ("IBS"), an affiliate of PBS, to
solicit indications of interest from several other regional banking
institutions. IBS contacted approximately 12 such institutions and on June 8,
1998 distributed a confidential memorandum to the institutions that had
expressed interest and signed a confidentiality agreement with Peoples. Of the
eight institutions that made a proposal, Area and one other institution offered
financial terms that were significantly higher than the other six, and both
indicated they gave significant autonomy to their affiliate community banks.
On August 3, 1998, the Peoples Board met in Louisville to hear
presentations from representatives of Area and the other institution. Although
Area had historically paid smaller dividends than its peer institutions, Area
represented that its lower dividend rate enabled Area to retain more capital to
support growth. Area also represented that it would allocate substantially more
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decision-making authority to its affiliate banks than did the other
institution. Following these presentations, the Peoples Board determined to
proceed with negotiations with Area. Representatives of Area conducted a due
diligence examination of Peoples during the week of August 10, 1998. During the
next two weeks, senior officers of Peoples and Area and their respective
advisors negotiated the terms of the Agreement.
At a special meeting on August 24, 1998, the Peoples Board approved
the Agreement. Peoples and Area entered into the Agreement immediately after
the Peoples Board meeting and issued a press release to announce the signing
the next day.
RECOMMENDATION OF THE PEOPLES BOARD OF DIRECTORS AND REASONS FOR THE
MERGER. After analyzing the financial and other terms of the Agreement in
consultation with its financial, legal and accounting advisors, the Board of
Directors of Peoples has unanimously approved the Agreement and has determined
that the Merger is fair to, and in the best interests of, Peoples and its
shareholders. THE PEOPLES BOARD OF DIRECTORS RECOMMENDS THAT PEOPLES'
SHAREHOLDERS VOTE TO APPROVE AND ADOPT THE AGREEMENT.
In reaching its decision to approve the Agreement, the Peoples Board
of Directors considered the following material factors, but did not assign any
relative or specific weight to any factor in particular:
(1) The financial terms of the Merger. Based on information about
acquisitions of comparable community banking institutions presented by its
financial advisor and the then-current market price of Area common stock, the
Board believed the Conversion Ratio represented an attractive price for the
Peoples common stock. The Board also noted that Peoples would have the right to
terminate the Agreement if the average trading price for Area common stock for
a ten trading day period ending five calendar days before closing declines to
less than $27 per share. See "The Merger--Conversion Ratio Adjustment." If such
a decline in the price of Area common stock were to occur, the Peoples Board
would have an opportunity to consult with its financial and other advisors to
determine the course of action best in the interests of Peoples, its
shareholders and other constituencies.
(2) The potential advantages of owning Area common stock. In this
regard, the Board considered information concerning the business, financial
condition, results of operations, dividend policy, asset quality and prospects
of Area including the long-term growth potential of Area common stock and the
future prospects of Area. The Board also noted that Area common stock is traded
on the Nasdaq National Market and provides more liquidity than Peoples common
stock.
(3) The advantages and disadvantages of Peoples remaining independent.
The Peoples Board considered the business, financial condition, results of
operations and prospects of Peoples, including, but not limited to, its
potential growth, anticipated capital expenditures, profitability and the
related business risks. The Board also noted the absence of a market for
Peoples common stock and the desire of the majority shareholder and other
shareholders of Peoples to have more liquidity for personal estate planning
purposes.
(4) Developments in the banking environment. The Peoples Board
considered trends in the national and local banking markets, including the pace
of consolidation in the banking industry, the increased regulatory burden on
financial institutions, and competitive factors including the
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<PAGE> 25
development of new banking products and services and the entry of several
financial institutions into the Clark County banking market.
(5) The compatibility of the business and management philosophies of
Peoples and Area, and Area's strong commitment to community banking.
(6) The exchange of Area common stock for Peoples common stock in the
Merger would be a tax-free transaction for Peoples shareholders.
(7) The opinion of PBS that the consideration to be received by
Peoples shareholders under the terms of the Agreement is fair from a financial
point of view.
As noted above and described under "The Merger--Conversion Ratio
Adjustment," the Agreement provides that if the "Average Area Price" is less
than $27, the Peoples Board will have the right to terminate the Agreement,
subject to Area's right to revoke such termination by increasing the Conversion
Ratio and thereby issuing more Area common stock to Peoples shareholders in the
Merger. The "Average Area Price" is the average daily closing trading price
reported for Area common stock during a ten trading day period that ends five
calendar days before closing. The closing trading price for Area common stock
reported on ___________, 1998 was $_______.
The Peoples Board intends to determine whether to exercise its
termination right only at such time as it appears likely that the Average Area
Price will be less than $27. In determining whether to terminate the Agreement
and whether to resolicit shareholders before proceeding, the Peoples Board will
consider, consistent with its fiduciary duties, all relevant facts and
circumstances that exist at such time, including without limitation,
information concerning the business, financial condition, results of
operations, and prospects of Area (including the recent trading prices of Area
common stock, the historical financial data of Area, customary statistical
measurements of Area's financial performance, and the future prospects for Area
common stock following the Merger), changes in the trading prices of banking
institutions comparable to Area between the date the proposed Merger was
publicly announced and the date of the special meeting, and the advice of its
financial advisors and legal counsel.
If the Peoples Board elects to terminate the Agreement, Area would
then determine whether to proceed with the Merger by increasing the Conversion
Ratio so that the indicated value of each share of Peoples common stock would
be $468. The Peoples Board believes that Area would consider a variety of
factors in determining whether to increase the number of Area shares to be
issued in the Merger, including such factors as the projected effect of the
Merger on Area's pro forma earnings per share and Area's assessment of Peoples'
earning potential as part of Area. AREA, HOWEVER, WOULD BE UNDER NO OBLIGATION
TO ADJUST THE CONVERSION RATIO IF THE PEOPLES BOARD ELECTS TO TERMINATE THE
AGREEMENT.
PEOPLES' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT PEOPLES
SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT.
RECOMMENDATION OF THE AREA BOARD OF DIRECTORS AND REASONS FOR THE
MERGER. Area's 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
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<PAGE> 26
relative or specific weights to the factors, the Area Board of Directors
considered the following material factors:
(1) A review, based in part on a presentation by Area's management, of
(a) the business, operations, earnings, and financial condition, including the
capital levels and asset quality, of Peoples on an historical, prospective, and
pro forma basis and in comparison to other financial institutions in the area,
(b) the demographic, economic, and financial characteristics of the markets in
which Peoples 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 (c) the result of Area's due diligence
review of Peoples; and
(2) 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.
FAIRNESS OPINION
Professional Bank Services, Inc. ("PBS") was engaged by Peoples to
advise the Board of Directors of Peoples as to the fairness of the
consideration, from a financial perspective, to be paid by Area to shareholders
of Peoples 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 Peoples or Area. PBS was selected to advise the Board of Directors
of Peoples based upon its 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 Peoples resulting from such analyses to the Board of
Directors of Peoples in connection with its advice as to the fairness of the
consideration to be paid by Area.
A Fairness Opinion of PBS was delivered to the Board of Directors of
Peoples on August 24, 1998, at a regular meeting of the Board of Directors and
has been updated as of the date of this Proxy Statement/Prospectus. A copy of
the Fairness Opinion, which includes a summary of the assumptions made and
information analyzed in deriving the Fairness Opinion, is attached as Appendix
C to this Proxy Statement/Prospectus and should be read in its entirety.
In arriving at its Fairness Opinion, PBS reviewed certain publicly
available business and financial information relating to Peoples and Area. PBS
considered certain financial and stock market data of Peoples 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, Illinois and Indiana
(the "Regional Area") that had recently been effected. PBS also considered such
other information, financial studies, analyses and investigations and
financial, 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 Peoples or
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Area. PBS took into consideration the results of PBS' wholly owned subsidiary
Investment Bank Services, Inc. ("IBS") solicitation of indications of interest
from other financial institutions concerning their interest in a possible
affiliation with Peoples. PBS reviewed the correspondence and information
received from interested financial institutions that were contacted. PBS
reviewed all offers received by Peoples.
As part of preparing this Fairness Opinion, PBS performed a due
diligence review of Area on August 17, 1998. As part of the due diligence, PBS
reviewed the following items: minutes of the Board of Directors meetings from
January 1996 through July 1998; reports filed with the Securities and Exchange
Commission by Area on Forms 10-K, 8-K and 10-Q for the years ended December 31,
1995, 1996 and 1997 and year-to-date 1998; reports of independent auditors for
the years ended December 31, 1996 and 1997; the most recent analysis and
calculation of allowance for loan and lease losses for Area; internal loan
review reports; investment portfolio activity reports; asset quality reports;
Uniform Holding Company Report for Area as of December 31, 1997; March 31, 1998
Reports of Condition and Income for each subsidiary bank; June 30, 1998 Report
of Condition and Income for Area; and discussion of pending litigation and
other issues with senior management of Area.
PBS reviewed and analyzed the historical performance of Peoples and
the Bank, Peoples wholly-owned subsidiary, contained in: audited Annual Reports
and financial statements dated December 31, 1995, 1996 and 1997 of Peoples;
March 31, 1998, December 31, 1997 and December 31, 1996 Consolidated Reports of
Condition and Income filed by the Bank with the FDIC; May 31, 1998 unaudited
financial statements of Peoples and the Bank; December 31, 1997 Uniform Bank
and Holding Company Performance Report of the Bank; December 31, 1997 FR Y-6
Annual Report of Peoples filed with the Board of Governors of the Federal
Reserve System; historical common stock trading activity of Peoples; and its
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 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 Fairness Opinion and preparing its
written and oral presentation to Board of Directors of Peoples, 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 Peoples' 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.
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ACQUISITION COMPARISON ANALYSIS. In performing this analysis, PBS
reviewed all bank acquisition transactions in the states of Kentucky, Illinois
and Indiana (the "Regional Area") since 1992. There were 263 bank acquisition
transactions in Regional Area announced since 1992 for which detailed financial
information was available. The purpose of the analysis was to obtain an
evaluation range based on these Regional Area 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
Peoples. In addition to reviewing recent Regional Area bank transactions, PBS
performed separate comparable analyses for acquisitions of banks which, like
Peoples, were located in the Commonwealth of Kentucky, had an equity-to-asset
ratio between 8.00% and 10.00%, had total assets between $100.0 - $150.0
million, had a return on average equity ("ROAE") between 13.00% - 16.00% and
bank transactions effected in the Regional Area since January 1, 1996. In
addition, median values for the 263 Regional Area acquisitions expressed as
multiples of both book value and earnings were 1.77 and 16.33, respectively.
The median multiples of book value and earnings for acquisitions of Regional
Area banks which, like Peoples, were located in the Commonwealth of Kentucky
were 1.73 and 14.78, respectively. For acquisitions of Regional Area banks
which, like Peoples, had an equity-to-asset ratio between 8.00% and 10.00%, the
median multiples of book value and earnings were 1.82 and 14.59, respectively.
For acquisitions of Regional Area banks with assets between $100.0 - $150.0
million the median multiples were 1.89 and 17.45. For Regional Area
acquisitions of banks with a ROAE between 13.00% - 16.00%, the median multiples
of book value and earnings were 1.91 and 13.21, respectively. The median
multiples of book value and earnings for acquisitions of Regional Area banks
since January 1, 1996 were 1.91 and 17.87, respectively.
In the proposed transaction, Peoples shareholders will receive in
aggregate 1,300,000 shares of Area common stock for all 75,000 shares of
Peoples common stock or 17.33 Area shares per Peoples share, subject to
adjustment, as further defined in the Agreement. At the close of trading, on
August 14, 1998, the average of the bid/ask price for Area common stock on the
Nasdaq National Market was $29.625 per share. Using this average price of
$29.625 per Area share, the proposed consideration to be received represents an
aggregate value of $38,512,500 or $513.50 per Peoples share. The $513.50 per
Peoples share represents a multiple of Peoples' December 31, 1997 book value
and a multiple of Peoples' budgeted December 31, 1998 earnings, adjusted for
normalized taxes, of 2.79X and 17.69 respectively.
The market value of the proposed transaction's percentile ranking was
prepared and analyzed with respect to the above Regional Area comparable
transactions group. Compared to all Regional Area bank transactions, the
acquisition value ranks in the 93rd percentile as a multiple of book value and
in the 62nd percentile as a multiple of earnings. Compared to Regional Area
transactions where the acquired bank was located in the Commonwealth of
Kentucky, the proposed acquisition value ranks in the 89th percentile as a
multiple of book value and the 69th percentile as a multiple of earnings.
Compared to Regional Area bank transactions where the acquired institution had
an equity-to-asset ratio between 8.00% and 10.00%, the acquisition value ranks
in the 93rd percentile as a multiple of book value and the 75th percentile as a
multiple of earnings. For Regional Area bank acquisitions where the acquired
institution had between $100.0 - $150.0 million in assets, the acquisition
value ranks in the 94th percentile as a multiple of book value and the 54th
percentile as a multiple of earnings. For Regional Area bank transactions where
the acquired institution had a ROAE between 13.00% and 16.00%, the acquisition
value ranks in the 95th percentile as a multiple of book value and the 82nd
percentile as a multiple of earnings. For Regional Area bank transactions
effected since January 1, 1996, the acquisition value ranks in the 84th
percentile as a multiple of book value and in the 49th percentile as a multiple
of earnings.
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ADJUSTED NET ASSET VALUE ANALYSIS. PBS reviewed Peoples' balance sheet
data to determine the amount of material adjustments required to the
stockholders' equity of Peoples based on differences between the market value
of Peoples' assets and their value reflected on Peoples' financial statements.
PBS determined that three adjustments were warranted. Equity was increased
$181,000 to reflect the after tax appreciation in Peoples' held to maturity
securities portfolio. Equity was reduced by $2,560,000 to reflect goodwill on
Peoples' balance sheet. PBS also reflected a value of the non-interest bearing
demand deposits of approximately $4,622,000. The aggregate adjusted net asset
value of Peoples was determined to be $16,058,000 or $214.11 per Peoples share.
DISCOUNTED EARNINGS ANALYSIS. A dividend discount analysis was
performed by PBS pursuant to which a range of values of Peoples was determined
by adding (1) the present value of estimated future dividend streams that
Peoples could generate over a five-year period and (2) the present value of the
"terminal value" of Peoples' earnings at the end of the fifth year. The
"terminal value" of Peoples' earnings at the end of the five-year period was
determined by applying a multiple of 17.87 times the projected terminal year's
earnings. The 17.87 multiple represents the median price paid as a multiple of
earnings for all Regional Area bank transactions since 1996.
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 Peoples' common stock. The
aggregate value of Peoples, determined by adding the present value of the total
cash flows, was $32,084,000 or $427.79 per share. In addition, using the
five-year projection as a base, a twenty-year projection was prepared assuming
an annual growth rate of 6.0%, and a return on assets of 1.50% would remain in
effect for the entire period beginning in year two. Dividends were assumed to
increase from 35.0% of income in years one through five to 60.0% of income for
years six through twenty. This long-term projection resulted in an aggregate
value of $25,467,000 or $339.56 per Peoples share.
SPECIFIC ACQUISITION ANALYSIS. PBS valued Peoples 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 $27,620,000,
or $368.27 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
7.0% adjusted for taxes, amortization of the acquisition premium over 15 years
and a budgeted, adjusted, December 31, 1998 earnings level of $2,177,000. 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 the aggregate $29,688,000 or $395.84 per
Peoples share.
PRO FORMA MERGER ANALYSIS. PBS compared the historical performance of
Peoples to that of Area and other regional holding companies. This analysis
included, among other things, a comparison of profitability, asset quality and
capital measures. In addition, the contribution of Peoples and Area to the
income statement and balance sheet of the pro forma combined company was
analyzed.
The effect of the affiliation on the historical and pro forma
financial data of Peoples was prepared and analyzed. Peoples' historical
financial data was compared to the pro forma combined historical and projected
earnings, book value and dividends per share. The pro forma dividend will
decrease significantly from $7.50 and $5.00 per Peoples' share in 1996 and
1997, respectively, to $1.85 and $2.17 per Peoples' share. Earnings per share,
on a pro forma basis, are expected to decrease approximately 9.0% in the near
term while book value will increase.
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The Fairness Opinion is directed only to the question of whether the
consideration to be received by Peoples' shareholders under the Agreement is
fair and equitable from a financial perspective and does not constitute a
recommendation to any Peoples shareholder to vote in favor of the affiliation.
No limitations were imposed on PBS regarding the scope of its investigation or
otherwise by Peoples
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by Peoples' shareholders under
the Agreement is fair and equitable from a financial perspective to the
shareholders of Peoples.
For their services, PBS and IBS have received a retainer fee of
$10,000 and an additional $10,000 fee upon the signing of the Agreement. PBS
and IBS are entitled to an additional amount equal to 1.75% of the amount by
which the consideration received by Peoples shareholders exceeds $30 million,
up to $35 million, and 2.0% of the amount, if any, by which the consideration
received by Peoples shareholders exceeds $35 million. Assuming the per share
value of the Area common stock issued in the Merger is $___ which was the
closing price of Area common stock reported on _______, 1998, PBS and IBS would
be entitled to an additional payment of $______ for their services in
connection with the Merger. In addition, Peoples has agreed to indemnify PBS
and IBS and their respective directors, officers and employees, from liability
in connection with the transaction, and to hold PBS and IBS harmless from any
losses, actions, claims, damages, expenses or liabilities related to any of
PBS' or IBS' acts or decisions made in good faith and in the best interest of
Peoples.
EFFECTIVE TIME OF THE MERGER
Subject to the conditions to the obligations of the parties to
complete the Merger, the effective time of the Merger 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 Peoples, 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 of the Merger to occur by the
last business day of, or the first business day of the month following, the
month during which the conditions to the Merger are satisfied.
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 Peoples anticipate that all
conditions to consummation of the Merger will be satisfied so that the Merger
can be consummated on January 4, 1999. However, delays in the consummation of
the Merger could occur.
The Board of Directors of either Area or Peoples generally may
terminate the Agreement if the Merger is not consummated by January 31, 1999,
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," "-- Conversion Ratio Adjustment" and "-- Waiver, Amendment, and
Termination of the Agreement" (page ___).
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DISTRIBUTION OF STOCK CERTIFICATES AFTER THE MERGER
Promptly after the effective time of the Merger, Area will cause UMB
Bank, acting in the capacity of Exchange Agent, to mail to the former
shareholders of Peoples a letter of transmittal, together with instructions for
the exchange of such shareholders' certificates representing shares of Peoples
common stock for certificates representing shares of Area common stock.
SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS. Upon surrender to the
Exchange Agent of certificates for Peoples common stock together with a
properly completed letter of transmittal, Area will issue and mail to each
shareholder of Peoples surrendering such items a certificate or certificates
representing the number of shares of Area common stock to which the Peoples
shareholder is entitled as a result of the Merger. After the effective time of
the Merger, to the extent permitted by law, Peoples shareholders as of the
effective time of the Merger will be entitled to vote at any meeting of Area
shareholders, regardless of whether they have surrendered their Peoples stock
certificates. NO DIVIDEND OR OTHER DISTRIBUTION PAYABLE AFTER THE EFFECTIVE
TIME OF THE MERGER WITH RESPECT TO AREA COMMON STOCK, HOWEVER, WILL BE PAID TO
THE HOLDER OF ANY UNSURRENDERED PEOPLES STOCK CERTIFICATE UNTIL THE HOLDER DULY
SURRENDERS THE CERTIFICATE. Upon surrender, all undelivered dividends and other
distributions will be delivered to the Peoples shareholder without interest.
After the effective time of the Merger, there will be no transfers of
shares of Peoples common stock on Peoples' stock transfer books. If
certificates representing shares of Peoples common stock are presented for
transfer after the effective time of the Merger, they will be canceled and
exchanged for the appropriate number of shares of Area common stock.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to a number of conditions,
including, but not limited to:
(1) Approval by the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and the Kentucky Department of Financial Institutions
(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;
(2) Approval of the Agreement by the holders of a majority of the
outstanding shares of Peoples common stock;
(3) Approval of the Stockholder Agreement termination by the holders
of 80% of the outstanding shares of Peoples common stock;
(4) The absence of any action by any court or governmental authority
restraining or prohibiting the Merger;
(5) The receipt of an opinion of counsel to the effect that, among
other things: (a) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"); and (b) the exchange in the Merger of
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Peoples common stock for Area common stock will not give rise to gain or loss
to Peoples shareholders, except to the extent of any cash received;
(6) Approval for listing on the Nasdaq National Market of the shares
of Area common stock to be issued in the Merger; and
(7) Receipt of a letter from KPMG Peat Marwick LLP, dated as of the
effective time of the Merger, confirming that the Merger will qualify for
pooling-of-interests accounting treatment under generally accepted accounting
principles.
Consummation of the Merger also is subject to the satisfaction or
waiver of various other conditions specified in the Agreement, including, among
others: (1) the delivery by Area and Peoples of certificates executed by their
appropriate officers as to compliance with the Agreement; and (2) as of the
effective time of the Merger, the accuracy of certain representations and
warranties and the compliance in all material respects with the agreements and
covenants of each party.
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. If the Merger is not completed on or before January 31,
1999, the Agreement may be terminated and the Merger abandoned by a vote of a
majority of the Board of Directors of either Area or Peoples. See "--Waiver,
Amendment, and Termination of the Agreement" (page ___).
REGULATORY APPROVALS
The Merger may not proceed without receipt of the requisite regulatory
approvals. There can be no assurance that the regulatory approvals will be
obtained or as to the timing of the approvals. There also can be no assurance
that the approvals will not be accompanied by a conditional requirement which
causes the 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 Peoples 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.
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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 AND AMENDMENT OF THE AGREEMENT
Prior to the effective time of the Merger, and to the extent permitted
by law, any provision of the Agreement generally may be (1) waived by the party
benefited by the provision or (2) amended by a written agreement between Area
and Peoples approved by their respective Boards of Directors; provided,
however, that after approval by the Peoples shareholders, no amendment that
would require further approval by such shareholders under the Kentucky Act may
be made without the approval of such shareholders.
TERMINATION OF THE AGREEMENT
The Agreement may be terminated, and the Merger abandoned, at any time
prior to the effective time of the Merger, either before or after approval by
the Peoples shareholders, under certain circumstances, including:
(1) By mutual agreement of the Boards of Directors of Area and
Peoples;
(2) By the Board of Directors of either party, in the event of the
other party's breach of any provision of the Agreement which meets certain
standards specified in the Agreement;
(3) By the Board of Directors of either party, in the event that any
of the conditions to the obligations of such party are not satisfied and any
applicable cure period has lapsed;
(4) By the Board of Directors of either party, upon final denial of
any required regulatory approval;
(5) By the Board of Directors of either party, if the shareholders of
Peoples have not approved the Agreement and the termination of the Stockholder
Agreement;
(6) By Area if Peoples' Board of Directors shall have failed to
approve or recommend the Agreement, or shall have withdrawn or modified in any
manner materially adverse to Area its approval or recommendation of the
Agreement;
(7) By Area if Peoples or Peoples Commercial Bank shall become subject
to any regulatory enforcement action which would have a material adverse effect
on Peoples; or
(8) By the Board of Directors of either party, if the Merger shall not
have been consummated by January 31, 1999, 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.
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.
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CONVERSION RATIO ADJUSTMENT
Peoples may terminate the Agreement if the Area Average Price (as
defined below) is less than $27. Similarly, Area may terminate the Agreement if
the Area Average Price is greater than $36. "Area Average Price" means the
average of the daily closing prices of Area common stock as reported in The
Wall Street Journal (Midwest Edition) for the ten Nasdaq National Market
trading days preceding the fifth calendar day before the date the Merger is
consummated (the "Determination Date").
If the Area Average Price were $27, the indicated value of each share
of Peoples common stock would be $468 ($27 times 17.333333). Similarly, if the
Area Average Price were $36, the indicated value of each share of Peoples
common stock would be $624 ($36 times 17.333333).
If the Area Average Price is less than $27, then Peoples' may
terminate the Agreement by giving Area written notice within 48 hours after the
Determination Date. Area would then have two business days to adjust the
Conversion Ratio to equal a fraction, the numerator of which is the product of
$27 times the Conversion Ratio (as then in effect) and the denominator of which
is the Area Average Price. If Area elects to adjust the Conversion Ratio in
this manner, then it will notify Peoples, the Agreement will not be terminated
and will remain in effect with the new Conversion Ratio.
If the Area Average Price is greater than $36, then Area may terminate
the Agreement by giving Peoples written notice within 48 hours after the
Determination Date. Peoples would then have two business days to adjust the
Conversion Ratio to equal a fraction, the numerator of which is the product of
$36 times the Conversion Ratio (as then in effect) and the denominator of which
is the Area Average Price. If Peoples elects to adjust the Conversion Ratio in
this manner, then it will notify Area, the Agreement will not be terminated and
will remain in effect with the new Conversion Ratio.
The Peoples Board intends to determine whether to exercise its
termination right only at such time as it appears likely that the Average Area
Price will be less than $27. In determining whether to terminate the Agreement
and whether to resolicit shareholders before proceeding, the Peoples Board will
consider, consistent with its fiduciary duties and in consultation with its
financial, legal and other advisors, all relevant facts and circumstances that
exist at such time, as described under "The Merger--Background and Reasons for
the Merger." If the Peoples Board elects to terminate the Agreement, Area would
then determine whether to proceed with the Merger by increasing the Conversion
Ratio so that the indicated value of each share of Peoples common stock would
be $468. AREA, HOWEVER, WOULD BE UNDER NO OBLIGATION TO ADJUST THE CONVERSION
RATIO IF THE PEOPLES BOARD ELECTS TO TERMINATE THE AGREEMENT.
CONDUCT OF BUSINESS PENDING THE MERGER
While the Merger is pending, Peoples has agreed not to declare or pay
any dividend or make any other distribution to its shareholders, whether in
cash, stock or other property, except as follows:
(1) Peoples may declare and pay its regular quarterly
distributions on Peoples common stock not to exceed $2.50 per
share. In this regard, Peoples and Area will cooperate with
each other to coordinate the record and payment dates of
their respective dividends for the quarter in which the
effective time of the Merger occurs so that
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Peoples shareholders receive a quarterly dividend from either
Peoples or Area but not from both for that quarter.
(2) Peoples may also declare and pay one or more distributions to
its shareholders on a quarterly basis equal to 39.6% of
Peoples' taxable income for all tax periods beginning after
December 31, 1997 for the purpose of enabling Peoples
shareholders to pay taxes on their proportionate share of
Peoples' income attributable to them by virtue of Peoples'
election to be taxed under Subchapter S of the Internal
Revenue Code. See "Certain Federal Income Tax Consequences of
the Merger" (page ___).
Peoples has agreed that it will, and will cause the Bank to, (1)
continue to carry on their businesses, only in the usual, regular and ordinary
course of business, and (2) use their reasonable best efforts to maintain and
preserve intact their business organizations, employees and advantageous
business relationships and retain the services of their officers and key
employees.
In this regard, Peoples and the Bank have agreed not to take specific
actions that are listed in Section 4.01(b) to the Agreement which is attached
as Appendix A to this Proxy Statement/Prospectus.
In addition, Area and Peoples have each agreed not to take any action,
whether before or after the effective time of the Merger, which, in their
respective good faith determination after consultation with each other and with
their respective advisors, would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code nor any action which would
adversely affect or delay the ability of either of them to obtain any necessary
approvals of any regulatory agency or other governmental authority required for
the transactions contemplated by this Agreement or to perform its covenants and
agreements under this Agreement.
Peoples and Peoples Commercial Bank have also agreed that they will
not, and will not authorize or permit any of their respective officers,
directors, employees or agents to, on or before the earlier of the effective
time of the Merger or the date of termination of this Agreement, directly or
indirectly solicit, initiate or encourage or (subject to the fiduciary duties
of directors as advised by counsel) hold discussions or negotiations with or
provide any information to any person in connection with any proposal from any
person for the acquisition of all or any substantial portion of the business,
assets, shares of Peoples common stock or other securities of Peoples or
Peoples Commercial Bank. Peoples will promptly (within twenty-four (24) hours)
advise Area of its receipt of any such proposal or related inquiry, the
substance of such proposal, and the identity of such person.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
AREA'S BOARD OF DIRECTORS. Following consummation of the Merger,
Area's Board of Directors will take the necessary action to cause Ralph L.
Oliver to be elected as a director of Area. Mr. Oliver currently serves as the
President and Chief Executive Officer of Peoples. Should Mr. Oliver be unable
or unwilling to serve as a director of Area, Area will cause another of the now
existing directors of Peoples (as selected by such directors) to be elected as
a director of Area. Mr. Oliver, who is 68, will serve as a director until he
reaches 70 years of age. Thereafter, he will serve as an advisory director,
with full compensation as a director, until he reaches 72 years of age.
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EMPLOYMENT LETTERS. Area and four of Peoples' officers, William H.
Pitt, William P. Shearer, S. Dudley Taylor and Randy L. Todd, have entered into
employment letters providing for their continued employment by Area. Each
employment letter is for a term ending 24 months after the effective time of
the Merger. Each letter also provides for the officer's salary, a transition
bonus of $25,000 if the officer is employed by Area at the end of the term, and
employee benefits and perquisites provided by Area to similarly situated senior
officers. Each letter also provides that if the officer's employment is
terminated by Area other than for cause (as defined in the letter) or if the
officer terminates his employment for good reason (as defined in the letter) or
if the officer dies or becomes permanently disabled, then the officer (or his
beneficiary) will be entitled to a severance payment equal to the transition
bonus and the officer's base salary through the remainder of the term. In
addition, each letter provides that the officer will not compete (as defined)
with Area or its affiliates nor take any action which is detrimental (as
defined) to Area or its affiliates until the end of the term.
INDEMNIFICATION. The Agreement provides that for a period of six years
after the effective time of the Merger, Area will indemnify the present and
former directors, officers, employees and agents of Peoples and Peoples
Commercial Bank against all liabilities arising out of actions or omissions at
or prior to the effective time of the Merger to the full extent permitted under
Kentucky law and by Peoples' Articles of Incorporation or Bylaws, as currently
in effect, including provisions relating to advances of expenses incurred in
the defense of any litigation.
EMPLOYEE BENEFITS. The Agreement also provides that, after the
effective time of the Merger, Area will provide generally to officers and
employees of Peoples and Peoples Commercial Bank who become officers or
employees of Area or its subsidiaries following the effective time of the
Merger, participation in Area's employee benefit plans available to similarly
situated employees of Area or its subsidiaries, unless they are continuing to
participate in a similar plan maintained by Peoples or Peoples Commercial Bank
after the effective time of the Merger. For purposes of participation and
vesting under such employee benefit plans (but not accrual of benefits),
service with Peoples or its subsidiaries prior to the effective time of the
Merger will be treated as service with Area or its subsidiaries.
DISSENTERS' RIGHTS
In accordance with the applicable provisions of the Kentucky Act,
Peoples' shareholders are entitled to dissent from the Merger and to receive an
appraised value of their shares in cash. Subject to the resale restrictions
applicable to executive officers, directors and other controlling shareholders
described under "-- Resales of Area Common Stock", Peoples' shareholders may
also sell the shares of Area common stock they receive in the Merger on the
Nasdaq National Market.
Pursuant to the provisions of Subtitle 13 of the Kentucky Act, if the
Merger is consummated, any shareholder who (1) gives to Peoples, prior to the
vote at the special 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 (2) does not vote for approval of the Agreement, 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 of the Merger.
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 Peoples in writing of the name and address of each
person on whose behalf such holder asserts dissenters' rights. The rights of
such a partial
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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 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.
Any written objection to the Agreement satisfying the requirements
discussed above should be addressed as follows: Peoples Bancorp of Winchester,
Inc. Maple & Broadway, Winchester, Kentucky 40392, Attention: S. Dudley Taylor,
Corporate Secretary.
If the Merger is authorized at the special meeting, Peoples must
deliver a written dissenters' notice (the "Dissenters' Notice") to all of its
shareholders who satisfy the foregoing requirements. The Dissenters' Notice
must be sent within 10 days after the Agreement was approved and must (1) state
where the demand for payment must be sent and where and when certificates for
the shares must be deposited, (2) inform holders of uncertificated shares to
what extent transfer of these shares will be restricted after the demand for
payment is received, (3) 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 not he or she acquired beneficial
ownership of the shares before that date, (4) set a date by which Peoples must
receive the demand for payment (which may not be fewer than 30 nor more than 60
days after the Dissenters' Notice is delivered), and (4) 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, Peoples must, at the effective time of the
Merger or upon 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 Peoples estimates to be the fair value of such
holder's shares, plus accrued interest from the effective time of the Merger.
Such offer of payment must be accompanied by (1) certain recent financial
statements of Peoples, (2) an estimate by Peoples of the fair value of the
shares, (3) an explanation of how the interest was calculated, and (4) 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, Peoples 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 Peoples must send a new Dissenters' Notice and repeat the
payment demand procedure described above.
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Section 271B.13-280 of the Kentucky Act provides that a dissenting
shareholder may notify Peoples 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 (1) such holder believes that the amount offered
by Peoples is less than the fair value of such holder's shares or that the
interest due has been calculated incorrectly, (2) Peoples failed to make
payment within 60 days after the date set for demanding payment, or (3)
Peoples, 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 Peoples of such holder's demand in
writing within 30 days after Peoples makes or offers payment for such holder's
shares.
If a demand for payment under Section 271B.13-280 remains unsettled,
Peoples must commence a proceeding in the circuit court where Peoples'
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 Peoples does not commence the proceeding within those 60
days, it will be required to pay each dissenting shareholder whose demand
remains unsettled the amount demanded. Peoples 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 Peoples, 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 Peoples if the court finds that
Peoples did not substantially comply with the requirements of specified
provisions of Subtitle 13 of the Kentucky Act, or against either Peoples 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 Peoples, 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 years after the effective time of the Merger, regardless of whether
notice of the Merger and of the right to dissent was given by Peoples 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 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 his
or her attorney. No further notice of the events giving rise to dissenters'
rights or any steps associated with them will be furnished to shareholders,
except as indicated above or otherwise required by law.
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Any dissenting shareholder who perfects such holder's right to be paid
the value of his or her 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" (page ___).
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 certain shareholders who, 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 Peoples common stock pursuant to the exercise of Peoples options or
otherwise as compensation), may have tax consequences different from that
generally set forth below. 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.
Area and Peoples have not requested a federal income tax ruling with
respect to this transaction from the Internal Revenue Service. Instead, Powell,
Goldstein, Frazer & Murphy LLP, counsel to Area, has rendered an opinion to
Area and Peoples concerning certain federal income tax consequences of the
proposed Merger under federal income tax law. An opinion of counsel is not
binding upon the Internal Revenue Service or a court that may be called upon to
make a decision as to the tax consequences of the Merger, and, accordingly,
there is no guarantee that the Internal Revenue Service or a court would agree
with counsel's opinion. It is the opinion of Powell, Goldstein, Frazer & Murphy
LLP that:
(1) The Merger will be a reorganization within the meaning of Section
368(a) of the Internal Revenue Code.
(2) The shareholders of Peoples will recognize no gain or loss upon
the exchange of their Peoples common stock solely for shares of Area common
stock. Each Peoples shareholder's basis in the Area common stock received in
the exchange will be equal to such shareholder's basis in the Peoples common
stock surrendered in exchange for Area common stock in the Merger. Each Peoples
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 short-term gain for loss) will include the period that such
shareholder held his or her Peoples common stock surrendered in exchange for
Area common stock in the Merger, provided that the Peoples common stock was a
capital asset in the hands of such shareholder.
(3) 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
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Internal Revenue 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 exchange meets one of the
requirements of Section 302 for treatment as an exchange (rather than a
dividend). Peoples 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).
(4) 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 Peoples 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).
Each Peoples shareholder who receives Area common stock in the Merger
will be required to attach a statement to such shareholder's federal income tax
return for the year of the Merger which describes the facts of the Merger,
including the shareholder's basis in the Peoples common stock exchanged, and
the number of shares of Area Common Stock received in exchange for Peoples
common stock. Each shareholder should also keep as part of such shareholder's
permanent records information necessary to establish such shareholder's basis
in, and holding period for, the Area Common Stock received in the Merger.
If the Merger fails to qualify as a tax-free reorganization for any
reason, the principal federal income tax consequences, under currently
applicable law, would be as follows: (1) Peoples will be deemed to have sold
all of its assets, subject to its liabilities, to Area in a taxable
transaction, and will recognize gain or loss that will be taxable to Peoples'
shareholders under the provisions of Subchapter S of the Internal Revenue Code;
(2) as a Subchapter S Corporation, Peoples will not be subject to federal
income taxation as a result of the deemed sale of assets to Area, except for
taxation of any built-in gain; (3) Peoples' shareholders will be subject to
federal income taxation on the gain or loss, including built-in gain (net of
tax paid by Peoples), that is recognized by Peoples as a result of the deemed
sale of assets to Area; (4) the shareholders' basis in their Peoples stock will
be increased by any gain, net of loss, recognized as described in (3) above;
and (5) the proceeds received in the Merger by the Peoples' shareholders will
be deemed to be received in liquidation of their Peoples' stock, and they will
recognize gain or loss equal to the difference between the proceeds deemed
received in liquidation and their basis in the Peoples' stock after adjustment
as provided in (4) above. If the condition of receiving this tax opinion is
waived by Peoples, Peoples will re-solicit its shareholders prior to proceeding
with the Merger.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER AND OTHER CIRCUMSTANCES, EACH
HOLDER OF PEOPLES COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
MERGER (INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS).
Peoples has been treated for federal and state income tax purposes as
an S Corporation under Subchapter S of the Internal Revenue Code since January
1, 1998. As an S Corporation, Peoples shareholders, rather than Peoples, have
been taxed directly on the earnings of Peoples and Peoples Commercial Bank for
federal and certain state income tax purposes, whether or not such earnings
33
<PAGE> 41
were distributed. As of the effective time of the Merger, Peoples will
terminate its status as an S Corporation and the Bank will thereafter be
subject to federal and state income taxes at applicable C Corporation rates.
Peoples' distributions to its shareholders include amounts
representing the shareholders estimated liability of its shareholders for
income taxes as a result of Peoples' S Corporation status. At closing Peoples
will estimate the amount of 1998 S Corporation earnings taxable to existing
shareholders and will make a distribution to them for the amount of the
estimated tax liability beyond the 1998 distributions already paid for that
purpose. The amount of the distribution will be dependant upon actual year to
date earnings and the timing of the closing date.
ACCOUNTING TREATMENT
It is the intention of the parties that the Merger be treated for
financial reporting purposes as a pooling of interests under generally accepted
accounting principles. Under the pooling-of-interests method of accounting, the
recorded amounts of the assets and liabilities of Peoples will be carried
forward and recorded on the financial statements of Area at their previously
recorded amounts.
The Agreement provides that Area will receive a letter from KPMG Peat
Marwick LLP, dated as of the effective time of the Merger, stating that the
Merger will qualify as a 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 Peoples' management
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 Peoples common stock for Area common stock in the Merger by
affiliates of Peoples 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" (page ___).
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.
Additionally, the Agreement provides that Peoples will pay (or cause
to be paid) to Area the sum of $2 million if a "Purchase Event" has occurred or
shall occur prior to August 24, 1999. A "Purchase Event" shall have occurred if
(1) Peoples has entered into an agreement with any person (other than Area)
providing for (a) the Merger of Peoples or Peoples Commercial Bank, (b) the
purchase of substantially all of the assets of Peoples or Peoples Commercial
Bank or (c) the purchase of securities representing 25% or more of the voting
shares of Peoples or Peoples Commercial Bank, or (2) any person (other than
Area) has purchased beneficial ownership of securities representing 25% or more
of the voting shares of Peoples or Peoples Commercial Bank.
Peoples will have no obligation to pay a fee to Area if the Agreement
is terminated by the Peoples' Board because the Average Area Price is less than
$27, and Area then elects not to increase the Conversion Ratio in order to
complete the Merger. See "The Merger -- Conversion Ratio Adjustment."
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<PAGE> 42
RESALES OF AREA COMMON STOCK
The shares of Area common stock to be issued to Peoples 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, Peoples (such persons are
referred to hereinafter as "affiliates" and generally include executive
officers, directors and other controlling shareholders) at the time of the
special 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 Peoples after the consummation of the Merger have been
published.
Each person who Peoples reasonably believes to be an affiliate of
Peoples has delivered to Area a written agreement providing that such person
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.
COMPARATIVE MARKET PRICES AND DIVIDENDS
MARKET PRICES
Area common stock is quoted on the Nasdaq National Market under the
symbol "AREA". The following table sets forth, for the indicated periods, the
high and low last sale prices for Area common stock as reported on the Nasdaq
National Market and the cash dividends declared per share of Area common stock
and Peoples common stock for the indicated periods.
35
<PAGE> 43
<TABLE>
<CAPTION>
AREA PEOPLES
-----------------------------------------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
DECLARED DECLARED
PRICE RANGE PER SHARE PER SHARE
-----------------------------------------------------------------
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
1996
First Quarter................................... $16.83 $15.50 $.023 $ --
Second Quarter.................................. 18.33 15.67 .027 2.50
Third Quarter................................... 18.33 17.00 .027 2.50
Fourth Quarter.................................. 21.00 17.00 .03 2.50
1997
First Quarter................................... $23.50 $20.50 $.03 2.50
Second Quarter.................................. 23.25 19.75 .03 2.50
Third Quarter................................... 23.00 19.50 .03 --
Fourth Quarter.................................. 25.00 18.87 .035 --
1998
First Quarter................................... $30.50 $22.38 $.035 $ 5.00
Second Quarter.................................. 37.88 28.00 .035 11.11 (1)
Third Quarter................................... 33.88 24.50 .04 5.64 (2)
Fourth Quarter
Through ___________________, 1998.........
</TABLE>
- --------------------
(1) Includes $6.11 per share representing estimated liability for taxes as a
result of Peoples' status as an S Corporation.
(2) Includes $3.14 per share representing estimated liability for taxes as a
result of Peoples' status as an S Corporation.
On __________________, 1998, the last reported sales price of Area
common stock as reported on the Nasdaq National Market was $______. On August
24, 1998, the last business day prior to public announcement of the proposed
Merger, the last sale price of Area common stock as reported on the Nasdaq
National Market was $29.50.
To the knowledge of Peoples, the most recent trade of Peoples common
stock prior to August 24, 1998, the last day prior to public announcement of
the proposed Merger, was on July 10, 1997 for 324 shares at a purchase price of
$185 dollars per share. To the knowledge of Peoples, there have been no trades
since the announcement of the Merger. The foregoing information regarding
Peoples common stock is provided for informational purposes only and, due to
the absence of an active market for Peoples' shares, should not be viewed as
indicative of the actual or market value of Peoples common stock.
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 dividend policy will remain
unchanged after completion of the Merger. The declaration and payment of
dividends thereafter will depend upon business conditions, operating results,
capital and reserve requirements, and the Board of Directors' consideration of
other relevant factors. For information with respect to provisions limiting
dividends payable by Peoples while the Merger is pending see "Description of
Merger -- Conduct of the Business Pending the Merger" (page ___).
36
<PAGE> 44
Area is a legal entity separate and distinct from its subsidiaries and
its revenues depend in significant part on the payment of dividends from its
subsidiary depository institutions. Such subsidiary depository institutions are
subject to certain legal restrictions on the amount of dividends they are
permitted to pay.
SHAREHOLDERS OF RECORD
As of _______________, 1998, there were ____ holders of record of Area
common stock and 53 holders of record of Peoples common stock.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
At the effective time of the Merger, Peoples shareholders will become
shareholders of Area, and their rights as shareholders will be determined by
Area's Articles of Incorporation and Bylaws. The following is a summary of the
material differences in the rights of shareholders of Area and Peoples. Both
Area and Peoples 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 Peoples 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.
STOCKHOLDER AGREEMENT
Unlike the shareholders of Area, the shareholders of Peoples are
subject to the Stockholder Agreement, which provides that shares of Peoples
common stock may be transferred only in accordance with the specific terms and
conditions of the Stockholder Agreement. In general, these provisions limit
transfers of Peoples common stock to persons other than existing shareholders
and members of their immediate families, entitle each shareholder to purchase a
pro rata portion of any shares offered for sale to persons other than existing
shareholders and members of their immediate families, and impose other
restrictions intended to prevent share transfers and other actions that would
otherwise terminate Peoples' status as an S Corporation.
AUTHORIZED CAPITAL STOCK
AREA. Area is currently authorized to issue 50,000,000 shares of
common stock, no par value, of which 15,638,516 shares were outstanding as of
June 30, 1998. 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
Proxy Statement/Prospectus.
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
37
<PAGE> 45
the shareholders and may adversely affect voting and other rights of the
holders of the Area common stock, including the loss of voting control to
others.
PEOPLES. Peoples is authorized to issue 75,000 shares of Peoples
common stock, no par value, all of which were issued and outstanding as of ,
1998. Shareholders of Peoples common stock do not have any preemptive rights to
acquire any shares of authorized, unissued capital stock, or any securities
convertible into such shares.
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.
PEOPLES. Peoples' Bylaws provide that any action required or permitted
to be taken by Peoples 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.
PEOPLES. Peoples' Bylaws state that special meetings of shareholders
may be called at any time by the Board of Directors, the President, or by the
holders of not less than one-third of the outstanding shares entitled to vote.
Written notice of the meeting must be given not less than 10 nor more than 60
days before the date of the meeting and must state the purpose for which the
meeting is called.
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 eleven members.
PEOPLES. Peoples Bylaws provide that the number of directors will
consist of not less than five nor more than ten directors, and that the exact
number may be fixed from time to time within that range by either the board of
directors or the shareholders. The Peoples Board of Directors presently
consists of seven members.
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<PAGE> 46
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.
PEOPLES. Peoples' Bylaws provide that each shareholder entitled to
vote in an election of directors has the right to cast, in person or by proxy,
as many votes in the aggregate as the shareholder would be entitled to cast
multiplied by the number of directors to be elected, and that each shareholder
may cast the whole number of votes for one candidate or distribute such votes
among two or more candidates.
INDEMNIFICATION
AREA. Area's Articles of Incorporation state that Area will indemnify
its officers and directors as provided by Section 271B.8-510 of the 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 if 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.
PEOPLES. Peoples' Bylaws state that Peoples must indemnify its
officers and directors as provided by Section 271B.8-510 of the Kentucky Act,
as described above.
39
<PAGE> 47
BUSINESS OF PEOPLES
GENERAL
Peoples is a one bank holding company headquartered in Winchester,
Kentucky. Peoples was incorporated in 1989 under the laws of Kentucky and is
regulated as a bank holding company under the Bank Holding Company Act.
Peoples' wholly owned subsidiary, Peoples Commercial Bank (the "Bank") has two
locations in Clark County, Kentucky. As of June 30, 1998, Peoples had total
consolidated assets of approximately $148.0 million, total deposits of
approximately $129.4 million and total shareholders equity of approximately
$13.7 million.
The Bank was established in 1923 and is a full service commercial bank
whose business is concentrated in the origination of loans and deposit
gathering activities. The Bank's lending related products include: secured real
estate loans, home improvement loans, agricultural loans, commercial real
estate loans, commercial and industrial working capital loans and consumer
loans. The Bank's deposit related products include the acceptance of
traditional savings and demand deposits, as well as the offering of certificate
of deposit instruments and money market demand and savings accounts. The Bank's
operating revenues are derived primarily from interest and fees on lending
activities, as well as interest on securities of the United States Government,
federal agencies and municipal obligations.
As of June 30, 1998, the Bank had total assets of $144.7 million,
total deposits of $129.4 million and loans (net of unearned income) of $101.6
million. As of that date, the Bank was the largest, in terms of total deposits,
of the seven commercial and savings banks located in Clark County.
The Bank actively competes with other local and regional commercial
banks and financial institutions for all types of deposits and loans, and to
provide financial and other services. Many of the Bank's competitors are not
commercial banks. For example, with respect to certain banking services, the
Bank competes with insurance companies, savings banks, savings and loan
associations, credit unions and other financial institutions. The Bank competes
for funds with savings banks, savings and loan associations, money market
mutual funds, and governmental and private issuers of money market instruments.
The Bank competes for loans with other financial institutions and private
concerns providing financial services such as savings banks, savings and loan
associations, finance companies, credit unions, certain governmental agencies,
and with merchants who extend their own credit in selling to consumers and
other customers. Many of the banks, financial institutions and other entities
with which the Bank competes have capital and resources substantially in excess
of the capital and resources of the Bank.
The Bank is a state chartered commercial bank whose deposits are
insured by the Bank Insurance Fund ("BIF"). As such, the Bank is subject to
extensive regulation by the Federal Deposit Insurance Corporation ("FDIC") and
the Kentucky Department. The lending, investments and other activities of the
Bank are subject to federal and state laws, regulations and requirements. The
Bank is also required to maintain certain minimum capital levels. The FDIC and
the Kentucky Department regularly examine the Bank for compliance, and the Bank
must file reports on a regular basis providing financial and other operating
data.
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<PAGE> 48
The Bank had 56 full-time equivalent employees as of June 30, 1998.
Management considers employee relations to be good. None of the Bank's
employees is covered by a collective bargaining agreement.
The Bank is involved in routine legal proceedings occurring in the
ordinary course of business, which, in the aggregate, management believes to be
immaterial to the financial condition of Peoples and the Bank. There currently
are no material pending legal proceedings in which any director, officer or
affiliate of Peoples, any owner of record or beneficially of more than 5% of
Peoples common stock, or any associate of such director, officer or security
holder is a party adverse to Peoples or the Bank.
The principal executive offices of Peoples and the Bank are located at
Maple and Broadway, Winchester, Kentucky 40392, and their telephone number at
such address is (606) 774-3521.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets certain information with respect to (1) each
of the directors and executive officers of Peoples, (2) each person, who, to
the best knowledge of Peoples, owned beneficially more than 5% of the Peoples
common stock as of September 30, 1998, and (3) the directors and executive
officers of Peoples as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name Beneficially Owned Class
- ---- ------------------ -------------
<S> <C> <C>
Ralph L. Oliver (1) 42,685 56.9%
P. O. Box 150
Winchester, KY 40392
John T. Bowser (2) 3,800 5.1%
120 Hampton Avenue
Winchester, KY 40391
David H. Ginter (3) 2,500 3.3%
Richard Monohan (4) 1,600 2.1%
William H. Pitt, Jr. (5) 1,792 2.4%
S. Dudley Taylor (6) 1,233 1.6%
Eugene Woestman (7) 1,100 1.5%
All Executive Officers and Directors of Peoples as a 54,710 72.9%
Group (7 persons)
</TABLE>
- -----------------------------
(1) Includes 39,280 shares Mr. Oliver owns jointly with his wife.
(2) Includes 3,756 shares Mr. Bowser owns jointly with his wife.
(3) Includes 349 shares owned by his wife.
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<PAGE> 49
(4) Includes 1,565 shares Mr. Monohan owns jointly with his wife.
(5) Includes 890 shares Mr. Pitt owns jointly with his wife and 433 shares
owned by his wife.
(6) Includes 145 shares owned by Mr. Taylor's son.
(7) Includes 1,080 shares Mr. Woestman owns jointly with his wife.
Ralph L. Oliver, age 68, is Chairman, President and Chief Executive
Officer of Peoples and Chairman of the Bank. Mr. Oliver, who has been a
director and executive officer of Peoples since it was incorporated in 1989, is
expected to be appointed to the Board of Directors of Area upon consummation of
the Merger. Mr. Oliver has owned and operated several warehouse rental
businesses in Winchester and Clark County for more than the past five years.
In January 1996, Mr. Oliver and his wife sold 188 shares of Peoples
common stock to Peoples, which Peoples sold to 39 officers and employees of the
Bank in connection with an employee stock program. The shares were sold at a
purchase price of $22,879.60, or $121.70 per share, which was equal to the
stockholders' equity per share of Peoples common stock at December 31, 1994. As
part of the same program, Mr. and Mrs. Oliver also made gifts of a total of 226
shares of Peoples common stock to officers and employees of the Bank in
December 1995.
All shares acquired by purchase or gift by participants in the
employee stock program were subject to repurchase by Peoples in the event of a
recipient's termination of employment, death or insolvency at a price equal to
the stockholders' equity per share of Peoples common stock at the end of
Peoples' most recent fiscal year. Mr. and Mrs. Oliver had the right to
repurchase the shares from Peoples at the price at which Peoples repurchased
them from program participants of the Bank. Pursuant to these rights, the
Olivers repurchased 59 shares at a purchase price of $144.78 per share during
1996 and 31 shares at a purchase price of $162.94 per share during 1997.
In anticipation of its election of S Corporation status for federal
income tax purposes beginning with its 1998 fiscal year, Peoples repurchased
the 324 remaining shares of Peoples common stock held by employee stock program
participants. The shares were repurchased through a tender offer to program
participants completed on July 10, 1997. The purchase price was $59,940 or $185
per share, which was equal to 113.5% of the $162.94 stockholders' equity per
share of Peoples common stock at December 31, 1996. The Olivers exercised their
right to repurchase the shares from Peoples at the same price.
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for
each of the last three fiscal years awarded to or earned by the Chief Executive
Officer of Peoples for services rendered in all capacities to Peoples and the
Bank.
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<PAGE> 50
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other Annual Other
Name and Principal Position Year Salary Bonus Compensation(1) Compensation
- --------------------------- ---- ------ ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Ralph L. Oliver 1997 $0 $10,000 $12,650 $0
Chairman, President and Chief 1996 $0 $10,000 $11,000 $0
Executive Officer of Peoples 1995 $0 $ 0 $ 7,650 $0
And Chairman of the Bank
</TABLE>
- -----------------------
(1) Represents aggregate directors fees paid by Peoples and the Bank.
Peoples has no plan or other agreement providing for grants of stock
options or other stock-based incentive compensation to its Chief Executive
Officer or to other employees of Peoples or the Bank.
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
Several of Peoples' directors, executive officers and their
affiliates, including corporations and firms of which they are directors or
officers or in which they and/or their families have an ownership interest, are
customers of Peoples and the Bank. These persons, corporations and firms have
had transactions in the ordinary course of business with the Bank including
borrowings, all of which, in the opinion of Peoples' management, were made on
substantially the same terms including interest rates and collateral as those
prevailing at the time for comparable transactions with unaffiliated persons
and did not involve more than the normal risk of collectibility or present
other unfavorable features. Peoples and the Bank expect to have such
transactions on similar terms with their directors, executive officers and
affiliates in the future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the financial position and results of the operations of
Peoples and its subsidiary, the Bank. It identifies trends and changes that
occurred during the reported periods and should be read in conjunction with the
consolidated financial statements and accompanying notes.
BUSINESS
Peoples is a one-bank holding company which conducts no direct
business activities. All business activities are performed by the Bank. The
Bank operates 2 banking locations and conducts its operations in and throughout
the communities surrounding Winchester, Clark County, Kentucky. Peoples'
consolidated results depend upon net interest income, which is the difference
between the interest income on interest earning assets and the interest expense
on interest bearing liabilities. Principal interest earning assets are
securities and commercial, agricultural, real estate mortgage and consumer
loans. Interest bearing liabilities consist of interest bearing deposit
accounts and short-term and long-term borrowings. Other sources of income
include fees charged to customers for a
43
<PAGE> 51
variety of loan and deposit services. Operating expenses consist primarily of
employee salaries and benefits and occupancy and equipment expenses. Peoples'
results of operations are significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory agencies.
Peoples elected S Corporation status, from C Corporation status,
effective January 1, 1998. Earnings and losses after that date are included in
the personal income tax returns of the shareholders and taxed depending on
their personal tax circumstances. While Peoples has not recorded income tax
expense since electing S Corporation status, for historical comparison purposes
as well for comparability with Area, a C Corporation tax filer, the net
earnings of Peoples are presented as if the tax expense had continued to be
recorded as a C Corporation.
As of June 30, 1998, Peoples and the Bank employed an aggregate of
approximately 56 persons on a full-time equivalent basis.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO JUNE 30, 1997
Pro forma net income decreased to $913,000 for the six months ended
June 30, 1998 as compared to $985,000 for the same period in the prior year.
Returns on average assets and returns on average equity were 1.26% and 13.13%,
respectively, in 1998 as compared to 1.52% and 15.72% in 1997. In addition,
earnings per share decreased to $12.18 from $13.13. Net interest income
increased to $2,831,000 for the six months ended June 30, 1998 as compared to
$2,783,000 for the same period in the prior year. The increase is primarily the
result of a $15 million increase in average interest earning assets which
generally earn at a higher rate than the rate paid on the corresponding
increase in interest bearing liabilities. However, the positive effects on net
interest income from the increase in average earnings assets was partially
offset by the decrease in net interest margin from 4.72% for the six-month
period ended June 30, 1997 to 4.23% for the same period in 1998.
Noninterest income increased from $370,000 in 1997 to $417,000 in 1998
primarily from growth in fees on loans sold, while service charges and fees on
deposit accounts remained relatively stable decreasing slightly from $350,000
in 1997 to $345,000 in 1998.
Total noninterest expense, increasing in all categories, increased
from $1,652,000 to $1,838,000. Salaries and employee benefits, the largest
component of noninterest expense, increased 9.5% from $829,000 in 1997 to
$908,000 in 1998. The increase includes salary increases and an increase of two
full time equivalent employees. Other noninterest expenses, which is the second
largest category, increased $76,000 or 15.6% from $489,000 in 1997 to $565,000
in 1998 and includes approximately $26,000 of costs specifically identified as
costs associated with the Year 2000 compliance issue. Pro forma C Corporation
provision for income taxes decreased from $466,000 in 1997 to $434,000 in 1998
and is attributable to the decrease in income before taxes.
44
<PAGE> 52
FINANCIAL CONDITION
COMPARISON OF JUNE 30, 1998 TO DECEMBER 31, 1997
Total assets increased 4.1% to $148.0 million as of June 30, 1998 from
$142.2 at December 31, 1997. Total loans increased $3.2 million or 3.3% from
$98.4 million at December 31, 1997 to $101.6 million at June 30, 1998, while
federal funds sold increased from $6.4 million to $11.6 million. The primary
funding for these increases in earning assets came from an increase in total
deposits of $5.9 million, representing a 4.8% increase and a $1.1 million
reduction in investment securities.
Total stockholders' equity decreased $106,000 as a result of
distributions to shareholders exceeding net income during the period from
December 31, 1997 to June 30, 1998.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
GENERAL. Net income increased $13,000 to $1,963,000 in 1997 compared
to $1,950,000 in 1996. The increase is primarily the result of a $461,000 or
8.9% increase in net interest income offset by a $408,000 increase in
noninterest expenses and a $80,000 increase in the provision for loan losses.
Comparing the same periods, return on average assets and return on average
equity was 1.46% and 15.15%, respectively, in 1997 compared to 1.63% and
16.85%. Earnings per share increased to $26.17 from $26.01.
NET INTEREST INCOME. Peoples' primary source of revenue is its net
interest income, which is the difference between the interest received on its
earning assets and the interest paid on the funds acquired to support those
assets. Loans made to businesses and individuals are the primary interest
earning assets, followed by investment securities and federal funds sold in the
inter-bank market. Deposits are the primary interest bearing liabilities used
to support the interest earning assets. The level of net interest income is
affected by both the balances and mix of interest earning assets and interest
bearing liabilities, the changes in their corresponding yields and costs, by
the volume of interest earning assets funded by noninterest bearing deposits,
and the level of capital. Peoples' long term objective is to manage this income
to provide the largest possible amount of income while balancing interest rate,
credit and liquidity risks.
Net interest income increased 8.9% or $461,000 to $5.7 million in 1997
as compared to $5.2 million in 1996. The increase is attributed primarily to
the 12.7% or $14.8 million overall growth in interest earning assets which earn
at a higher rate than the rate paid on the corresponding growth in interest
bearing liabilities. Loans increased $13.8 million due to continued commercial,
agriculture and residential real estate loan demand and was funded primarily
through an increase of $14.2 million in deposits. Peoples' emphasis on
attracting new loans rather than investing in securities also positively
impacted net interest income because of the higher yield earned on loans over
that earned on investment securities as reflected in the increase in net
interest margin from 4.18% in 1996 to 4.63% in 1997.
NONINTEREST INCOME. Noninterest income increased $19,000 during 1997
to $731,000. The primary source of other income is service charge income on
deposit products which increased from $628,000 in 1996 to $641,000 in 1997.
Investment securities gains totaled $250 in 1997 versus
45
<PAGE> 53
$7,166 in 1996. Other noninterest income increased from $77,000 to $90,000 and
primarily includes insurance commissions and fees on loans sold which vary from
period to period depending on the demand for these products.
NONINTEREST EXPENSE. Noninterest expenses increased $408,000 from
$2,977,000 in 1996 to $3,385,000 in 1997. The primary component of noninterest
expense is salaries and employee benefits expense which increased $158,000 or
10.6% from $1,496,000 in 1996 to $1,654,000 in 1997. The increase is primarily
due to normal salary increases and an increase of four full time equivalent
employees. Other noninterest expenses increased $214,000 to $1,020,000 in 1997
from $806,000 in 1996 including a $159,000 increase in directors' fees. The
remainder of the increase and the increases in the other categories of
noninterest expense are attributable to increased costs of occupancy and
equipment, miscellaneous taxes, data processing, professional services, and
various other expenses due to inflationary increases and the increased costs
associated with the growth in total operating assets from year to year.
INCOME TAXES. The provision for income taxes decreased to $935,000 in
1997 as compared to $956,000 in 1996. The decrease is due to the decrease in
income before income taxes and an increase in tax-exempt interest in 1997,
thereby reducing the effective tax rate from 32.9% in 1996 to 32.3% in 1997.
FINANCIAL CONDITION
COMPARISON OF DECEMBER 31, 1997 TO DECEMBER 31, 1996
LOANS. Loans are Peoples' primary use of financial resources and
represent the largest component of earning assets. As of December 31, 1997,
loans represented 67.9% of total assets. Peoples' loans are made predominantly
within the Bank's market area and the portfolio is diversified. Credit risk is
inherent in every financial institution's loan portfolio. In an effort to
minimize credit risk, the Bank utilizes a credit administration network,
including specific lending authorities for each loan officer, a system of loan
committees to review and approve loans, and a loan review and credit quality
rating system. This network assists in the evaluation of the quality of new
loans and in the identification of problem or potential problem credits and
provides information to aid management in determining the adequacy of the
allowance for possible loan losses.
During 1997, loans increased 16.4% to $98.3 million at December 31,
1997 from $84.5 million at December 31, 1996. The increase was primarily due to
strong demand in real estate loans which increased 16.9% to $78.2 million.
At June 30, 1998, the Bank had no concentrations of loans to borrowers
with similar activities that exceeded 10% of total loans, other than those
categories listed in the table below.
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<PAGE> 54
LOAN PORTFOLIO SUMMARY
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1998 % 1997 % 1996 %
---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $ 14,109 13.9% $ 9,217 9.4% $ 9,720 11.5%
Real estate 76,701 75.5 78,240 79.5 66,948 79.2
Consumer and installment 10,755 10.6 10,880 11.1 7,835 9.3
----------- ----- ----------- ----- ----------- -----
Total loans $ 101,565 100.0% $ 98,337 100.0% $ 84,503 100.0%
=========== ===== =========== ===== =========== =====
</TABLE>
Commercial loans generally are made to small-to-medium size businesses
located within the Bank's defined market area and typically are secured by
business assets and guarantees of the principal owners. Collateral for real
estate mortgage loans include residential properties and the loans generally do
not exceed 80% of the value of the real property securing the loan, based on
recent independent appraisals. Peoples' real estate mortgage loan portfolio
primarily consists of adjustable rate residential mortgage loans. The
origination of these mortgage loans can be more difficult in a low interest
rate environment where there is a significant demand for fixed rate mortgages.
The Bank also originates residential mortgage loans to be sold in the secondary
market for which the servicing rights are either retained or released. At
December 31, 1997, the Bank serviced approximately $17.5 million of mortgage
loans for others. Consumer loans generally are made to individuals living in a
Bank's defined market area who are known to the Bank's staff. Consumer loans
are made for terms of up to five years on a secured or unsecured basis.
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The allowance for loan losses
is regularly evaluated by management and maintained at a level believed to be
adequate to absorb future loan losses in the Bank's portfolio. Periodic
provisions to the allowance are made as needed. The amount of the provision for
loan losses necessary to maintain an adequate allowance is based upon an
assessment of current economic conditions, analysis of periodic loan reviews,
delinquency trends and ratios, changes in the mixture and levels of the various
categories of loans, historical charge-offs, recoveries, and other information.
Management believes that the allowance for loan losses is adequate. Although
management believes it uses the best information available to make allowance
provisions, future adjustments which could be material may be necessary if
management's assumptions differ from the loan portfolio's actual future
performance.
The allowance for loan losses increased $106,000 during 1997 to
$1,832,000 at December 31, 1997. The increase is primarily attributable to the
growth in total loans outstanding rather than a perceived increase in the risk
inherent in the portfolio. The Bank's allowance for loan losses to total loans
decreased slightly from 2.09% at December 31, 1996 to 1.90% December 31, 1997.
Net charge-offs and recoveries for 1997 and 1996 have been nominal compared to
the loan portfolio and allowance for loan losses.
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<PAGE> 55
SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Allowance for loan losses at
beginning of year $ 1,832 $ 1,726 $ 1,734
Charge-offs:
Commercial and agricultural - (36) (135)
Real estate (57) (13) (18)
Consumer and installment (26) (45) (6)
------------- -------------- -----------
Total (83) (94) (159)
Recoveries:
Commercial and agricultural 7 14 66
Real estate 16 26 59
Consumer and installment 27 60 6
------------- -------------- -----------
Total 50 100 131
Net (charge-offs) recoveries (33) 6 (28)
------------- -------------- -----------
Provision for loan losses 63 100 20
------------- -------------- -----------
Allowance for loan losses end of period $ 1,862 $ 1,832 $ 1,726
============= ============== ===========
Ratio of allowance for loan losses to
total net loans 1.83% 1.90% 2.09%
Net charge-offs/recoveries to total
net loans 0.03% 0.00% 0.02%
</TABLE>
ASSET QUALITY. Loans are placed on non-accrual when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection of
interest is doubtful. When loans are placed on non-accrual status, all unpaid
accrued interest is reversed. Interest income is subsequently recognized only
to the extent cash payments are received. These loans remain on non-accrual
status until the borrower demonstrates the ability to remain current or the
loan is deemed uncollectible and is charged-off. The following table provides
information on non-performing assets.
48
<PAGE> 56
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Loans on non-accrual status $ 80 $ 17 $ 0
Loans past due 90 days or more 259 0 0
------------ ----------- ----------
Total non-performing loans 339 17 0
Other real estate owned 0 0 0
------------ ----------- ----------
Total non-performing assets $ 339 $ 17 $ 0
============ =========== ==========
Percentage of non-performing assets to
total loans 0.33% 0.02% 0.00%
Percentage of non-performing assets to
total assets 0.23% 0.01% 0.00%
</TABLE>
INVESTMENT SECURITIES. The securities portfolio consists of debt
securities which provide Peoples with a relatively stable source of income.
Additionally, the investment portfolio provides a balance to interest rate and
credit risks in other categories of the balance sheet. The securities portfolio
is also used as a secondary source of liquidity. Peoples has classified certain
U. S. Treasury and agency securities as available for sale. All other
securities have been classified as held to maturity based on management's
positive intent and ability to hold such securities to maturity. Municipal
securities within the portfolio provide tax-free income and are within
management's guidelines with respect to credit risk and market risk. The
municipal securities have been issued principally by Kentucky municipalities.
The U. S. Treasury and Federal Agency securities provide a source of stable
income and can be used as collateral to secure municipal deposits and
repurchase agreements.
Securities as a percentage of interest-earning assets decreased to
18.3% at June 30, 1998 versus 20.1% at December 31, 1997 and 24.6% at December
31, 1996. These decreases in securities reflect management's emphasis on
originating higher yielding loans and placing a lesser reliance on the
securities portfolio for sources of income.
Excluding those holdings in the investment security portfolio of U. S.
Treasury and U. S. agency securities, there were no investments in securities
of any one issuer which exceeded 10% of stockholders' equity.
DEPOSITS. Managing the mix and repricing of deposit liabilities is an
important factor affecting Peoples' ability to maximize its net interest
margin. The strategies used to manage interest bearing deposit liabilities are
designed to adjust as the interest rate environment changes. In this regard,
management regularly assesses its funding needs, deposit pricing, and interest
rate outlook.
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<PAGE> 57
Deposits increased $14.2 million or 13.0% from $109.3 million at
December 31, 1996 to $123.5 at December 31, 1997. The increase was primarily
due to growth in time deposits which increased $14.0 million. Time deposits in
denominations of $100,000 and over were $17.0 million and $7.9 million at
December 31, 1997 and 1996, respectively. Non-interest bearing deposits to
total deposits were 12.6% at December 31, 1997 as compared to 14.7% at December
31, 1996.
SHORT TERM BORROWINGS. Peoples' short term borrowings consist of
securities sold under agreements to repurchase which decreased from $3.7
million at December 31, 1996 to $2.0 million at December 31, 1996. Amounts
outstanding under these agreements can fluctuate greatly depending on the cash
needs of the Bank's customers. See Note 6 to the Consolidated Financial
Statements for additional information on securities sold under agreements to
repurchase.
ASSET/LIABILITY MANAGEMENT
Asset/liability management involves developing, implementing and
monitoring strategies to maintain sufficient liquidity, maximize net interest
income and minimize the impact that significant fluctuations in market interest
rates have on earnings. The Asset/Liability Committee of the Bank is
responsible for managing this process. The need for interest sensitivity
management is most critical in times of a significant change in overall
interest rates. Management generally seeks to limit the exposure of Peoples to
interest rate fluctuations by maintaining a relatively balanced mix of rate
sensitive assets and liabilities on a one-year time horizon. This mix is
altered periodically depending upon management's assessment of current business
conditions and the interest rate outlook. One method of gauging sensitivity is
by a static gap analysis. This analysis reflects the repricing characteristics
of assets and liabilities over various time periods. The gap indicates the
level of assets and liabilities that are subject to repricing over a given time
period.
As of June 30, 1998, the cumulative amount of Peoples' interest
earning assets repricing during the first year was less than the total amount
of its interest bearing liabilities repricing during this period. This
position, which is normally termed a negative interest sensitivity gap,
generally allows for enhanced net interest income during periods of declining
interest rates. This negative gap is within the Bank's internal policy
guidelines and is not expected to impact significantly Peoples' net interest
income during a period of rising interest rates.
LIQUIDITY
Liquidity is generally defined as the ability to meet cash flow
requirements. Peoples manages liquidity at two levels, the parent company and
its subsidiary bank. Peoples' primary cash requirement is to pay dividends to
its shareholders and its primary source of funds is dividends received from the
Bank.
The Bank's primary liquidity consideration is to meet the cash flow
needs of its customers, such as borrowings and deposit withdrawals. To meet
cash flow requirements, sufficient sources of liquid funds must be available.
These sources include short-term investments, repayments and maturities of
loans and securities, growth in deposits and other liabilities, and profits. At
June 30, 1998, the Bank had $16.0 million in cash and due from banks and
federal funds sold. Also, approximately $11.2 million of investment securities
were scheduled to mature within one year. Principal reductions received on
loans also provide a continual stream of cash flows. Another source of liquid
funds is net cash provided from operating activities, which provided $2.3
million in 1997. Additionally, the Bank has established federal funds lines of
credit with its correspondent banks
50
<PAGE> 58
which allow the Bank to borrow up to $8.2 million. Finally, the Bank is a
member of the Federal Home Loan Bank of Cincinnati (FHLB). Based on the Bank's
June 30, 1998 stock ownership, an additional $6.7 million of borrowing capacity
is available with the FHLB.
CAPITAL RESOURCES
Management believes that a strong capital position is paramount to its
continued profitability and continued depositor and shareholder confidence. It
also provides Peoples with flexibility to take advantage of growth
opportunities and to accommodate larger commercial loan customers. Regulators
have established "risk based" capital guidelines for banks and bank holding
companies. Under the guidelines, minimum capital levels are based on the
perceived risk in asset categories and certain off-balance-sheet items, such as
loan commitments and standby letters of credit. Management monitors its capital
levels to comply with regulatory requirements. In order to be considered "well
capitalized" by the FDIC, financial institutions must maintain a leverage ratio
in excess of 5% and a total risk based capital ratio in excess of 10%. As
described in Note 14 to the consolidated financial statements, Peoples' and the
Bank's capital ratios are in excess of regulatory standards for classification
as "well capitalized". Being considered "well capitalized" is one condition for
assessing the federal deposit insurance premiums at the lowest available rate.
IMPACT OF INFLATION
The consolidated financial statements and notes have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of Peoples' operations. Nearly all the assets and liabilities of
Peoples are financial. As a result, performance is directly impacted by changes
in interest rates, which are indirectly influenced by inflationary
expectations. Peoples' ability to match the interest sensitivity of its
financial assets to the interest sensitivity of its financial liabilities in
its asset/liability management may tend to minimize the effect of changes in
interest rates on performance. Changes in interest rates do not necessarily
move to the same extent as do changes in the prices of goods and services.
YEAR 2000
Management has assessed the operational and financial implications of
its Year 2000 needs and developed a plan to ensure that data processing systems
can properly handle the change. Management has determined that if a business
interruption as a result of the Year 2000 issue occurred, such an interruption
could be material. The primary effort required to prevent a potential business
interruption is the installation of the most current software release of the
Bank's core system as provided by the Bank's third party software vendor. The
third party vendor has stated that Year 2000 remediation and testing efforts
have been successfully completed. Non-compliant hardware is being replaced
through hardware upgrades. Non-compliant software is in the remediation stage
and will be scheduled for re-testing before year-end 1998. Should mission
critical system readiness not be achieved by December 31, 1998, the Bank
intends to seek alternative solutions from other vendors. Non-mission critical
systems, including systems other than data processing with embedded technology,
have been evaluated and are included in a remediation schedule according to
priority. Management projects the cost of Year 2000 readiness will be in the
range of $75,000 to $100,000, which will be expensed as incurred. Year 2000
expenses are subject to change and could vary from
51
<PAGE> 59
current estimates if the final requirements for Year 2000 readiness exceed
management's expectations.
PROPOSAL TO TERMINATE THE STOCKHOLDER AGREEMENT
At the special meeting, the shareholders of Peoples will vote upon a
proposal to terminate the Stockholder Agreement as of the effective time of the
Merger. The purpose of this proposal is to facilitate the Merger by terminating
the restrictions on the transfer of Peoples common stock contained in the
Stockholder Agreement. See "Effects of the Merger on Rights of Shareholders."
If the proposal is approved, the Stockholder Agreement would terminate only if
and when the Merger becomes effective.
Area's obligation to complete the Merger is conditioned upon the
approval of the proposal to terminate the Stockholder Agreement by the
shareholders of Peoples. See "The Merger -- Conditions to Consummation of the
Merger." The proposal to terminate the Stockholder Agreement will be approved
if the holders of 80% (or 60,000) of the 75,000 shares of Peoples common stock
outstanding and entitled to vote at the special meeting vote in favor of the
proposal.
The Peoples Board of Directors recommends that you vote "FOR" the
proposal to terminate the Stockholder Agreement.
PRO FORMA FINANCIAL INFORMATION
Proforma financial information reflecting the Merger of Peoples with
Area is not presented in this Proxy Statement/Prospectus since management
believes that the pro forma effect is not significant. Certain summary pro
forma information is presented under "Summary -- Unaudited Comparative Per
Share Data" beginning on page ___.
EXPERTS
The consolidated financial statements of Area as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, 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, 1997, 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 consolidated financial statements of Peoples as of December 31,
1997 and 1996, and for the years then ended, included herein and in the
Registration Statement, have been so included in reliance upon the report of
Eskew & Gresham, PSC, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
52
<PAGE> 60
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 federal income tax consequences of the Merger will be passed
upon by Powell, Goldstein, Frazer & Murphy LLP, Atlanta, Georgia. Certain
matters will be passed upon for Peoples by Brown, Todd & Heyburn PLLC,
Louisville and Lexington, Kentucky.
ADJOURNMENT OF SPECIAL MEETING
The holders of Peoples common stock will be asked to approve, if
necessary, the adjournment of the special meeting to solicit further votes in
favor of the Agreement and/or the termination of the Stockholder Agreement.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder (including a former shareholder of
Peoples) wishes to have included in Area's proxy materials with respect to
Area's 1999 Annual Meeting must be received by Area at its principal executive
offices, 230 Frederica Street, Owensboro, Kentucky 42301, no later than
_________ __, 1999. Any proposal must comply with the requirements of the proxy
rules adopted under the Securities Exchange Act of 1934. Area expects to
exercise discretionary voting authority granted under any proxy which is
properly executed and returned to Area on any matter that may properly come
before the 1999 Annual Meeting unless written notice of the matter is delivered
to Area at its corporate offices, addressed to the Corporate Secretary, not
later than _______________, 1999.
OTHER MATTERS
It is not expected that any matters other than those described in this
Proxy Statement/Prospectus will be brought before the special meeting. If any
other matters are presented, however, it is the intention of the persons named
in the proxies to vote the proxies in accordance with the determination of a
majority of the Board of Directors of Peoples, including, without limitation, a
motion to adjourn or postpone the special meeting to another time and/or place
for the purpose of soliciting additional proxies in order to approve the
Agreement, the termination of the Stockholder Agreement or otherwise.
WHERE YOU CAN FIND MORE INFORMATION
Area files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy any reports, statements or other
information that Area files with the Commission at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. These Commission filings are also available to the
public from commercial document retrieval services and at the Internet world
wide web site maintained by the Commission at "http://www.sec.gov."
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<PAGE> 61
Area filed a Registration Statement on Form S-4 (the "Registration
Statement") to register with the Commission the Area common stock to be issued
to Peoples' shareholders in the Merger. This Proxy Statement/Prospectus is a
part of that Registration Statement and constitutes a prospectus of Area. As
allowed by Commission rules, this Proxy Statement/Prospectus does not contain
all the information you can find in Area's Registration Statement or the
exhibits to that Registration Statement.
The Commission allows Area to "incorporate by reference" information
into this Proxy Statement/Prospectus, which means that Area can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered part of this Proxy Statement/Prospectus, except for any information
superceded by information contained directly in this Proxy Statement/Prospectus
or in later filed documents incorporated by reference in this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference the
documents set forth below that Area has previously filed with the Commission.
These documents contain important information about Area and its finances.
<TABLE>
<CAPTION>
Area Commission Filings (File No. 0-26032) Period/As of Date
- ------------------------------------------ -----------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Report on Form 10-Q Quarters ending March 31, 1998 and
June 30, 1998
Current Report on Form 8-K September 21, 1998
</TABLE>
Area also incorporates by reference additional documents that may be
filed with the Commission between the date of this Proxy Statement/Prospectus
and the consummation of the Merger or termination of the Agreement. These
include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
Area has supplied all information contained or incorporated by
reference in this Proxy Statement/Prospectus relating to Area, and Peoples has
supplied all such information relating to Peoples.
As noted in the section "The Merger -- Distribution of Share
Certificates after the Merger," Peoples shareholders should not send in their
Peoples certificates until they receive the transmittal materials from the
exchange agent. Peoples shareholders who have further questions about their
share certificates or the exchange of their Peoples common stock for Area
common stock should call Area's stock transfer agent, UMB Bank, at
1-800-884-4225.
If you are a shareholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them from Area, the
Commission or the Commission's Internet web site as described above. Documents
incorporated by reference are available from Area without charge, excluding all
exhibits, except that if Area has specifically incorporated by reference an
exhibit in this Proxy Statement/Prospectus, the exhibit will also be available
without charge. Shareholders may obtain documents incorporated by reference in
this Proxy Statement/Prospectus by requesting them in writing or by telephone
from Area at the following address:
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<PAGE> 62
Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
Attn: Corporate Secretary
Telephone: (502) 688-7755
You should rely on the information contained or incorporated by
reference in this Proxy Statement/Prospectus. We have not authorized anyone to
provide you with information that is different from what is contained in this
Proxy Statement/Prospectus. This Proxy Statement/Prospectus is dated
________________, 1998. You should not assume that the information contained in
this Proxy Statement/Prospectus is accurate as of any date other than that
date. Neither the mailing of this Proxy Statement/Prospectus to shareholders
nor the issuance of Area common stock in the Merger creates any implication to
the contrary.
55
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS
PEOPLES BANCORP OF WINCHESTER, INC.
<TABLE>
<S> <C>
Independent Auditors' Report..........................................................................F-2
Consolidated balance sheets as of June 30, 1998 and December 31, 1997 and 1996 .......................F-3
Consolidated statements of income for the six months ended June 30, 1998 and
1997, and for the years ended December 31, 1997 and 1996...........................................F-4
Consolidated statements of stockholders' equity for the six months ended June 30, 1998
and for the years ended December 31, 1997 and 1996.................................................F-5
Consolidated statements of cash flows for the six months ended June 30, 1998 and
1997, and for the years ended December 31, 1997 and 1996...........................................F-6
Notes to Consolidated Financial Statements for the years ended December 31, 1997
and 1996...........................................................................................F-8
</TABLE>
F-1
<PAGE> 64
ESKEW & GRESHAM, PSC
144 North Broadway, Suite 300
Lexington, Kentucky 40508
INDEPENDENT AUDITORS' REPORT
Board of Directors
Peoples Bancorp of Winchester, Inc.
Winchester, Kentucky
We have audited the accompanying consolidated balance sheets of
Peoples Bancorp of Winchester, Inc. as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Peoples Bancorp of Winchester, Inc. at December 31, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Eskew & Gresham, PSC
February 27, 1998
F-2
<PAGE> 65
PEOPLES BANCORP OF WINCHESTER, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 4,397,401 $ 5,671,502 $ 5,196,878
Federal funds sold 11,609,000 6,392,000 3,199,000
--------------- -------------- ---------------
Total cash and cash equivalents $ 16,006,401 $ 12,063,502 $ 8,395,878
Investment securities:
Available for sale 3,534,330 3,452,026 1,002,500
Held to maturity 21,840,083 23,037,590 27,722,289
Loans, net 99,703,414 96,505,531 82,776,271
Bank premises and equipment, net 2,270,027 2,323,500 2,388,999
Interest receivable 1,563,386 1,611,138 1,386,259
Income taxes refundable 0 13,055 0
Deferred income taxes 0 16,611 0
Goodwill 2,519,612 2,560,142 2,641,202
Federal Home Loan Bank stock 428,200 413,300 385,100
Other assets 182,888 158,339 103,188
--------------- -------------- ---------------
TOTAL ASSETS $ 148,048,341 $ 142,154,734 $ 126,801,686
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 17,136,112 $ 15,536,560 $ 16,038,214
Savings and NOW 58,249,000 51,695,738 51,048,830
Time deposits 54,046,936 56,315,910 42,267,756
--------------- -------------- ---------------
Total deposits $ 129,432,048 $ 123,548,208 $ 109,354,800
Securities sold under agreements to repurchase 2,000,000 2,000,000 3,712,000
Interest payable 665,979 698,230 474,462
Income taxes payable 202,077 0 33,027
Deferred income taxes 0 0 46,663
Federal Home Loan Bank advances 1,871,160 1,915,504 750,587
Other liabilities 167,386 177,453 209,674
--------------- -------------- ---------------
Total liabilities $ 134,338,650 $ 128,339,395 $ 114,581,213
Stockholders' Equity:
Common stock, no par, 75,000 shares
authorized, issued and outstanding $ 4,845,000 $ 4,845,000 $ 4,845,000
Retained earnings 8,852,029 8,962,953 7,374,941
Accumulated other comprehensive income 12,662 7,386 532
--------------- -------------- ---------------
Total stockholders' equity $ 13,709,691 $ 13,815,339 $ 12,220,473
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 148,048,341 $ 142,154,734 $ 126,801,686
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 66
PEOPLES BANCORP OF WINCHESTER, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
1998 1997 1997 1996
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 4,470,315 $ 4,047,601 $ 8,534,083 $ 7,236,834
Investment securities -
U. S. Treasury obligations 363,707 435,209 850,357 1,001,252
Obligations of U. S. government agencies 318,449 275,719 563,037 501,942
Obligations of states and political subdivisions 129,949 119,517 245,540 204,669
Other securities 14,988 14,498 29,282 25,710
Federal funds sold 227,140 59,725 215,322 333,926
------------- ------------ ------------ ------------
$ 5,524,548 $ 4,952,269 $ 10,437,621 $ 9,304,333
INTEREST EXPENSE:
Deposits $ 2,575,294 $ 2,020,040 $ 4,458,053 $ 3,834,452
Borrowed funds 118,693 149,345 327,637 279,193
------------- ------------ ------------ ------------
$ 2,693,987 $ 2,169,385 $ 4,785,690 $ 4,113,645
Net interest income $ 2,830,561 $ 2,782,884 $ 5,651,931 $ 5,190,688
Provision for loan losses 62,500 49,400 100,000 20,000
------------- ------------ ------------ ------------
Net interest income after provision
for loan losses $ 2,768,061 $ 2,733,484 $ 5,551,931 $ 5,170,688
NON-INTEREST INCOME:
Service charges and fees $ 345,199 $ 350,363 $ 641,095 $ 627,965
Investment securities gains 0 1,452 250 7,166
Other 71,891 18,281 89,580 77,038
------------- ------------ ------------ ------------
$ 417,090 $ 370,096 $ 730,925 $ 712,169
NON-INTEREST EXPENSES:
Salaries $ 764,627 $ 713,235 $ 1,431,312 $ 1,299,706
Employee benefits 142,977 115,454 222,872 196,595
Occupancy expenses 252,219 241,771 514,443 502,732
Data processing 68,688 65,221 136,174 122,332
Advertising 44,138 27,838 59,908 48,862
Other 565,364 489,043 1,020,342 806,379
------------- ------------ ------------ ------------
$ 1,838,013 $ 1,652,562 $ 3,385,051 $ 2,976,606
Income before income taxes $ 1,347,138 $ 1,451,018 $ 2,897,805 $ 2,906,251
Provision for income taxes 249,812 466,077 934,793 956,139
------------- ------------ ------------ ------------
NET INCOME $ 1,097,326 $ 984,941 $ 1,963,012 $ 1,950,112
============= ============ ============ ============
Pro forma C Corporation provision for income taxes 433,744 466,077 934,793 956,139
------------- ------------ ------------ ------------
PRO FORMA NET INCOME $ 913,394 $ 984,941 $ 1,963,012 $ 1,950,112
============= ============ ============ ============
Other comprehensive income (loss):
Change in unrealized gain (loss) on securities $ 5,276 $ 7,276 $ 7,104 $ (18,813)
Reclassification of realized amounts 0 (1,452) (250) (7,166)
------------- ------------ ------------ ------------
Net unrealized gains (losses) on securities
recognized in comprehensive income 5,276 5,824 6,854 (25,979)
------------- ------------ ------------ ------------
Pro forma comprehensive income $ 918,670 $ 990,765 $ 1,969,866 $ 1,924,133
============= ============ ============ ============
Pro forma earnings per share and pro forma
earnings per share assuming dilution $ 12.18 $ 13.13 $ 26.17 $ 26.01
Weighed average shares outstanding $ 75,000 $ 75,000 $ 75,000 $ 74,982
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 67
PEOPLES BANCORP OF WINCHESTER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Net
Unrealized
Gain on
Securities Total
Common Retained Available Stockholders'
Stock Earnings for Sale Equity
<S> <C> <C> <C> <C>
Balances, January 1, 1996 $ 4,845,000 $ 5,987,314 $ 26,511 $ 10,858,825
Purchase of 247 shares of common stock (31,422) 0 0 (31,422)
Issuance of 247 shares of common stock 31,422 0 0 31,422
Net income 0 1,950,112 0 1,950,112
Dividends paid ($7.50 per share) 0 (562,485) 0 (562,485)
Net change in unrealized gain on
securities available for sale 0 0 (25,979) (25,979)
--------------- --------------- ---------------- -----------------
Balances, December 31, 1996 $ 4,845,000 $ 7,374,941 $ 532 $ 12,220,473
Purchase of 355 shares of common stock (64,991) 0 0 (64,991)
Issuance of 355 shares of common stock 64,991 0 0 64,991
Net income 0 1,963,012 0 1,963,012
Dividends paid ($5.00 per share) 0 (375,000) 0 (375,000)
Net change in unrealized gain
on securities available for sale 0 0 6,854 6,854
--------------- --------------- ---------------- -----------------
Balances, December 31, 1997 $ 4,845,000 $ 8,962,953 $ 7,386 $ 13,815,339
Net change in unrealized gain
on securities available for sale (unaudited) 0 0 5,276 5,276
Net income (unaudited) 0 1,097,326 0 1,097,326
Dividends paid ($16.11 per share)
(unaudited) 0 (1,208,250) 0 (1,208,250)
--------------- --------------- ---------------- -----------------
BALANCES, JUNE 30, 1998 (unaudited) $ 4,845,000 $ 8,852,029 $ 12,662 $ 13,709,691
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 68
PEOPLES BANCORP OF WINCHESTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
1998 1997 1997 1996
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,097,326 $ 984,941 $ 1,963,012 $ 1,950,112
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 186,544 172,788 376,382 335,112
Net discount accretion or premium
amortization on investment securities 152 (3,926) (24,261) 65,927
Amortization of intangibles 40,530 40,530 81,060 81,060
Deferred income taxes 20,416 (45,461) (66,805) (10,763)
Provision for loan losses 62,500 49,400 100,000 20,000
Mortgage loans originated for sale (12,429,244) (3,761,425) (7,369,182) (6,070,664)
Proceeds from sale of mortgage loans 12,483,725 3,759,285 7,373,163 6,120,848
Gain on sale of mortgage loans (54,481) 2,140 (3,981) (50,184)
Investment securities gains 0 (1,452) (250) (7,166)
Changes in:
Interest receivable 47,752 (126,542) (224,879) 93,097
Income taxes refundable 13,055 (137,771) (13,055) 2,864
Other assets (24,549) (116,705) (83,351) (48,760)
Interest payable (32,251) 13,451 223,768 (254)
Income taxes payable 202,077 (33,027) (33,027) 33,027
Other liabilities (10,067) (56,795) (32,221) 56,119
------------- ------------ ------------ ------------
Net cash provided by operating
activities $ 1,603,485 $ 739,431 $ 2,266,373 $ 2,570,375
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale $ (1,017,477) $ (2,009,375) $ (3,444,279) $ 0
Proceeds from sales of securities available for
sale 0 0 0 1,000,234
Proceeds from maturities of securities available
for sale 930,000 1,000,000 1,000,000 2,500,000
Proceeds from calls, principal payments and
maturities of investment securities held to
maturity 6,881,176 5,077,233 10,339,368 7,467,546
Purchases of investment securities held to
maturity (5,692,077) (1,944,149) (5,625,020) (15,625,000)
Net change in loans (3,260,383) (9,197,839) (13,829,260) (12,579,115)
Purchases of premises and equipment (133,071) (81,682) (310,883) (212,708)
------------- ------------ ------------ ------------
Net cash used in investing activities $ (2,291,832) $ (7,155,812) $(11,870,074) $(17,449,043)
</TABLE>
F-6
<PAGE> 69
PEOPLES BANCORP OF WINCHESTER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31
1998 1997 1997 1996
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits $ 5,883,840 $ 2,815,449 $ 14,193,408 $ 13,875,977
Net change in securities sold under agreements
to repurchase 0 0 (1,712,000) 0
Payments on note payable 0 0 0 (615,000)
Advances from Federal Home Loan Bank 0 2,000,000 2,750,000 60,000
Payments on Federal Home Loan Bank advances (44,344) (41,952) (1,585,083) (79,790)
Purchase of common stock 0 0 (64,991) (31,422)
Issuance of common stock 0 0 64,991 31,422
Dividends paid (1,208,250) (375,000) (375,000) (562,485)
------------- ------------ ------------ ------------
Net cash provided by financing activities $ 4,631,246 $ 4,398,497 $ 13,271,325 $ 12,678,702
Net increase (decrease) in cash and cash
equivalents $ 3,942,899 $ (2,017,884) $ 3,667,624 $ (2,199,966)
Cash and cash equivalents at beginning
of year 12,063,502 8,395,878 8,395,878 10,595,844
------------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 16,006,401 $ 6,377,994 $ 12,063,502 $ 8,395,878
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for -
Interest expense $ 2,726,238 $ 2,155,934 $ 4,561,922 $ 4,113,899
Income taxes $ 8,463 $ 535,000 $ 1,047,680 $ 931,011
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 70
PEOPLES BANCORP OF WINCHESTER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The consolidated financial statements
include the accounts of Peoples Bancorp of Winchester, Inc. (the Company) and
its wholly-owned subsidiary, Peoples Commercial Bank (the Bank). All material
intercompany transactions and balances have been eliminated upon consolidation.
B. Nature of Operations - The Bank operates under a state bank charter
and provides full banking services. As a state bank, the Bank is subject to
regulation by the Kentucky Department of Financial Institutions and the Federal
Deposit Insurance Corporation. The Company is subject to regulation by the
Federal Reserve Board.
C. Estimates in the Financial Statements - The preparation of the
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
D. Cash and Cash Equivalents - For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from banks and
federal funds sold. Generally, federal funds are sold for one-day periods.
E. Investment Securities - The Bank classifies its investment
portfolio into three categories: trading securities, securities available for
sale and securities held to maturity. Fair value adjustments are made to the
securities based on their classification with the exception of the held to
maturity category. The Bank has no investments classified as trading
securities.
Investment securities available for sale are carried at fair value.
Adjustments from amortized cost to fair value are recorded in stockholders'
equity, net of related income tax, under net unrealized gain on securities
available for sale. The adjustment is computed on the difference between fair
value and cost, adjusted for amortization of premiums and accretion of
discounts which are recorded as adjustments to interest income on a constant
yield method.
Investment securities for which the Bank has the positive intent and
ability to hold to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts which are recorded as adjustments to
interest income on a constant yield method.
Gains or losses on dispositions are based on the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
F-8
<PAGE> 71
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Loans - Loans are stated at the amount of unpaid principal, reduced
by an allowance for loan losses. Interest income on other loans is recognized
on the accrual basis except for those loans on a nonaccrual of income status.
The accrual of interest on impaired loans is discontinued when management
believes, after consideration of economic and business conditions and
collection efforts, that the borrowers' financial condition is such that
collection of interest is doubtful. When interest accrual is discontinued,
interest income is subsequently recognized only to the extent cash payments are
received.
The allowance for loan losses is established through a provision for
loan losses charged to expense. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of loans and
prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current economic
conditions that may affect the borrowers' ability to pay. Loans are charged
against the allowance for loan losses when management believes that the
collection of the principal is unlikely.
The allowance for loan losses on impaired loans is determined using
the present value of estimated future cash flows of the loan, discounted at the
loan's effective interest rate or the fair value of the underlying collateral.
A loan is considered to be impaired when it is probable that all principal and
interest amounts will not be collected according to the loan contract. The
entire change in present value of expected cash flows is reported as provision
for loan losses in the same manner in which impairment initially was recognized
or as a reduction in the amount of provision for loan losses that otherwise
would be reported.
Loan origination fees and certain direct loan origination expenses are
capitalized and recognized as an adjustment of the yield on the related loan.
G. Bank Premises and Equipment - Bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is recorded on
straight-line and accelerated methods over the useful lives of the bank
premises and equipment.
H. Income Taxes - The Company uses the liability method for computing
deferred income taxes. Under the liability method, deferred income taxes are
based on the change in the deferred tax liability or asset established for the
expected future tax consequences of differences in the financial reporting and
tax bases of assets and liabilities. The differences relate principally to bank
premises and equipment, investment securities, deferred loan fees, Federal Home
Loan Bank stock dividends, unrealized gains on investment securities available
for sale and the allowance for loan losses.
I. Excess of Cost Over Net Assets Acquired - The excess of cost over
net assets acquired (goodwill) is being amortized on a straight-line basis over
forty years.
F-9
<PAGE> 72
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. Loan Servicing - The Bank has sold certain loans to the Federal
Home Loan Mortgage Corporation while retaining the servicing rights. Gains and
losses on loan sales are recorded at the time of the cash sale, which
represents the premium or discount paid by the Federal Home Loan Mortgage
Corporation. The Bank receives a servicing fee from the Federal Home Loan
Mortgage Corporation on each loan sold.
K. Advertising Expense - The Company charges all advertising expenses
to operations when incurred. No amounts have been established for any future
benefits relative to these expenditures.
L. Per Share Information - In 1997, the Company adopted SFAS No. 128,
"Earnings Per Share", as required. Adoption of the standard had no effect on
the consolidated financial statements. Earnings per share is calculated by
dividing net income by the weighted average number of shares outstanding during
the period.
M. Effect of New Accounting Standards - In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income", which requires that all items
that are components of comprehensive income (defined as "the change in equity
(net assets) of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners"), be reported in a financial statement that is
displayed with the same prominence as other financial statements. Companies
will be required to (a) classify items of other comprehensive income by its
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
new guidance is effective for fiscal years beginning after December 15, 1997
and requires reclassification of prior periods presented. The requirements are
disclosure-related and its implementation will have no impact on the Company's
financial condition or results of operations.
N.Recent Accounting Pronouncements - On June 16, 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This new standard requires companies to record derivatives on the balance sheet
as assets or liabilities at fair value. Depending on the use of the derivative
and whether it qualifies for hedge accounting, gains or losses resulting from
changes in the values of those derivatives would either be recorded as a
component of net income or as a change in stockholders' equity. The Corporation
is required to adopt this new standard January 1, 2000. Management has not yet
determined the impact of this standard.
O. Unaudited Financial Statements - Financial information at June 30,
1998 and for the six months ended June 30, 1998 and 1997 is unaudited. In the
opinion of management of the Corporation, all adjustments necessary for a fair
presentation of such financial information have been included. All such
adjustments are of a normal recurring nature. The statements of income, cash
flows and changes in stockholders' equity for the six months ended June 30,
1998 are not necessarily indicative of the statements of income, cash flows and
changes in stockholders' equity which may be expected for the year ending
December 31, 1998.
F-10
<PAGE> 73
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
P. Reclassifications - Certain reclassifications have been made in the
1996 financial statements to conform to the 1997 presentation.
2. INVESTMENT SECURITIES
Amortized cost and fair value of investment securities, by category,
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury obligations $ 1,506,701 $ 10,307 $ 0 $ 1,517,008
Obligations of U. S. government
agencies 1,934,134 1,845 (961) 1,935,018
---------------- --------------- --------------- ----------------
Total available for sale $ 3,440,835 $ 12,152 $ (961) $ 3,452,026
Held to maturity:
U. S. Treasury obligations $ 10,122,581 $ 114,644 $ (430) $ 10,236,795
Obligations of U. S. government
agencies 8,127,795 10,067 (2,782) 8,135,080
Obligations of states and political
subdivisions 4,787,214 152,280 (13) 4,939,481
---------------- --------------- --------------- ----------------
Total held to maturity $ 23,037,590 $ 276,991 $ (3,225) $ 23,311,356
</TABLE>
Amortized cost and fair value of investment securities, by category,
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury obligations $ 1,001,694 $ 806 $ 0 $ 1,002,500
Held to maturity:
U. S. Treasury obligations $ 14,698,311 $ 169,960 $ (7,989) $ 14,860,282
Obligations of U. S. government
agencies 8,972,819 29,481 (7,239) 8,995,061
Obligations of states and political
subdivisions 4,051,159 133,533 (13,403) 4,171,289
---------------- --------------- --------------- ----------------
Total held to maturity $ 27,722,289 $ 332,974 $ (28,631) $ 28,026,632
</TABLE>
F-11
<PAGE> 74
2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair value of investment securities by category
at December 31, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Available for sale:
Due in one year or less $ 929,869 $ 929,238
Due after one through five years 2,510,966 2,522,788
---------------- ---------------
$ 3,440,835 $ 3,452,026
Held to maturity:
Due in one year or less $ 12,251,927 $ 12,273,023
Due after one through five years 9,997,968 10,226,735
Due after five through ten years 787,695 811,598
---------------- ---------------
$ 23,037,590 $ 23,311,356
</TABLE>
Proceeds from sales and calls of investment securities during 1997 and
1996 were $500,469 and $1,334,226, respectively. Gains of $250 and $7,166 were
realized on those sales and calls for 1997 and 1996, respectively.
Investment securities having an approximate carrying value of
$19,105,000 and $22,016,000 at December 31, 1997 and 1996, respectively, were
pledged to secure public deposits, trust funds, securities sold under
agreements to repurchase and for other purposes as required or permitted by
law.
3. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Commercial $ 9,217,136 $ 9,720,120
Real estate 78,239,899 66,947,342
Consumer 10,880,328 7,835,266
---------------- ---------------
$ 98,337,363 $ 84,502,728
Allowance for loan losses (1,831,832) (1,726,457)
---------------- ---------------
$ 96,505,531 $ 82,776,271
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Balance, beginning of year $ 1,726,457 $ 1,734,081
Loans charged-off (94,993) (158,818)
Recoveries 100,368 131,194
Provision for loan losses 100,000 20,000
---------------- ---------------
Balance, end of year $ 1,831,832 $ 1,726,457
</TABLE>
F-12
<PAGE> 75
3. LOANS (CONTINUED)
Impaired loans totaled $17,206 and $0 at December 31, 1997 and 1996,
respectively. The average recorded investment in impaired loans during 1997 and
1996 was $57,276 and $37,334, respectively. The total allowance for loan losses
related to these loans was $0 on December 31, 1997 and 1996. Interest income on
impaired loans of $10,438 and $31,930 was recognized for cash payments received
in 1997 and 1996, respectively.
In the normal course of business, the Bank makes loans to officers and
directors, and companies in which they have a beneficial ownership. At December
31, 1997 and 1996, these individuals were indebted to the Bank in the aggregate
amounts of approximately $2,741,000 and $2,727,000, respectively.
Mortgage loans serviced for others are not included in the
accompanying consolidated statements of financial condition. The unpaid
principal balances of mortgage loans serviced for others was approximately
$17,466,000 and $12,166,000 at December 31, 1997 and 1996, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, are not considered significant.
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
<S> <C> <C>
Land $ 272,950 $ 272,950
Buildings 3,213,356 3,103,123
Furniture 2,207,184 2,022,364
---------------- ---------------
$ 5,693,490 $ 5,398,437
Less accumulated depreciation 3,369,990 3,009,438
---------------- ---------------
$ 2,323,500 $ 2,388,999
</TABLE>
Depreciation expense was $376,382 and $335,112 in 1997 and 1996,
respectively.
5. DEPOSITS
The amount of time deposits of $100,000 and over was $17,013,508 and
$7,851,577 at December 31, 1997 and 1996, respectively. At December 31, 1997,
the scheduled maturities of all time deposits are as follows:
<TABLE>
<S> <C>
1998 $ 46,580,892
1999 7,516,982
2000 2,079,701
2001 and thereafter 138,335
----------------
$ 56,315,910
</TABLE>
Certain directors and executive officers of the Company and companies
in which they have beneficial ownership, are deposit customers of the Bank. The
amount of these deposits was approximately $9,594,000 at December 31, 1997.
F-13
<PAGE> 76
6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature one
year from the transaction date. The securities underlying the agreements are
maintained in a third-party custodians account under a written custodial
agreement. Information concerning securities sold under agreements to
repurchase is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Average daily balance during the year $ 3,515,000 $ 3,712,000
Average interest rate during the year 5.90% 5.84%
Maximum month-end balance during the year $ 3,712,000 $ 3,712,000
</TABLE>
U. S. Treasury obligations and obligations of U. S. government
agencies underlying the agreements at year end:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Carrying value $ 2,387,781 $ 5,031,985
Estimated fair value $ 2,394,125 $ 5,085,782
</TABLE>
7. FEDERAL HOME LOAN BANK ADVANCES
The Bank owns stock of the Federal Home Loan Bank (FHLB) of
Cincinnati, Ohio. Ownership of this stock allows the Bank to borrow long-term
advances from FHLB which the Bank uses to fund loans.
At December 31, 1997 and 1996, $1,915,504 and $750,587, respectively,
represented the balance due on advances from the FHLB. The advances are repaid
at maturity or on a monthly basis over original terms of two to thirty years at
interest rates ranging from 5.15% to 6.45%. The advances are secured by the
FHLB stock and all single family first mortgage loans. Scheduled principal
payments due on the advances during the five years subsequent to December 31,
1997 are as follows: 1998 - $93,579; 1999 - $598,984; 2000 - $104,082; 2001 -
$859,789; 2002 - $115,824; years thereafter - $143,246.
8. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current $ 1,001,598 $ 966,902
Deferred (66,805) (10,763)
----------- ----------
$ 934,793 $ 956,139
</TABLE>
F-14
<PAGE> 77
8. INCOME TAXES (CONTINUED)
Interest income exempt from federal income taxes totaled approximately
$262,000 and $200,000 and nondeductible expenses totaled approximately $123,000
and $112,000 for 1997 and 1996, respectively. Accordingly, the income tax
provision is less than that obtained by using the statutory federal corporate
income tax rate.
The Company's total deferred tax assets and liabilities at December
31, 1997 and 1996 are as follows. No valuation allowance for the realization of
deferred tax assets is considered necessary.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets $ 430,806 $ 399,847
Deferred tax liabilities (414,195) (446,510)
---------------- ---------------
Net deferred tax asset (liability) $ 16,611 $ (46,663)
</TABLE>
9. PROFIT SHARING PLAN
The Bank sponsors a 401(k) profit sharing plan which covers all
eligible employees. To be eligible for participation, an employee must work a
minimum of 1,000 hours during a calendar year, be at least 20 1/2 years of age,
and have completed six months of service with the Bank. The employees may
contribute a percentage of their compensation up to the maximum percentage
allowable by the Internal Revenue Code. Employer contributions are based on a
percentage of base salary plus a matching percentage of employee contributions.
The base percentage and the matching percentage are subject to change from year
to year at the discretion of the Board of Directors. Employer contributions for
1997 and 1996 amounted to $39,250 and $29,221, respectively.
10. LIMITATION ON BANK DIVIDENDS
The Company's principal source of funds for dividend payments is
dividends received from the Bank. Banking regulations limit the amount of
dividends that may be paid without prior approval of regulatory agencies. Under
these regulations, the amount of dividends that may be paid in any calendar
year is limited to the current year's net profits, as defined, combined with
the retained net profits of the preceding two years. During 1998 the Bank
could, without prior approval, declare dividends of approximately $2,704,000
plus the amount of 1998 net profits retained to the date of the dividend
declaration.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
F-15
<PAGE> 78
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
Investment Securities - For investment securities, fair values are
based on quoted market prices or dealer quotes.
Federal Home Loan Bank Stock - Federal Home Loan Bank stock carrying
value is equivalent to fair value since it can only be purchased or sold at the
FHLB carrying value.
Loans - Fair value is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Deposit Liabilities - The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit is
estimated by discounting the future cash flows using the rates currently
offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase - For short-term
instruments, the carrying amount is a reasonable estimate of fair value. For
long-term instruments, the rates are variable and reprice frequently enough to
approximate fair value.
Federal Home Loan Bank Advances - Rates currently available to the
Company for advances with similar terms and remaining maturities are used to
estimate fair value of existing debt.
Commitments to Extend Credit and Standby Letters of Credit -
Commitments to extend credit and standby letters of credit represent agreements
to lend to a customer at the market rate when the loan is extended, thus the
commitments and letters of credit are not considered to have a fair value.
The fair values of the Company's financial instruments at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 12,063,502 $ 12,063,502 $ 8,395,878 $ 8,395,878
Investment securities 26,489,616 26,763,383 28,724,789 29,227,273
Loans 98,337,363 98,216,366 84,502,728 84,392,439
Less: allowance for loan losses (1,831,832) (1,831,832) (1,726,457) (1,726,457)
Federal Home Loan Bank stock 413,300 413,300 385,100 385,100
----------------- --------------- --------------- -----------------
$ 135,471,949 $ 135,624,719 $ 120,282,038 $ 120,674,233
</TABLE>
F-16
<PAGE> 79
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial liabilities:
Deposits $ (123,548,208) $ (124,003,668) $ (109,354,800) $ (109,602,667)
Securities sold under agreements
to repurchase (2,000,000) (2,000,000) (3,712,000) (3,712,000)
Advances from Federal Home
Loan Bank (1,915,504) (1,911,626) (750,587) (729,063)
----------------- --------------- ---------------- ----------------
$ (127,463,712) $ (127,915,294) $ (113,817,387) $ (114,043,730)
</TABLE>
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include standby letters of credit and
commitments to extend credit in the form of unused lines of credit. The Bank
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments.
At December 31, 1997 and 1996, the Bank had the following financial
instruments whose approximate contract amounts represent credit risk:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Standby letters of credit $ 247,000 $ 182,000
Commitments to extend credit $ 12,860,000 $ 14,563,000
</TABLE>
Standby letters of credit represent conditional commitments issued by
the Bank to guarantee the performance of a third party. The credit risk
involved in issuing these letters of credit is essentially the same as the risk
involved in extending loans to customers. Collateral held varies but primarily
includes certificates of deposit and real estate. Some letters of credit are
unsecured.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amount does
not necessarily represent future cash requirements. Collateral held varies but
may include real estate, inventory, equipment and certificates of deposit.
F-17
<PAGE> 80
13. CONCENTRATION OF CREDIT RISK
The Bank grants residential, commercial and consumer related loans to
customers primarily located in Clark and adjoining counties in Kentucky.
Although the Bank has a diverse loan portfolio, a substantial portion of its
debtors' ability to perform is somewhat dependent on the agriculture industry
and other economic conditions of the counties in which it operates.
14. REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company and Bank capital amounts and classifications are also
subject to qualitative judgments by regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of Total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I capital
to average assets (as defined). Management believes, as of December 31, 1997,
that the Company and the Bank meet all capital adequacy requirements to which
they are subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum Total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the following table.
There have been no conditions or events since that notification that management
believes have changed the institution's category.
The Company's and the Bank's actual amounts and ratios are presented
in the table below:
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Consolidated as of December 31, 1997:
Total Capital (to Risk Weighted Assets) $ 12,439,000 13.06% $ 7,622,000 8.00% $ 9,528,000 10.00%
Tier I Capital (to Risk Weighted Assets) 11,248,000 11.81 3,811,000 4.00 5,717,000 6.00
Tier I Capital (to Average Assets) 11,248,000 8.03 5,604,000 4.00 7,005,000 5.00
</TABLE>
F-18
<PAGE> 81
14. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Bank Only as of December 31, 1997:
Total Capital (to Risk Weighted Assets) $ 11,816,000 12.40% $ 7,622,000 8.00% $ 9,528,000 10.00%
Tier I Capital (to Risk Weighted Assets) 10,625,000 11.15 3,811,000 4.00 5,717,000 6.00
Tier I Capital (to Average Assets) 10,625,000 7.58 5,604,000 4.00 7,005,000 5.00
Consolidated as of December 31, 1996:
Total Capital (to Risk Weighted Assets) $ 10,580,000 13.33% $ 6,349,000 8.00% $ 7,936,000 10.00%
Tier I Capital (to Risk Weighted Assets) 9,579,000 12.07 3,175,000 4.00 4,762,000 6.00
Tier I Capital (to Average Assets) 9,579,000 7.82 4,896,000 4.00 6,120,000 5.00
Bank Only as of December 31, 1996:
Total Capital (to Risk Weighted Assets) $ 9,882,000 12.45% $ 6,349,000 8.00% $ 7,936,000 10.00%
Tier I Capital (to Risk Weighted Assets) 8,881,000 11.19 3,175,000 4.00 4,762,000 6.00
Tier I Capital (to Average Assets) 8,881,000 7.26 4,896,000 4.00 6,120,000 5.00
</TABLE>
15. PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1997 1996
ASSETS
<S> <C> <C>
Cash $ 5,848 $ 1,642
Investment in subsidiary 13,795,292 12,213,502
Income taxes refundable 14,199 5,329
---------------- ---------------
TOTAL ASSETS $ 13,815,339 $ 12,220,473
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities $ 0 $ 0
Stockholders' Equity:
Common stock $ 4,845,000 $ 4,845,000
Retained earnings 8,962,953 7,374,941
Net unrealized gain on investment securities
available for sale 7,386 532
---------------- ---------------
Total stockholders' equity $ 13,815,339 $ 12,220,473
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,815,339 $ 12,220,473
</TABLE>
F-19
<PAGE> 82
15. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996
<S> <C> <C>
INCOME FROM SUBSIDIARY:
Dividend income $ 415,000 $ 1,190,500
Equity in undistributed earnings 1,574,936 789,467
---------------- ---------------
$ 1,989,936 $ 1,979,967
EXPENSES:
Interest expense $ 0 $ 21,078
Directors' fees 18,900 13,300
Other 21,894 10,806
---------------- ---------------
$ 40,794 $ 45,184
Income before income taxes $ 1,949,142 $ 1,934,783
Income tax benefit (13,870) (15,329)
---------------- ---------------
NET INCOME $ 1,963,012 $ 1,950,112
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,963,012 $ 1,950,112
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in earnings of subsidiary (1,574,936) (789,467)
Changes in other assets and other liabilities (8,870) (9,232)
------------------ -------------
Net cash provided by operating activities $ 379,206 $ 1,151,413
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable $ 0 $ (615,000)
Purchase of common stock (64,991) (31,422)
Issuance of common stock 64,991 31,422
Dividends paid (375,000) (562,485)
------------------ -------------
Net cash used in financing activities $ (375,000) $ (1,177,485)
Net increase (decrease) in cash $ 4,206 $ (26,072)
Cash at beginning of year 1,642 27,714
------------------ -------------
CASH AT END OF YEAR $ 5,848 $ 1,642
</TABLE>
F-20
<PAGE> 83
16. SUBSEQUENT EVENT
The Company, with the consent of its stockholders, has elected under
the Internal Revenue Code to be an S-Corporation effective for the tax year
beginning January 1, 1998. In lieu of future corporate income taxes, the
stockholders of the S-Corporation will be taxed on their proportionate share of
the Company's taxable income.
F-21
<PAGE> 84
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PEOPLES BANCORP OF WINCHESTER, INC.,
A KENTUCKY CORPORATION,
AND
AREA BANCSHARES CORPORATION,
A KENTUCKY CORPORATION,
DATED AS OF AUGUST 24, 1998.
A-1
<PAGE> 85
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE TERMS OF MERGER AND CLOSING.......................................................................6
Section 1.01. Merger.................................................................................6
Section 1.02. Merging Corporation....................................................................6
Section 1.03. Surviving Corporation..................................................................6
Section 1.04. Effect of Merger.......................................................................6
Section 1.05. Conversion of Company Common...........................................................6
Section 1.06. Share Adjustments......................................................................7
Section 1.07. Closing................................................................................7
Section 1.08. Exchange Procedures; Surrender of Certificates.........................................7
Section 1.09. Closing Date...........................................................................9
Section 1.10. Closing Deliveries.....................................................................9
Section 1.11. Disclosure Schedule; Standard.........................................................10
ARTICLE TWO REPRESENTATIONS AND WARRANTIES OF COMPANY........................................................11
Section 2.01. Organization and Capital Stock........................................................11
Section 2.02. Authorization; No Defaults............................................................12
Section 2.03. Subsidiaries..........................................................................13
Section 2.04. Financial Information.................................................................13
Section 2.05. Absence of Changes....................................................................14
Section 2.06. Regulatory Enforcement Matters........................................................14
Section 2.07. Tax Matters...........................................................................14
Section 2.08. Litigation and Related Matters........................................................15
Section 2.09. Employment Agreements.................................................................15
Section 2.10. Reports...............................................................................15
Section 2.11. Loan Portfolio........................................................................16
Section 2.12. Investment Portfolio..................................................................16
Section 2.13. Interest Rate Risk Management Instruments.............................................16
Section 2.14. Employee Matters and ERISA............................................................17
Section 2.15. Title to Properties; Insurance........................................................21
Section 2.16. Environmental Matters.................................................................22
Section 2.17. Compliance with Law...................................................................22
Section 2.18. Brokerage.............................................................................22
Section 2.19. Interim Events........................................................................22
Section 2.20. Non-Banking Activities of Company and Subsidiaries....................................23
Section 2.21. Trust Administration..................................................................23
Section 2.22. Pooling of Interests; Tax-Free Reorganization; Regulatory Approval....................23
Section 2.23. Properties, Contracts and Other Agreements............................................23
Section 2.24. No Undisclosed Liabilities............................................................24
Section 2.25. Statements True and Correct...........................................................25
Section 2.26. State Takeover Laws...................................................................25
Section 2.27. Fair Lending; Community Reinvestment Act..............................................25
Section 2.28. Assets Necessary to Company's Business................................................25
Section 2.29. Year 2000.............................................................................25
</TABLE>
A-2
<PAGE> 86
<TABLE>
<S> <C>
ARTICLE THREE REPRESENTATIONS AND WARRANTIES OF AREA.........................................................26
Section 3.01. Organization and Capital Stock........................................................26
Section 3.02. Authorization.........................................................................26
Section 3.03. Subsidiaries..........................................................................27
Section 3.04. Financial Information.................................................................27
Section 3.05. Absence of Changes....................................................................27
Section 3.06. Litigation............................................................................27
Section 3.07. Reports...............................................................................27
Section 3.08. Compliance With Law...................................................................28
Section 3.09. Pooling of Interests; Tax-Free Reorganization; Regulatory Approval....................28
Section 3.10. Statements True and Correct...........................................................28
Section 3.11. Year 2000.............................................................................28
Section 3.12. Brokers' or Finders' Fees.............................................................28
Section 3.13. Regulatory Enforcement Matters........................................................28
ARTICLE FOUR AGREEMENTS OF COMPANY...........................................................................29
Section 4.01. Business in Ordinary Course...........................................................29
Section 4.02. Breaches..............................................................................32
Section 4.03. Submission to Shareholders............................................................32
Section 4.04. Consents to Contracts and Leases......................................................33
Section 4.05. Consummation of Agreement.............................................................33
Section 4.06. Restriction on Resales................................................................33
Section 4.07. Access to Information.................................................................33
Section 4.08. Reports...............................................................................34
ARTICLE FIVE AGREEMENTS OF AREA..............................................................................34
Section 5.01. Regulatory Approvals and Registration Statement.......................................34
Section 5.02. Breaches..............................................................................35
Section 5.03. Consummation of Agreement.............................................................35
Section 5.04. Directors and Officers' Liability Insurance and Indemnification.......................35
Section 5.05. Employee Benefits.....................................................................36
Section 5.06. Access to Information.................................................................37
Section 5.07. Conduct of Business...................................................................37
Section 5.08. First Meeting of Board of Directors...................................................38
ARTICLE SIX CONDITIONS PRECEDENT TO MERGER...................................................................38
Section 6.01. Conditions to AREA's Obligations......................................................38
Section 6.02. Conditions to Company's Obligations...................................................39
ARTICLE SEVEN TERMINATION OR ABANDONMENT.....................................................................41
Section 7.01. Mutual Agreement......................................................................41
Section 7.02. Breach of Agreements..................................................................41
Section 7.03. Failure of Conditions.................................................................41
Section 7.04. Regulatory Approval Denial; Burdensome Condition......................................41
Section 7.05. Shareholder Approval/Denial; Withdrawal/Modification of Board
Recommendation........................................................................41
Section 7.06. Regulatory Enforcement Matters........................................................42
</TABLE>
A-3
<PAGE> 87
<TABLE>
<S> <C>
Section 7.07. Fall-Apart Date.......................................................................42
Section 7.08. Possible Purchase Price Adjustment....................................................42
Section 7.09. Termination Fee.......................................................................43
ARTICLE EIGHT GENERAL........................................................................................44
Section 8.01. Confidential Information..............................................................44
Section 8.02. Publicity.............................................................................44
Section 8.03. Return of Documents...................................................................44
Section 8.04. Notices...............................................................................44
Section 8.05. Liabilities and Expenses..............................................................45
Section 8.06. Nonsurvival of Representations, Warranties and Agreements.............................46
Section 8.07. Entire Agreement......................................................................46
Section 8.08. Headings and Captions.................................................................46
Section 8.09. Waiver, Amendment or Modification.....................................................46
Section 8.10. Rules of Construction.................................................................46
Section 8.11. Counterparts..........................................................................46
Section 8.12. Successors and Assigns................................................................47
Section 8.13. Severability..........................................................................47
Section 8.14. Governing Law; Assignment.............................................................47
Section 8.15. Enforcement of Agreement..............................................................47
EXHIBIT 4.07 AFFILIATE LETTER................................................................................49
EXHIBIT 6.01 CLAIMS LETTER...................................................................................52
</TABLE>
A-4
<PAGE> 88
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of August 24,
1998, by and between PEOPLES BANCORP OF WINCHESTER, INC., a Kentucky
corporation ("COMPANY"), and AREA BANCSHARES CORPORATION, a Kentucky
corporation ("AREA").
RECITALS
A. The Board of Directors of AREA and Company have approved, and deem it
advisable and in the best interests of their respective shareholders
to consummate, the business combination transaction provided for
herein in which Company shall, subject to the terms and conditions set
forth herein, merge with and into AREA (the "Merger").
B. The Boards of Directors of AREA and Company have each determined that
the Merger and the other transactions contemplated by this Agreement
are consistent with, and in furtherance of, their respective business
strategies and goals.
C. For federal income tax purposes, it is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and, as
such, shareholders of Company will receive certain federal income tax
tax-deferral benefits with respect to shares of AREA received in the
Merger. This Agreement shall constitute a "plan of reorganization" for
purposes of the Code.
D. For accounting purposes, it is intended that the Merger shall be
accounted for under the "pooling of interests" method of accounting.
E. AREA and Company desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
F. In consideration of the foregoing and the respective representations,
warranties, covenants, and agreements set forth herein, AREA and
Company hereby agree as follows:
A-5
<PAGE> 89
ARTICLE ONE
TERMS OF MERGER AND CLOSING
SECTION 1.01. MERGER. Pursuant to the terms and provisions set forth herein
and the Kentucky Business Corporation Act (the "KBCA"), Company shall merge
with and into AREA.
SECTION 1.02. MERGING CORPORATION. Company shall be the merging corporation
under the Merger and its corporate identity and existence, separate and apart
from AREA, shall cease on consummation of the Merger.
SECTION 1.03. SURVIVING CORPORATION. AREA shall be the surviving
corporation in the Merger. No changes in the Articles of Incorporation of AREA
shall be effected by the Merger.
SECTION 1.04. EFFECT OF MERGER. The Merger shall have all of the effects
provided for herein and the KBCA.
SECTION 1.05. CONVERSION OF COMPANY COMMON.
(a) At the Effective Time (as defined in Section 1.09 hereof), by
virtue of the Merger and without any action on the part of
AREA, Company or their respective shareholders, each share of
common stock, no par value per share, of Company (the
"Company Common") issued and outstanding immediately prior to
the Effective Time (other than shares of Company Common held
in the treasury of Company or by Subsidiary Bank, as defined
hereinafter) shall be converted into the right to receive
17.333333 shares (the "Conversion Ratio") of common stock of
AREA, no par value (the "AREA Common"). The Conversion Ratio
shall be subject to adjustment as set forth in Sections 1.06
and 7.09 hereof.
(b) The shares of AREA Common to be issued pursuant to Section
1.05(a), together with any cash payment in lieu of fractional
shares, as provided below in this Section 1.05(b), is
referred to herein as the "Merger Consideration." No
fractional shares of AREA Common shall be issued and, in lieu
thereof, holders of shares of Company Common who would
otherwise be entitled to a fractional share interest (after
taking into account all shares of Company Common held by such
holder) shall be paid an amount in cash equal to the product
of such fractional share interest and the closing price of a
share of AREA Common as reported in The Wall Street Journal
(Midwest Edition) on the trading day immediately preceding
the date on which the Effective Time occurs.
(c) At the Effective Time, all of the shares of Company Common,
by virtue of the Merger and without any action on the part of
the holders thereof, shall no longer be outstanding and shall
be canceled and retired and shall cease to exist, and each
holder of any certificate or certificates which immediately
prior to the Effective
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Time represented outstanding shares of Company Common (the
"Certificates") shall thereafter cease to have any rights
with respect to such shares, except the right of such holders
to receive, without interest, the Merger Consideration upon
the surrender of such Certificate or Certificates in
accordance with Section 1.08 hereof.
(d) At the Effective Time, each share of Company Common, if any,
held in the treasury of Company or by Subsidiary Bank, as
defined hereinafter (other than shares held in trust accounts
for the benefit of others or in other fiduciary, nominee or
similar capacities and shares held by Company or Subsidiary
Bank in respect to a debt previously contracted) immediately
prior to the Effective Time shall be canceled.
(e) Each share of AREA Common outstanding immediately prior to
the Effective Time shall remain outstanding unaffected by the
Merger.
SECTION 1.06. SHARE ADJUSTMENTS. If between the date hereof and the Effective
Time a share of AREA Common shall be changed into a different number of shares
of AREA Common or a different class of shares (a "Share Adjustment") by reason
of reclassification, recapitalization, splitup, exchange of shares or
readjustment, or if a stock dividend thereon shall be declared with a record
date within such period, then the number of shares of AREA Common into which a
share of Company Common shall be converted pursuant to Section 1.05(a) hereof
shall be appropriately and proportionately adjusted so that each shareholder of
Company shall be entitled to receive such number of shares of AREA Common as
such shareholder would have received pursuant to such Share Adjustment had the
record date therefor been immediately following the Effective Time of the
Merger. In the event that the number of shares of Company Common presented for
exchange pursuant to Section 1.08 hereof or otherwise issued and outstanding at
the Effective Time, shall be greater than the number of shares of Company
Common represented in Section 2.01(b) hereof as being outstanding as of the
date hereof, then the Conversion Ratio shall be appropriately and
proportionately decreased to take into account such additional issued and
outstanding, and issuable, shares of Company Common.
SECTION 1.07. CLOSING. The closing of the Merger (the "Closing") shall take
place at a location mutually agreeable to the parties at 10:00 a.m., Central
Time, on the Closing Date described in Section 1.09 hereof.
SECTION 1.08. EXCHANGE PROCEDURES; SURRENDER OF CERTIFICATES.
(a) UMB Bank shall act as Exchange Agent in the Merger (the "Exchange
Agent").
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(b) As soon as reasonably practicable after the Effective Time,
the Exchange Agent shall mail to each record holder of any
Certificate or Certificates whose shares were converted into
the right to receive the Merger Consideration, a letter of
transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and shall be in such form and have such
other provisions as AREA may reasonably specify) (each such
letter, the "Merger Letter of Transmittal") and instructions
for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender to the
Exchange Agent of a Certificate, together with a Merger
Letter of Transmittal duly executed and any other required
documents, the holder of such Certificate shall be entitled
to receive in exchange therefor solely the Merger
Consideration. No interest on the Merger Consideration
issuable upon the surrender of the Certificates shall be paid
or accrued for the benefit of holders of Certificates. If the
Merger Consideration is to be issued to a person other than a
person in whose name a surrendered Certificate is registered,
it shall be a condition of issuance that the surrendered
Certificate shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such
issuance shall pay to the Exchange Agent any required
transfer taxes or other taxes or establish to the
satisfaction of the Exchange Agent that such tax has been
paid or is not applicable.
(c) Notwithstanding anything to the contrary contained herein, no
Merger Consideration shall be delivered to a person who is an
"affiliate" (as such term is used in Section 4.07 hereof) of
Company unless such "affiliate" shall have theretofore
executed and delivered to AREA the agreement referred to in
Section 4.07 hereof.
(d) No dividends that are otherwise payable on shares of AREA
Common constituting the Merger Consideration shall be paid to
persons entitled to receive such shares of AREA Common until
such persons surrender their Certificates. Upon such
surrender, there shall be paid to the person in whose name
the shares of AREA Common shall be issued any dividends which
shall have become payable with respect to such shares of AREA
Common (without interest and less the amount of taxes, if
any, which may have been imposed thereon), between the
Effective Time and the time of such surrender.
(e) In the event that any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by AREA in its
reasonable discretion, the posting by such person of a bond
in such amount as AREA may determine is reasonably necessary
against any claim that may be made against it with respect to
such Certificate, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof pursuant hereto.
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(f) At or after the Effective Time there shall be no transfers on
the stock transfer books of Company of any shares of Company
Common. If, after the Effective Time, Certificates are
presented for transfer, they shall be cancelled and exchanged
for the Merger Consideration as provided in, and subject to
the provisions of, this Section 1.08.
SECTION 1.09. CLOSING DATE. At AREA's election, the Closing shall take place on
(i) the last business day of, or (ii) the first business day of the month
following, in each case, the month during which each of the conditions in
Sections 6.01(d) and 6.02(d) hereof is satisfied or waived by the appropriate
party or on such other date after such satisfaction or waiver as Company and
AREA may agree (the "Closing Date"). AREA shall designate and deliver to the
Company notice of the Closing Date no later than ten (10) days prior to such
designated Closing Date. The Merger shall be effective upon the filing of
Articles of Merger with the Secretary of State of the Commonwealth of Kentucky
(the "Effective Time"), which the parties shall use their best efforts to cause
to occur on the Closing Date.
SECTION 1.10. CLOSING DELIVERIES.
(a) At the Closing, Company shall deliver to AREA:
(i) a certified copy of the Articles of Incorporation
and Bylaws of Company and Subsidiary Bank; and
(ii) a Certificate signed by an appropriate officer of
Company stating that (A) each of the representations
and warranties contained in Article Two hereof
(subject to the standard in Section 1.11 hereof) is
true and correct at the time of the Closing with the
same force and effect as if such representations and
warranties had been made at Closing, and (B) all of
the conditions set forth in Section 6.01(b) hereof
have been satisfied or waived as provided therein;
and
(iii) a certified copy of the resolutions of Company's
Board of Directors and shareholders as required for
valid approval of the execution of this Agreement
and the consummation of the Merger and the other
transactions contemplated by this Agreement; and
(iv) Certificate of the Secretary of State of the
Commonwealth of Kentucky, dated a recent date,
stating that Company and Subsidiary Bank is in
existence; and
(v) Articles of Merger executed by Company, reflecting
the terms and provisions hereof and in proper form
for filing with the Secretary of State of the
Commonwealth of Kentucky in order to cause the
Merger to become effective pursuant to the KBCA.
(b) At the Closing, AREA shall deliver to Company:
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(i) a Certificate signed by an appropriate officer of
AREA stating that (A) each of the representations
and warranties contained in Article Three hereof
(subject to the standard in Section 1.11 hereof) is
true and correct at the time of the Closing with the
same force and effect as if such representations and
warranties had been made at Closing, and (B) all of
the conditions set forth in Section 6.02(b) and
6.02(d) hereof (but excluding the approval of
Company's shareholders) have been satisfied; and
(ii) a certified copy of the resolutions of AREA's Board
of Directors as required for valid approval of the
execution of this Agreement and the consummation of
the transactions contemplated by this Agreement.
SECTION 1.11. DISCLOSURE SCHEDULE; STANDARD.
(a) Company has delivered to AREA a confidential schedule (the
"Disclosure Schedule"), executed by both Company and AREA
concurrently with the delivery and execution hereof, setting
forth, among other things, items the disclosure of which
shall be necessary or appropriate either in response to an
express disclosure requirement contained in a provision
hereof or as an exception to one or more representations or
warranties contained in Article Two hereof; provided, that
(i) no such item shall be required to be set forth in the
Disclosure Schedule as an exception to a representation or
warranty if its absence would not be reasonably likely to
result in the related representation or warranty being deemed
untrue or incorrect under the standard established by Section
1. 11(b) hereof, and (ii) the mere inclusion of an item in
the Disclosure Schedule as an exception to a representation
or warranty shall not be deemed an admission by Company that
such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result
in a Material Adverse Effect (as defined in Section 1.11(b)
hereof). Notwithstanding the foregoing, where a specific
representation or warranty contained in Article Two hereof
requires a list, itemization, summary or description of a
certain item or items, such list, itemization, summary or
description shall be provided without regard to the standard
set forth in Section 1. 11(b) hereof, provided, however, that
the omission of such a list, itemization, summary, or
description of certain item or items shall be subject to the
standard set forth in Section 1.11(b) for all other purposes
hereunder.
(b) No representation or warranty of Company contained in Article
Two hereof or AREA contained in Article Three hereof shall be
deemed untrue or incorrect, and Company and AREA, as the case
may be, shall not be deemed to have breached a representation
or warranty, as a consequence of the existence of any fact,
event or circumstance unless such fact, circumstance or
event, individually or taken together with all other facts,
events or circumstances inconsistent with any representation
or warranty contained in Article Two hereof, in the case of
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Company, or Article Three hereof, in the case of AREA, has
had or is reasonably likely to have a Material Adverse Effect
on the party making such representation or warranty. As used
herein, the term "Material Adverse Effect" means, with
respect to Company or AREA, any effect that (i) is, or is
reasonably expected to be, material and adverse to the
financial position, results of operations or business of
Company and Subsidiary Bank taken as a whole, or AREA and its
subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either Company or AREA to
perform its obligations under this Agreement or otherwise
materially threaten or materially impede the consummation of
the Merger and the other transactions contemplated by this
Agreement; provided, however, that Material Adverse Effect
shall not be deemed to include the impact of (A) changes in
banking and similar laws of general applicability or
interpretations thereof by courts or governmental
authorities, (B) changes in generally accepted accounting
principles or regulatory accounting requirements applicable
to banks and their holding companies generally, (C) any
modifications or changes to valuation policies and practices
in connection with the Merger or restructuring charges taken
in connection with the Merger, in each case in accordance
with generally accepted accounting principles, and (D)
changes in economic or other conditions affecting the banking
industry generally.
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF COMPANY
Subject to Section 1.11 hereof and except as disclosed in the Disclosure
Schedule, Company hereby makes the following representations and warranties:
SECTION 2.01. ORGANIZATION AND CAPITAL STOCK.
(a) Company is a corporation duly organized and validly existing
under the laws of the Commonwealth of Kentucky and has the
corporate power to own all of its property and assets, to
incur all of its liabilities and to carry on its business as
now being conducted. Company is a bank holding company
registered with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended (the "B.H.C.A."). True,
complete and correct copies of the Articles of Incorporation
and Bylaws of Company, as amended and as in effect on the
date of this Agreement, are included as exhibits in the
Disclosure Schedule.
(b) The authorized capital stock of Company consists only of
75,000 shares of Company Common, of which 75,000 shares are
issued and outstanding. All of the issued and outstanding
shares of Company Common are duly and validly issued and
outstanding and are fully paid and nonassessable and free of
preemptive rights. None of the outstanding shares of Company
Common has
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been issued in violation of any preemptive rights of the
current or past shareholders of Company.
Each Certificate issued by Company in replacement of any
Certificate theretofore issued by it which was claimed by the
record holder thereof to have been lost, stolen or destroyed
was issued by Company only upon receipt of an affidavit of
lost stock certificate and indemnity agreement of such
shareholder indemnifying Company against any claim that may
be made against it on account of the alleged loss, theft or
destruction of any such Certificate or the issuance of such
replacement Certificate.
(c) Except as set forth in subsection 2.01(b) above, (i) there
are no shares of capital stock or other equity securities of
Company outstanding and no outstanding options, warrants,
rights to subscribe for, calls, or commitments of any
character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of Company
Common or other capital stock of Company or contracts,
commitments, understandings or arrangements by which Company
is or may be obligated to issue additional shares of its
capital stock or options, warrants or rights to purchase or
acquire any additional shares of its capital stock, and (ii)
there are no outstanding stock appreciation, phantom stock or
similar rights.
(d) The minute books of Company accurately reflect all corporate
actions held or taken by its shareholders and Board of
Directors (including committees of the Board of Directors).
SECTION 2.02. AUTHORIZATION; NO DEFAULTS. Company's Board of Directors has, by
all appropriate action, approved this Agreement and the Merger and authorized
the execution hereof on its behalf by its duly authorized officers and the
performance by Company of its obligations hereunder. Company's Board of
Directors has directed that this Agreement (within the meaning of the KBCA)
contained in this Agreement and the transactions contemplated by this
Agreement, including the Merger, be submitted to the shareholders of Company
for approval at the Company Shareholders Meeting (as defined in Section 4.03
hereof), and, except for the adoption and approval of this Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common and termination of the Amended and Restated Stockholder
Agreement by written agreement of holders of 80% of the outstanding shares of
Company Common (the "Stockholder Agreement"), no other corporate proceedings on
the part of Company are necessary to approve this Agreement and to consummate
the transactions contemplated by this Agreement, including the Merger. Except
for the Stockholder Agreement, nothing in the Articles of Incorporation or
Bylaws of Company, as amended, or any other agreement, instrument, decree,
proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which it or any of its subsidiaries
are bound or subject would prohibit or inhibit Company from consummating this
Agreement and the Merger on the terms and conditions herein contained. This
Agreement has been duly and validly executed and delivered by Company and
constitutes a legal, valid and binding obligation of Company, enforceable
against Company in accordance with its terms. Company and Subsidiary Bank are
neither in default under nor in violation of any provision of their Articles of
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Incorporation, Bylaws, or any promissory note, indenture or any evidence of
indebtedness or security therefor, lease, contract, insurance policy, purchase
or other commitment or any other agreement or arrangement (however evidenced),
whether written or oral, and there has not occurred any event that, with the
lapse of time or giving of notice or both, would constitute such a default or
violation. Holders of Company Common have dissenters' rights in connection with
the Merger.
SECTION 2.03. SUBSIDIARIES. Peoples Commercial Bank ("Subsidiary Bank"), a
Kentucky corporation and the sole subsidiary of the Company, is duly organized,
and validly existing under the laws of Kentucky and has the corporate power to
own its properties and assets, to incur its liabilities and to carry on its
business as now being conducted. The deposits of Subsidiary Bank are insured by
the Federal Deposit Insurance Corporation (the "FDIC") in accordance with the
Federal Deposit Insurance Act, as amended, up to applicable limits. The number
of issued and outstanding shares of capital stock of the Subsidiary Bank is
disclosed in Section 2.03 of the Disclosure Schedule, all of which shares are
owned by Company free and clear of all liens, encumbrances, rights of first
refusal, options or other restrictions of any nature whatsoever, and, except
for directors' qualifying shares, are nonassessable under applicable law. There
are no options, warrants or rights outstanding to acquire any capital stock of
Subsidiary Bank and no person or entity has any other right to purchase or
acquire any unissued shares of Subsidiary Bank, nor does Subsidiary Bank have
any obligation of any nature with respect to its unissued shares of stock.
Neither Company nor Subsidiary Bank is a party to any partnership or joint
venture or owns an equity interest in any other business or enterprise. The
Articles of Incorporation and Bylaws of Subsidiary Bank, as amended, copies of
which were made available to AREA, are true, complete and correct copies of
such documents as in effect on the date of this Agreement.
SECTION 2.04. FINANCIAL INFORMATION. The (i) unaudited consolidated balance
sheet of Company as of June 30, 1998, and related consolidated income statement
for the six months ended June 30, 1998, as filed with the Federal Reserve Board
and included in Section 2.04 of the Disclosure Schedule, (ii) the audited
consolidated balance sheets of Company as of December 31, 1997, 1996 and 1995,
and related consolidated income statements and statements of changes in
shareholders' equity and of cash flows for the three (3) years ended December
31, 1997, together with the notes thereto, included in Section 2.04 of the
Disclosure Schedule, and (iii) the year-end Reports of Condition and Reports of
Income ("Call Reports") of Subsidiary Bank for 1997 and its quarterly Call
Reports to date for 1998 as currently on file with the FDIC and included in
Section 2.04 of the Disclosure Schedule (together, the "Company Financial
Statements"), have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be disclosed
therein and except for regulatory reporting differences required by the reports
of the Subsidiary Bank) and fairly present the consolidated financial position
and the consolidated results of operations, changes in shareholders' equity and
cash flows of the respective entity and its respective consolidated
subsidiaries as of the dates and for the periods indicated. The books and
records of Company and Subsidiary Bank have been, and are being, maintained in
accordance with generally accepted accounting principles and any other
applicable legal and accounting requirements and reflect only actual
transactions.
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SECTION 2.05. ABSENCE OF CHANGES. Since December 31, 1997, there has not been
any change in the financial condition, the results of operations or the
business of Company and Subsidiary Bank taken as a whole which would have a
Material Adverse Effect on Company. Since the date of its most recent
regulatory examination report, there has been no change in the financial
condition, the results of operations or the business of the Subsidiary Bank
which would have a Material Adverse Effect on the Subsidiary Bank, except as
disclosed by Subsidiary Bank since the date of such most recent regulatory
examination report in its quarterly Reports of Condition and Reports of Income
filed with the FDIC.
SECTION 2.06. REGULATORY ENFORCEMENT MATTERS. Neither Company nor the
Subsidiary Bank is subject or is party to, or has received any notice or advice
that it may become subject or party to, any investigation with respect to, any
cease-and-desist order, agreement, consent agreement, memorandum of
understanding or other regulatory enforcement action, proceeding or order with
or by, or is a party to any commitment letter or similar undertaking to, or is
subject to any directive by, or has been a recipient of any supervisory letter
from, or has adopted any board resolutions at the request of, any Regulatory
Agency (as defined below in this Section 2.06) that currently restricts the
conduct of its business or that relates to its capital adequacy, its credit
policies, its management or its business (each, a "Regulatory Agreement'), nor
has Company or the Subsidiary Bank been advised by any Regulatory Agency that
it is considering issuing or requesting any such Regulatory Agreement. There is
no unresolved violation, criticism or exception by any Regulatory Agency with
respect to any report or statement relating to any examinations of Company or
the Subsidiary Bank which would have a Material Adverse Effect on the Company
or the Subsidiary Bank. As used herein, the term "Regulatory Agency" means any
federal or state agency charged with the supervision or regulation of banks or
bank holding companies, or engaged in the insurance of bank deposits, or any
court, administrative agency or commission or other governmental agency,
authority or instrumentality having supervisory or regulatory authority with
respect to Company or the Subsidiary Bank.
SECTION 2.07. TAX MATTERS.
(a) To the best of Company's knowledge each of Company and the
Subsidiary Bank has filed with the appropriate governmental
agencies all foreign, federal, state and local Tax (as
defined below in this Section 2.07) returns, declarations,
estimates, information returns, statements and reports
(collectively, "Tax Returns") required to be filed by it.
Neither Company nor Subsidiary Bank are (a) delinquent in the
payment of any Taxes shown on such Tax Returns or on any
assessments received by it for such Taxes, (b) subject to any
agreement extending the period for assessment or collection
of any Tax, or (c) a party to any action or proceeding with,
nor has any claim been asserted or threatened against any of
them by, any governmental authority for assessment or
collection of Taxes or for the refund of Taxes previously
paid. The income Tax Returns of Company and Subsidiary Bank
have not been audited by the Internal Revenue Service (the
"IRS") and comparable state agencies since at least 1987. The
reserve for Taxes in the financial statements of Company for
the year ended December 31, 1997, is adequate to cover all of
the liabilities for Taxes of Company and its subsidiaries
that may become payable in future years with respect to any
transactions
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consummated prior to December 31, 1997. As used herein, the
term "Taxes" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar),
unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition
thereto, whether disputed or undisputed.
(b) Any amount that could be received (whether in cash or
property or the vesting of property) as a result of any of
the transactions contemplated by this Agreement by any
employee, officer or director of Company or Subsidiary Bank
who is a "Disqualified Individual" (as such term is defined
in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other
compensation arrangement or Company Employee Plan (as defined
in Section 2.14(c) hereof) currently in effect would not be
characterized as an "excess parachute payment" (as such term
is defined in Section 280G(b)(1) of the Code).
(c) Company has not been subject to any disallowance of a
deduction under Section 162(m) of the Code nor does Company
reasonably believe that such a disallowance is reasonably
likely to be applicable for any tax year of Company ended on
or before the Closing Date.
SECTION 2.08. LITIGATION AND RELATED MATTERS. Section 2.08 of the Disclosure
Schedule describes all litigation, claims or other proceedings or
investigations of any nature pending or, to the knowledge of Company,
threatened, against Company or Subsidiary Bank, or of which the property of
Company or Subsidiary Bank is or would be subject. There is no injunction,
order, judgment, decree or regulatory restriction imposed upon Company or
Subsidiary Bank, or the assets of Company or Subsidiary Bank. Company and
Subsidiary Bank have continuously maintained fidelity bonds insuring them
against acts of dishonesty in such amounts as are customary, usual and prudent
for organizations of their size and business. There are no facts which would
form the basis of a claim or claims under such bonds. Neither Company nor
Subsidiary Bank has reason to believe that its respective fidelity coverage
would not be renewed by the carrier on substantially the same terms as the
existing coverage, except for possible premium increases unrelated to Company's
and Subsidiary Bank's past claim experience.
SECTION 2.09. EMPLOYMENT AGREEMENTS. Neither Company nor Subsidiary Bank is a
party to or bound by any agreement, arrangement, commitment or contract
(whether written or oral) for the employment, election, retention or
engagement, or with respect to the severance, of any present or former officer,
employee, agent, consultant or other person or entity which, by its terms, is
not terminated by Company or Subsidiary Bank on thirty (30) days written notice
or less without the payment of any amount by reason of such termination.
SECTION 2.10. REPORTS. Company and Subsidiary Bank have filed all reports and
statements, together with any amendments required to be made with respect
thereto, if any, that it was
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required to file with (i) the Federal Reserve Board, (ii) the FDIC, (iii) any
state securities authorities, and (iv) any other Regulatory Agency with
jurisdiction over Company or Subsidiary Bank, and have paid all fees and
assessments due and payable in connection therewith. As of their respective
dates, each of such reports and documents, including any financial statements,
exhibits and schedules thereto, complied with the relevant statutes, rules and
regulations enforced or promulgated by the regulatory authority with which they
were filed, and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
SECTION 2.11. LOAN PORTFOLIO. (i) All loans and discounts shown on the Company
Financial Statements or which were entered into after the date of the most
recent balance sheet included in the Company Financial Statements were and
shall be made for good, valuable and adequate consideration in the ordinary
course of the business of Company and Subsidiary Bank, in accordance with sound
banking practices, and are not subject to any known defenses, setoffs or
counterclaims, including without limitation any such as are afforded by usury
or truth in lending laws, except as may be provided by bankruptcy, insolvency
or similar laws or by general principles of equity, (ii) the notes or other
evidences of indebtedness evidencing such loans and all forms of pledges,
mortgages and other collateral documents and security agreements are and shall
be, enforceable, valid, true and genuine and what they purport to be, and (iii)
Company and Subsidiary Bank have complied and shall prior to the Closing Date
comply with all laws and regulations relating to such loans.
SECTION 2.12. INVESTMENT PORTFOLIO. All investment securities held by Company
or Subsidiary Bank, as reflected in the consolidated balance sheets of Company
included in the Company Financial Statements, are carried in accordance with
generally accepted accounting principles, specifically including but not
limited to FAS 115.
SECTION 2.13. INTEREST RATE RISK MANAGEMENT INSTRUMENTS. Section 2.13 of the
Disclosure Schedule describes all interest rate swaps, caps, floors, option
agreements or other interest rate risk management arrangements or agreements,
whether entered into for the account of Company or its subsidiaries or for the
account of a customer of Company or one of its subsidiaries. All such
arrangements and agreements disclosed in Section 2.13 of the Disclosure
Schedule were entered into in the ordinary course of business and in accordance
with prudent banking practice and applicable rules, regulations and policies
and with counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations of Company or one of its subsidiaries
enforceable in accordance with their terms (subject to the provisions of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights generally from
time to time in effect, and equitable principles relating to the granting of
specific performance and other equitable remedies as a matter of judicial
discretion), and are in full force and effect. Company and each of its
subsidiaries have duly performed all of their obligations thereunder to the
extent that such obligations to perform have accrued; and, to Company's
knowledge, there are no breaches, violations or defaults or allegations or
assertions of such by any party thereunder.
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SECTION 2.14. EMPLOYEE MATTERS AND ERISA.
(a) Neither Company nor Subsidiary Bank has entered into any
collective bargaining agreement with any labor organization
with respect to any group of employees of Company or
Subsidiary Bank and to the knowledge of Company there is no
present effort nor existing proposal to attempt to unionize
any group of employees of Company or Subsidiary Bank.
(b)(i) Company and Subsidiary Bank are and have been in material
compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and
wages and hours, including, without limitation, any such laws
respecting employment discrimination and occupational safety
and health requirements, and neither Company nor Subsidiary
Bank is engaged in any unfair labor practice, (ii) there is
no unfair labor practice complaint against Company or any
subsidiary pending or, to the knowledge of Company,
threatened before the National Labor Relations Board, (iii)
there is no labor dispute, strike, slowdown or stoppage
actually pending or, to the knowledge of Company, threatened
against or directly affecting Company or any subsidiary, and
(iv) neither Company nor any subsidiary has experienced any
work stoppage or other material labor difficulty during the
past five (5) years.
(c) Definitions. For purposes of the remainder of this Section
2.14:
(i) Company Employee Plan. The term "Company Employee
Plan" means any plan, program, arrangement, fund,
policy, practice or contract which, through which or
under which the Company or any Company ERISA
Affiliate (as hereinafter defined) provides benefits
or compensation to or on behalf of present or former
employees, directors or consultants of the Company
or any Company ERISA Affiliate, whether formal or
informal, whether or not written, including but not
limited to the following:
(A) Arrangements - any bonus, incentive
compensation, stock option, deferred
compensation, commission, severance pay,
golden parachute, split dollar or other
compensation plan or rabbi trust;
(B) ERISA Plans - any "employee benefit plan"
(as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA")), including, but not
limited to, any multiemployer plan (as
defined in Section 3(37) and Section
4001(a)(3) of ERISA), defined benefit plan,
profit sharing plan, money purchase pension
plan, 401(k) plan, savings or thrift plan,
or any plan, fund, program, arrangement or
practice providing for medical (including
post-retirement medical), hospitalization,
accident, sickness, disability, or life
insurance benefits; and
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(C) Other Employee Fringe Benefits - any stock
purchase, vacation, scholarship, day care,
prepaid legal services, dependent care or
other fringe benefits plan, program,
arrangement, contract or practice.
(ii) Company ERISA Affiliate. The term "Company ERISA
Affiliate" means each trade or business (whether or
not incorporated) which together with the Company is
treated as a single employer under Section 4.14(b),
(c), (m) or (o) of the Code.
(d) Identification of Benefits Plans. Except for Company Employee
Plans which have been terminated and with respect to which
neither the Company nor any Company ERISA Affiliate has any
financial, administrative or other liability, obligation or
responsibility, the Company does not maintain, nor has it at
any time established or maintained, nor has it at any time
been obligated to make, or otherwise made, contributions to
or under or otherwise participated in any Company Employee
Plan.
(e) Compliance With All Statutes, Orders and Rules. The Company
and each Company ERISA Affiliate is in material compliance
with the requirements prescribed by and all statutes, orders
and governmental rules and regulations applicable to the
Company Employee Plans and all reports and disclosures
relating to the Company Employee Plans required to be filed
with or furnished to any governmental entity, participants or
beneficiaries prior to the Closing Date have been or will be
filed or furnished in a timely manner and in accordance with
applicable laws.
(f) MEPPA Liability/Post-Retirement Medical and Death Benefits.
Neither the Company nor any Company ERISA Affiliate
maintains, or has at any time established or maintained, or
has at any time been obligated to make, or made,
contributions to or under any multiemployer plan (as defined
in Section 3(37) and Section 4001(a)(3) of ERISA). The
Company does not maintain, nor has at any time established or
maintained, nor has at any time been obligated to make, or
made, contributions to or under any plan which provides
post-retirement medical, health or death benefits with
respect to present or former employees of the Company, other
than those required by law to be provided.
(g) Documentation. The Company has made available to Area a true
and complete copy of the following documents, if applicable,
with respect to each Company Employee Plan identified on the
Disclosure Schedule: (1) all documents, including any
insurance contracts and trust agreements, setting forth the
terms of the Company Employee Plan, or if there are no such
documents evidencing the Company Employee Plan, a full
description of the Company Employee Plan, (2) the ERISA
summary plan description and any other summary of plan
provisions provided to participants or beneficiaries for each
such Company Employee Plan, (3) the annual reports filed for
the most recent three plan years and most recent
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financial statements or periodic accounting or related plan
assets with respect to each Company Employee Plan, (4) each
favorable determination letter, opinion or ruling from the
IRS for each Company Employee Plan, the assets of which are
held in trust, to the effect that such trust is exempt from
federal income tax, including any outstanding request for a
determination letter, (5) each opinion or ruling from the
Department of Labor with respect to such Company Employee
Plans, (6) contracts relating to each Company Employee Plan,
and (7) lists of all participants for each Company Employee
Plan.
(h) Qualified Status. Each Company Employee Plan that is intended
to be qualified under Section 401(a) of the Code funded
through a trust or insurance contract (the "Subsection (h)
Plans") has at all times satisfied in all material respects,
by its terms and in its operation, all applicable
requirements for an exemption from federal income taxation
under Section 501(a) of the Code. Neither the Company nor any
Company ERISA Affiliate maintains a Company Employee Plan
which meets or was intended to meet the requirements of
Section 401(a) of the Code. Any determination letter issued
by the IRS to the effect that the Subsection (h) Plans
qualify under Section 401(a) of the Code and that the related
trust is exempt from taxation under Section 501 (a) of the
Code remains in effect and has not been revoked. The
Subsection (h) Plans currently comply in form with the
requirements under Section 401(a) of the Code, other than
changes required by statutes, regulations and rulings for
which amendments are not yet required. The Subsection (h)
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 such
plans have been administered in accordance with the
provisions of those statutes, regulations and rulings) and in
accordance with the requirements of Section 401(a) of the
Code. To the extent applicable, each Subsection (h) Plan has
been tested for compliance with, and has satisfied the
requirements of, Section 401(k)(3) and 401(m)(2) of the Code
for each plan year ending prior to the Closing Date.
(i) Legal Actions. There are no actions, audits, suits or claims
known to the Company which are pending or threatened against
any Company Employee Plan, any fiduciary of any of the
Company Employee Plans with respect to the Company Employee
Plans or against the assets of any of the Company Employee
Plans, except claims for benefits made in the ordinary course
of the operation of such plans.
(j) Funding. The Company and each Company ERISA Affiliate has
made fully and timely payment of all amounts required to be
contributed under the terms of each Company Employee Plan and
applicable law or required to be paid as expenses, including
premium payments, under such Company Employee Plan and no
excise taxes are assessable as a result of any nondeductible
or other contributions made or not made to a Company Employee
Plan. The assets of all Company Employee Plans which are
required under applicable laws and other governmental
guidance
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to be held in trust are in fact held in trust, and the assets
of each such Company Employee Plan equal or exceed the
liabilities of each such plan. The liabilities of each other
Company Employee Plan are properly and accurately reported on
the financial statements and records of the Company in
accordance with generally accepted accounting principles. The
assets of each Company Employee Plan are reported at their
fair market value on the books and records of each plan.
(k) Liabilities. Neither the Company nor any Company ERISA
Affiliate is subject to any material liability, tax or
penalty whatsoever to any person whomsoever as a result of
the Company's or any Company ERISA Affiliate's engaging in a
prohibited transaction under ERISA or the Code, and the
Company has no knowledge of any circumstances which
reasonably might result in any such material liability, tax
or penalty as a result or a breach of fiduciary duty under
ERISA.
(l) COBRA/HIPAA. The Company and each Company ERISA Affiliate
have complied with the continuation coverage requirements of
Section 1001 of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and ERISA Sections
601 through 608, and with the portability, access and
renewability provisions of Section K, Chapter 100 of the Code
and Section 701 et seq. of ERISA.
(m) Defined Benefit Plans/Money Purchase Plans. Neither the
Company nor any Company ERISA Affiliate maintains or
contributes or has maintained or contributed to an "employee
benefit pension plan" within the meaning of Section 3(2) of
ERISA that is or was subject to Title IV of ERISA or Section
412 of the Code.
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(n) Termination. Any Company Employee Plan can be terminated
prospectively at any time without material liability to the
Company, any ERISA Affiliate or Area, including, without
limitation, any additional contributions, penalties,
premiums, fees or any other charges as a result of the
termination, except to the extent of funds set aside for such
purpose or reflected as reserved for such purpose on the
financial statements of the appropriate party.
(o) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this
Agreement (either alone or upon the occurrence of any
additional acts or events) would (i) result in any payment
(including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to
any director, officer or employee of Company or any of its
affiliates from Company or any of its affiliates under any
Company Employee Plan or otherwise, (ii) increase any
benefits otherwise payable under any Company Employee Plan,
or (iii) result in any acceleration of the time of payment or
vesting of any such benefits.
SECTION 2.15. TITLE TO PROPERTIES; INSURANCE. (i) Company and Subsidiary Bank
have marketable title, insurable at standard rates, free and clear of all
liens, charges and encumbrances (except Taxes which are a lien but not yet
payable and liens, charges or encumbrances reflected in the Company Financial
Statements and easements, rights-of-way, and further excepting in the case of
Other Real Estate Owned (as such real estate is internally classified on the
books of Company or its subsidiaries) rights of redemption under applicable
law)) to all of their real properties, (ii) all leasehold interests for real
property and personal property used by Company and Subsidiary Bank in their
businesses are held pursuant to lease agreements which are valid and
enforceable in accordance with their terms, (iii) all such properties comply
with all applicable private agreements, zoning requirements and other
governmental laws and regulations relating thereto and there are no
condemnation proceedings pending or, to the knowledge of Company, threatened
with respect to such properties, (iv) Company and Subsidiary Bank have valid
title or other ownership rights under licenses to all intangible personal or
intellectual property necessary to conduct the business and operations of
Company and Subsidiary Bank as presently conducted, free and clear of any
claim, defense or right of any other person or entity, subject only to rights
of the licensors pursuant to applicable license agreements, which rights do not
adversely interfere with the use of such property, (v) all insurable properties
owned or held by Company and Subsidiary Bank are adequately insured by
financially sound and reputable insurers in such amounts and against fire and
other risks insured against by extended coverage and public liability
insurance, as is customary with bank holding companies of similar size, and
there are presently no claims pending under such policies of insurance and no
notices have been given by Company or Subsidiary Bank under such policies, and
(vi) all tangible properties used in the businesses of Company and Subsidiary
Bank are in good condition, reasonable wear and tear excepted, and are useable
in the ordinary course of business consistent with past practices. Section 2.15
of the Disclosure Schedule sets forth, for each policy of insurance maintained
by Company and Subsidiary Bank, the amount and type of insurance, the name of
the insurer and the amount of the annual premium.
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SECTION 2.16. ENVIRONMENTAL MATTERS.
(a) As used herein, the term "Environmental Laws" shall mean any
local, state and federal environmental, health and safety
laws, regulations, rules, decisions, decrees and common law
in any jurisdiction in which Company and Subsidiary Bank have
done business or owned, leased or operated property,
including, without limitation, the Federal Resource
Conservation and Recovery Act, the Federal Comprehensive
Environmental Response, Compensation and Liability Act, the
Federal Clean Water Act, the Federal Clean Air Act, and the
Federal Occupational Safety and Health Act, as any of the
foregoing now exists or may be changed or come into effect in
the future.
(b) Neither the conduct nor operation of Company or Subsidiary
Bank nor any condition of any property presently or
previously owned, leased or operated by either of them
violates or violated or, to the knowledge of Company, may
violate, Environmental Laws and no condition has existed or
event has occurred with respect to either of them or any such
property that, with notice or the passage of time, or both,
would constitute or, to the knowledge of Company, may
constitute, a violation of Environmental Laws or obligate (or
potentially obligate) Company or Subsidiary Bank to remedy,
investigate, cleanup or otherwise alter or assess the
environmental condition of any such property. Neither Company
nor Subsidiary Bank has received any notice or other
communication from any person or entity that Company or
Subsidiary Bank or the operation or condition of any property
ever owned, leased or operated by any of them are or were in
violation of any Environmental Laws or that any of them are
responsible (or potentially responsible) for the cleanup or
other remediation of any pollutants, contaminants, petroleum,
solid waste or hazardous or toxic wastes, substances of
materials at, on or beneath any such property and, to the
best knowledge of Company, Company and Subsidiary Bank and
the operation and condition of any property ever owned,
leased or operated by either of them are not and were not in
violation of any Environmental Laws and none of them are
responsible (or potentially responsible) for the cleanup or
other remediation of any pollutants, contaminants, petroleum,
solid waste or hazardous or toxic wastes, substances or
materials at, on or beneath any such property.
SECTION 2.17. COMPLIANCE WITH LAW. Company and Subsidiary Bank have all
licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their respective businesses and are
in material compliance with all applicable laws and regulations.
SECTION 2.18. BROKERAGE. There are no existing claims or agreements for
brokerage commissions, finders' fees, or similar compensation in connection
with the transactions contemplated by this Agreement payable by Company or its
subsidiaries.
SECTION 2.19. INTERIM EVENTS. Since December 31, 1997, neither Company nor its
subsidiaries has paid or declared any dividend or made any other distribution
to shareholders or taken any
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action which if taken after the date hereof would require the prior written
consent of AREA pursuant to Section 4.01(b) hereof.
SECTION 2.20. NON-BANKING ACTIVITIES OF COMPANY AND SUBSIDIARIES. Company does
not, directly or indirectly, engage in any activity prohibited by the Federal
Reserve Board or the B.H.C.A. or which is not listed at 12 C.F.R. 225.25.
Without limiting the generality of the foregoing, any equity investment of
Company and each of its subsidiaries that is not a bank, a bank operating
subsidiary or a bank service corporation, is not prohibited by the Federal
Reserve Board or the B.H.C.A.
SECTION 2.21. TRUST ADMINISTRATION. The Subsidiary Bank has properly
administered all accounts for which it acts as a fiduciary or agent, including
but not limited to accounts for which it serves as a trustee, agent, custodian,
personal representative, guardian, conservator or investment advisor, in
accordance with the terms of the governing documents and applicable state and
federal law and regulation and common law. To the best knowledge of Company,
neither Company nor Subsidiary Bank, nor any director, officer or employee of
Company or Subsidiary Bank acting on behalf of Company or Subsidiary Bank, has
committed any breach of trust with respect to any such fiduciary or agency
account, and the accountings for each such fiduciary or agency account are true
and correct and accurately reflect the assets of such fiduciary or agency
account. There is no investigation or inquiry by any Regulatory Agency pending,
or to the best knowledge of Company, threatened, against or affecting Company
or Subsidiary Bank relating to the compliance by Company or Subsidiary Bank
with sound fiduciary principles and applicable regulations.
SECTION 2.22. POOLING OF INTERESTS; TAX-FREE REORGANIZATION; REGULATORY
APPROVAL. As of the date of this Agreement, Company has no reason to believe
that the Merger shall not (i) qualify as a "pooling of interests" for
accounting purposes under APB16; (ii) qualify as a "reorganization" within the
meaning of Section 368(a) of the Code; or (iii) receive the approvals from
applicable governmental authorities.
SECTION 2.23. PROPERTIES, CONTRACTS AND OTHER AGREEMENTS. Section 2.23 of the
Disclosure Schedule lists or describes the following (and copies of each
document, plan or contract listed and described in Section 2.23 of the
Disclosure Schedule are appended to such Schedule and included in the
Disclosure Schedule):
(a) Each parcel of real property owned by Company or its
subsidiaries and the principal buildings and structures
located thereon; and
(b) Each lease of real property to which Company or its
subsidiaries is a party, identifying the parties thereto, the
annual rental payable, the term and expiration date thereof
and a brief description of the property covered; and
(c) Each loan and credit agreement, conditional sales contract,
indenture or other title retention agreement or security
agreement relating to money borrowed by Company or Subsidiary
Bank; and
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(d) Each guaranty by Company or Subsidiary Bank of any obligation
for the borrowing of money or otherwise (excluding any
endorsements and guarantees in the ordinary course of
business and letters of credit issued by a Subsidiary Bank in
the ordinary course of its business) or any warranty or
indemnification agreement; and
(e) Each agreement between Company or Subsidiary Bank and any
present or former officer, director or shareholder of Company
or Subsidiary Bank (except for deposit or loan agreements
entered into in the ordinary course of a Subsidiary Bank's
business); and
(f) Each lease or license with respect to personal property
involving Company or Subsidiary Bank, whether as lessee or
lessor or licensee or licensor, with annual rental or other
payments due thereunder in excess of $10,000; and
(g) The name and annual salary as of August 1, 1998, of each
director or employee of Company and Subsidiary Bank and any
employment agreement or arrangement with respect to each such
person; and
(h) Each agreement, loan, contract, lease, guaranty, letter of
credit, line of credit or commitment of Company or Subsidiary
Bank not referred to elsewhere in this Section 2.23 which (i)
involves payment by Company or Subsidiary Bank (other than as
disbursement of loan proceeds to customers) of more than
$15,000, (ii) involves payments based on profits of Company
or Subsidiary Bank, (iii) relates to the future purchase of
goods or services in excess of the requirements of its
respective business at current levels or for normal operating
purposes, or (iv) were not made in the ordinary course of
business.
SECTION 2.24. NO UNDISCLOSED LIABILITIES. Company and Subsidiary Bank do not
have any liability, whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due, including any
liability for Taxes (and there is no past or present fact, situation,
circumstance, condition or other basis for any present or future action, suit
or proceeding, hearing, charge, complaint, claim or demand against Company or
its subsidiaries giving rise to any such liability), except (i) for liabilities
set forth in the Company Financial Statements, (ii) normal fluctuation in the
amount of the liabilities referred to in clause (i) above occurring in the
ordinary course of business of Company and Subsidiary Bank since the date of
the June 30, 1998 balance sheet included in the Company Financial Statements,
and (iii) as may be specifically disclosed in Section 2.24 of the Disclosure
Schedule.
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SECTION 2.25. STATEMENTS TRUE AND CORRECT. None of the information supplied or
to be supplied by Company or Subsidiary Bank for inclusion in (i) the
Registration Statement (as defined in Section 4.05 hereof), (ii) the Proxy
Statement/Prospectus (as defined in Section 4.03 hereof), and (iii) any other
documents to be filed with the Securities and Exchange Commission (the "SEC")
or any other Regulatory Agency in connection with the transactions contemplated
by this Agreement shall, at the respective times such documents are filed, and,
in the case of the Registration Statement, when it becomes effective, and, with
respect to the Proxy Statement/Prospectus, when first mailed to the
shareholders of Company and at the time of the Company Shareholders Meeting (as
defined in Section 4.03 hereof), contain any untrue statement of a material
fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading. All documents that Company shall be responsible for
filing with any Regulatory Agency in connection with the transactions
contemplated by this Agreement shall comply as to form in all material respects
with the provisions of applicable law and the applicable rules and regulations
thereunder.
SECTION 2.26. STATE TAKEOVER LAWS. The Board of Directors of Company has taken
all such action required to be taken by it to provide that this Agreement and
the transactions contemplated by this Agreement shall be exempt from the
requirements of any "moratorium," "control share," "fair price" or other
anti-takeover laws or regulations of the Commonwealth of Kentucky.
SECTION 2.27. FAIR LENDING; COMMUNITY REINVESTMENT ACT. With the exception of
routine investigation of consumer complaints, neither Company nor Subsidiary
Bank has been advised by any Regulatory Agency that it is or may be in
violation of the Equal Credit Opportunity Act or the Fair Housing Act or any
similar federal or state statute. Each of Company's depository institution
subsidiaries received a Community Reinvestment Act ("CRA") rating of
"Outstanding" or "Satisfactory" in its most recent CRA examination.
SECTION 2.28. ASSETS NECESSARY TO COMPANY'S BUSINESS. The assets of Company and
Subsidiary Bank constitute all of the assets used or employed by Company and
Subsidiary Bank, directly or indirectly, in their business as heretofore
conducted and there are no other assets, whether real or personal, tangible or
intangible, choate or inchoate, which are necessary to conduct the business and
operations of Company and Subsidiary Bank as heretofore conducted.
SECTION 2.29. YEAR 2000. Company has disclosed to AREA a complete and accurate
copy of Company's plan, including an estimate of the anticipated associated
costs, for implementing modifications to Company's hardware, software, and
computer systems, chips and microprocessors, to insure proper execution and
accurate processing of all date-related data, whether from years in the same
century or in different centuries. Between the date of this Agreement and the
Effective Time, Company shall continue its efforts to implement such plan.
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ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF AREA
Subject to Section 1.11 hereof, AREA hereby makes the following representations
and warranties:
SECTION 3.01. ORGANIZATION AND CAPITAL STOCK.
(a) AREA is a corporation duly incorporated and validly existing
under the laws of the Commonwealth of Kentucky with full
corporate power and authority to carry on its business as it
is now being conducted. AREA is a bank holding company
registered with the Federal Reserve Board under the B.H.C.A.
(b) The authorized capital stock of AREA consists of (i)
50,000,000 shares of AREA Common, of which, as of the date
hereof, approximately 15,642,416 shares are issued and
outstanding, and (ii) 500,000 shares of preferred stock, of
which none is issued and outstanding. All of the issued and
outstanding shares of AREA Common are duly and validly issued
and outstanding and are fully paid and non-assessable and
free of preemptive rights.
(c) The shares of AREA Common that are to be issued to the
shareholders of Company pursuant to the Merger have been duly
authorized and, when so issued in accordance with the terms
hereof, shall be validly issued and outstanding, fully paid
and non-assessable, with no personal liability attaching to
the ownership thereof.
SECTION 3.02. AUTHORIZATION. The Board of Directors of AREA has approved this
Agreement and the Merger and authorized the execution hereof on its behalf by
its duly authorized officers and the performance by AREA of its obligations
hereunder. Nothing in the Articles of Incorporation or Bylaws of AREA, as
amended, or any other agreement, instrument, decree, proceeding, law or
regulation (except as specifically referred to in or contemplated by this
Agreement) by or to which AREA or any of its subsidiaries are bound or subject
would prohibit or inhibit AREA from entering into and consummating this
Agreement and the Merger on the terms and conditions herein contained. This
Agreement has been duly and validly executed and delivered by AREA and
constitutes a legal, valid and binding obligation of AREA, enforceable against
AREA in accordance with its terms and, except for the approval of the Board of
Directors of AREA, no other corporate acts or proceedings are required to be
taken by AREA to authorize the execution, delivery and performance of this
Agreement. Except for the requisite approval of the Federal Reserve Board and
the Kentucky Department of Financial Institutions, no notice to, filing with,
authorization by, or consent or approval of, any federal or state bank
regulatory authority is necessary for the execution and delivery of this
Agreement or consummation of the Merger by AREA.
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SECTION 3.03. SUBSIDIARIES. Each of AREA's significant subsidiaries (as such
term is defined in Rule 1-02 of Regulation S-X promulgated by the SEC) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the corporate power to own its
respective properties and assets, to incur its respective liabilities and to
carry on its respective business as now being conducted.
SECTION 3.04. FINANCIAL INFORMATION. The consolidated balance sheets of AREA
and its subsidiaries as of December 31, 1997 and 1996, and related consolidated
statements of income, changes in shareholders' equity and cash flows for the
three (3) years ended December 31, 1997, together with the notes thereto
included in AREA's Annual Report on Form 10-K for the year ended December 31,
1997, as currently on file with the SEC, and the unaudited consolidated balance
sheets of AREA and its subsidiaries as of March 31, 1998, and June 30, 1998,
and the related unaudited consolidated income statements and statements of
changes in shareholders' equity and cash flows for the three (3) months and six
(6) months, respectively, then ended included in AREA's Quarterly Reports on
Form 10-Q for the quarters then ended, as currently on file with the SEC
(together, the "AREA Financial Statements"), have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be disclosed therein) and fairly present in all material
respects the consolidated financial position and the consolidated results of
operations, changes in shareholders' equity and cash flows of AREA and its
consolidated subsidiaries as of the dates and for the periods indicated
(subject, in the case of interim financial statements, to normal recurring
year-end adjustments, none of which shall be material). AREA has made available
to the Company a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by AREA with the SEC since
December 31, 1996.
SECTION 3.05. ABSENCE OF CHANGES. Since December 31, 1997, there has not been
any change in the financial condition, the results of operations or the
business of AREA and its subsidiaries which would have a Material Adverse
Effect on AREA, except as disclosed by AREA since December 31, 1997 in its
periodic reports filed with the SEC under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
SECTION 3.06. LITIGATION. There is no litigation, claim or other proceeding
pending or, to the knowledge of AREA, threatened, against AREA or any of its
subsidiaries, or of which the property of AREA or any of its subsidiaries is or
would be subject which would have a Material Adverse Effect on AREA. There is
no injunction, order, judgment, decree or regulatory restriction imposed upon
AREA or any of its subsidiaries or the assets of AREA or any of its
subsidiaries.
SECTION 3.07. REPORTS. AREA and each of its significant subsidiaries has filed
all material reports and statements, together with any amendments required to
be made with respect thereto, that it was required to file with (i) the SEC,
(ii) the Federal Reserve Board, (iii) the Office of the Comptroller of the
Currency (the "O.C.C."), (iv) the FDIC, (v) the Nasdaq Stock Market ("Nasdaq"),
and (vi) any other Regulatory Agency with jurisdiction over AREA or any of its
significant subsidiaries. As of their respective dates, each of such reports
and documents, as amended, including any financial statements, exhibits and
schedules thereto, complied with the relevant statutes, rules and regulations
enforced or promulgated by the regulatory authority with
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which they were filed and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 3.08. COMPLIANCE WITH LAW. AREA and its significant subsidiaries have
all licenses, franchises, permits and other governmental authorizations that
are legally required to enable them to conduct their respective businesses and
are in compliance with all applicable laws and regulations.
SECTION 3.09. POOLING OF INTERESTS; TAX-FREE REORGANIZATION; REGULATORY
APPROVAL. As of the date of this Agreement, AREA has no reason to believe that
the Merger shall not (i) qualify as a "pooling of interests" for accounting
purposes under APB16; (ii) qualify as a "reorganization" within the meaning of
Section 368(a) of the Code; or (iii) receive the approvals from applicable
governmental authorities.
SECTION 3.10. STATEMENTS TRUE AND CORRECT. None of the information supplied or
to be supplied by AREA for inclusion in (i) the Registration Statement, (ii)
the Proxy Statement/Prospectus, and (iii) any other documents to be filed with
the SEC, the Nasdaq or any other Regulatory Agency in connection with the
transactions contemplated by this Agreement shall, at the respective times such
documents are filed, and, in the case of the Registration Statement, when it
becomes effective, and with respect to the Proxy Statement/Prospectus, when
first mailed to the shareholders of Company and at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact, or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not
misleading. All documents that AREA shall be responsible for filing with the
SEC, the Nasdaq or any other Regulatory Agency in connection with the
transactions contemplated by this Agreement shall comply as to form in all
material respects with the provisions of applicable law and the applicable
rules and regulations thereunder.
SECTION 3.11. YEAR 2000. AREA has disclosed to Company a complete and accurate
copy of AREA's plan, including an estimate of the anticipated associated costs,
for implementing modifications to AREA's hardware, software, and computer
systems, chips and microprocessors, to insure proper execution and accurate
processing of all date-related data, whether from years in the same century or
in different centuries. Between the date of this Agreement and the Effective
Time, AREA shall continue its efforts to implement such plan.
SECTION 3.12. BROKERS' OR FINDERS' FEES. No agent, broker or other person
acting on behalf of AREA or under its authority is, or shall be, entitled to
any commission, broker's or finder's fee from AREA or its Subsidiaries in
connection with any of the transactions contemplated by this Agreement.
SECTION 3.13. REGULATORY ENFORCEMENT MATTERS. Neither AREA nor any of its
significant subsidiaries is subject or is party to, or has received any notice
or advice that it may become subject or party to, any investigation with
respect to, any Regulatory Agreement, nor has AREA or any of its significant
subsidiaries been advised by any Regulatory Agency that it is considering
issuing or requesting the Regulatory Agreement. There is no unresolved
violation,
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criticism or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of AREA or its significant subsidiaries
which would have a Material Adverse Effect on AREA or its significant
subsidiaries.
ARTICLE FOUR
AGREEMENTS OF COMPANY
SECTION 4.01. BUSINESS IN ORDINARY COURSE.
(a) Company shall not declare or pay any dividend or make any
other distribution to shareholders, whether in cash, stock or
other property, after the date hereof, except that (i)
Company may declare and pay its regular quarterly
distributions on the Company Common not to exceed $2.50 per
share at approximately the same times during each quarter
which it has historically declared and paid such dividends,
provided, however, that Company and AREA shall cooperate with
each other to coordinate the record and payment dates of
their respective dividends for the quarter in which the
Effective Time occurs such that the Company shareholders
shall receive a quarterly dividend from either Company or
AREA but not from both during or with respect to such
quarter; and (ii) Company may declare and pay a distribution
or distributions to the Company's shareholders on a quarterly
basis equal to 39.6% of the Company's taxable income for all
tax periods beginning after December 31, 1997 for the purpose
of enabling Company shareholders to pay taxes on their
proportionate share of the Company's income attributable to
them by virtue of the Company's election to be taxed under
Subchapter S of the Internal Revenue Code of 1986, as
amended. In the event the Effective Time shall occur and the
Company shall not yet have distributed to the Company
shareholders any and all distributions required pursuant to
subpart (ii) of the foregoing sentence, AREA shall cause such
distributions to be made as promptly as possible following
the Effective Time, and in any event on or before the
required date for the making of the Company shareholders'
next federal estimated tax payment or personal tax return, as
the case may be; such distribution being made by AREA as the
successor to the Company on account of the shareholder's
ownership of Company stock, and not as a dividend on AREA
Common that Company shareholders receive in connection with
this Agreement.
(b) Company shall, and shall cause Subsidiary Bank to, (i)
continue to carry on after the date hereof its respective
business and the discharge or incurrence of obligations and
liabilities, only in the usual, regular and ordinary course
of business, as heretofore conducted, (ii) use reasonable
best effort to maintain and preserve intact its respective
business organization, employees and advantageous business
relationships and retain the services of its officers and key
employees, and (iii) by way of amplification and not
limitation, Company and Subsidiary
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Bank, without the prior written consent of AREA (which shall
not be unreasonably withheld) except as otherwise provided or
contemplated herein:
(i) issue any Company Common or other capital stock or
any options, warrants, or other rights to subscribe
for or purchase Company Common or any other capital
stock or any securities convertible into or
exchangeable for any capital stock of Company or
Subsidiary Bank; or
(ii) directly or indirectly redeem, purchase or otherwise
acquire any Company Common or any capital stock of
Company or Subsidiary Bank; or
(iii) effect a reclassification, recapitalization,
splitup, exchange of shares, readjustment or other
similar change in or to any capital stock or
otherwise reorganize or recapitalize; or
(iv) change its Articles of Incorporation or
Association, as the case may be, or Bylaws; or
(v) grant any increase, other than ordinary and normal
increases consistent with past practices, in the
compensation payable or to become payable to
officers or salaried employees, grant any stock
options or, except as required by law, adopt or make
any change in any bonus, insurance, pension, or
other Company Employee Plan, agreement, payment or
arrangement made to, for or with any of such
officers or employees; or
(vi) borrow or agree to borrow any amount of funds except
in the ordinary course of business, or directly or
indirectly guarantee or agree to guarantee any
obligations of others; or
(vii) make or commit to make any new loan or letter of
credit or any new or additional discretionary
advance under any existing line of credit, which is
not (a) made for good, valuable and adequate
consideration in the ordinary course of business,
(b) evidenced by notes or other forms of
indebtedness which are true, genuine and what they
purport to be, and (c) adequately reserved against
in an amount sufficient in the opinion of management
to provide for all charge-offs reasonably
anticipated in the ordinary course of business; or
(viii) purchase or otherwise acquire any investment
security for its own account having an average
remaining life to maturity greater than five (5)
years or any asset-backed securities other than
those issued or guaranteed by the Government
National Mortgage Association, the Federal National
Mortgage Association or the Federal Home Loan
Mortgage Corporation; or
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(ix) increase or decrease the rate of interest paid on
time deposits, or on certificates of deposit, except
in a manner and pursuant to policies consistent with
past practices; or
(x) enter into any agreement, contract or commitment out
of the ordinary course of business or having a term
in excess of three (3) months other than letters of
credit, loan agreements, deposit agreements, and
other lending, credit and deposit agreements and
documents made in the ordinary course of business;
or
(xi) except in the ordinary course of business, place on
any of its assets or properties any mortgage,
pledge, lien, charge, or other encumbrance; or
(xii) except in the ordinary course of business, cancel or
accelerate any material indebtedness owing to
Company or Subsidiary Bank or any claims which
Company or Subsidiary Bank may possess or waive any
material rights with respect thereto; or
(xiii) sell or otherwise dispose of any real property or
any material amount of any tangible or intangible
personal property other than properties acquired in
foreclosure or otherwise in the, ordinary collection
of indebtedness to Company and Subsidiary Bank; or
(xiv) foreclose upon or otherwise take title to or
possession or control of any real property without
first obtaining a report of a phase one
environmental site assessment which indicates that
the property has no on-site or off-site
environmental concerns or conditions which might
have an adverse impact of the subject property;
provided, however, that Company and Subsidiary Bank
shall not be required to obtain such a report with
respect to single family, nonagricultural
residential property of one acre or less to be
foreclosed upon unless Company or Subsidiary Bank
has information or reason to believe that there
might be environmental concerns on or adjacent to
such property; or
(xv) commit any act or fail to do any act which would
cause a breach of any agreement, contract or
commitment and which would have a Material Adverse
Effect on Company; or
(xvi) purchase any real or personal property or make any
other capital expenditure where the amount paid or
committed therefor is in excess of $50,000
individually or $100,000 in the aggregate; or
(xvii) take, or cause to be taken, any action, whether
before or after the Effective Time, which, in the
good faith determination of Company after
consultation with its advisors and/or AREA, would
disqualify the Merger
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as a "pooling of interests" for accounting purposes
or as a "reorganization" within the meaning of
Section 368(a) of the Code; or
(xviii) take any action which would adversely affect or
delay the ability of either AREA or Company to
obtain any necessary approvals of any Regulatory
Agency or other governmental authority required for
the transactions contemplated by this Agreement or
to perform its covenants and agreements under this
Agreement.
(c) Company and Subsidiary Bank shall not, without the prior
written consent of AREA, engage in any transaction or take
any action that would render untrue any of the
representations and warranties of Company contained in
Article Two hereof, if such representations and warranties
were given as of the date of such transaction or action.
(d) Company shall promptly notify AREA in writing of the
occurrence of any matter or event known to and directly
involving Company, which would not include any changes in
conditions that affect the banking industry generally, that
would have, either individually or in the aggregate, a
Material Adverse Effect on Company.
(e) Company and Subsidiary Bank shall not, and shall not
authorize or permit any of their respective officers,
directors, employees or agents to, on or before the earlier
of the Closing Date or the date of termination of this
Agreement, directly or indirectly solicit, initiate or
encourage or (subject to the fiduciary duties of its
directors as advised by counsel) hold discussions or
negotiations with or provide any information to any person in
connection with any proposal from any person for the
acquisition of all or any substantial portion of the
business, assets, shares of Company Common or other
securities of Company or Subsidiary Bank. Company shall
promptly (which for this purpose shall mean within
twenty-four (24) hours) advise AREA of its receipt of any
such proposal or inquiry concerning any possible such
proposal, the substance of such proposal or inquiry, and the
identity of such person.
SECTION 4.02. BREACHES. Company shall, in the event it has knowledge of the
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any
of its representations or agreements contained or referred to herein, give
prompt written notice thereof to AREA and use its best efforts to prevent or
promptly remedy the same.
SECTION 4.03. SUBMISSION TO SHAREHOLDERS. Company shall cause to be duly called
and held, on a date mutually selected by AREA and Company, a special meeting of
its shareholders (the "Company Shareholders Meeting") for submission of this
Agreement and the Merger and the termination of the Stockholder Agreement for
approval of such Company shareholders as required by the KBCA and the
Stockholder Agreement. In connection with the Company Shareholders Meeting, (i)
Company shall cooperate and assist AREA in preparing and filing a
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Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") with the SEC and
Company shall mail it to its shareholders, (ii) Company shall furnish AREA all
information concerning itself that AREA may reasonably request in connection
with such Proxy Statement/Prospectus, and (iii) the Board of Directors of
Company (subject to compliance with its fiduciary duties as advised by counsel)
shall recommend to its shareholders the approval of this Agreement and the
Merger contemplated by this Agreement and use its best efforts to obtain such
shareholder approval.
SECTION 4.04. CONSENTS TO CONTRACTS AND LEASES. Company shall use its best
efforts to obtain all necessary consents with respect to all interests of
Company and Subsidiary Bank in any material leases, licenses, contracts,
instruments and rights which require the consent of another person for their
transfer or assumption pursuant to the Merger, if any.
SECTION 4.05. CONSUMMATION OF AGREEMENT. Company shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
or fulfilled under this Agreement and to effect the Merger and the other
transactions contemplated hereby in accordance with the terms and provisions
hereof and to effect the transition and integration of the business and
operations of Company and Subsidiary Bank with the business and operations of
AREA and its subsidiaries. Company shall furnish to AREA in a timely manner all
information, data and documents in the possession of Company requested by AREA
as may be required to obtain any necessary regulatory or other approvals of the
Merger and to file with the SEC a registration statement on Form S-4 (the
"Registration Statement") relating to the shares of AREA Common to be issued to
the shareholders of Company pursuant to the Merger and this Agreement and shall
otherwise cooperate fully with AREA to carry out the purpose and intent of this
Agreement.
SECTION 4.06. RESTRICTION ON RESALES. Company shall deliver to AREA, at least
five (5) days prior to the mailing of the Proxy Statement/Prospectus to the
shareholders of Company in connection with the Company Shareholders Meeting, a
list of each person who may reasonably be deemed an "affiliate" of Company
within the meaning of such term as used in Rule 145 under the Securities Act of
1933, as amended (the "Securities Act"), at the time the Proxy Statement/
Prospectus is mailed to the shareholders of Company. Company shall use its best
efforts to obtain and deliver to AREA, at least thirty-one (3 1) days prior to
the Closing Date, the signed agreement, in the form of Exhibit 4.07 hereto, of
each person named on the list referred to in the preceding sentence regarding
compliance by such person with (i) the provisions of such Rule 145, and (ii)
the requirements of Accounting Principles Board Opinion No. 16 regarding the
disposition of shares (or reduction of risk with respect thereto) of Company
Common during the thirty (30) days preceding the Closing Date, or AREA Common
until such time as financial results covering at least thirty (30) days of
post-Merger combined operations have been published.
SECTION 4.07. ACCESS TO INFORMATION. Company shall permit AREA reasonable
access in a manner which shall avoid undue disruption or interference with
Company's normal operations to its properties and shall disclose and make
available to AREA all books, documents, papers, records and computer systems
documentation and files relating to its assets, stock ownership, properties,
operations, obligations and liabilities, including, but not limited to, all
books of
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account (including the general ledger), tax records, minute books of directors'
and shareholders' meetings, organizational documents, material contracts and
agreements, loan files, filings with any regulatory authority, accountants'
workpapers (if available and subject to the respective independent accountants'
consent), litigation files (but only to the extent that such review would not
result in a material waiver of the attorney-client or attorney work product
privileges under the rules of evidence), Company Employee Plans, and any other
business activities or prospects in which AREA may have a reasonable and
legitimate interest in furtherance of the transactions contemplated by this
Agreement. AREA shall hold any such information which is nonpublic in
confidence in accordance with the provisions of Section 8.01 hereof.
SECTION 4.08. REPORTS. Company and Subsidiary Bank shall file all reports
required to be filed by them with Regulatory Agencies between the date of this
Agreement and the Effective Time and shall deliver to AREA copies of all
non-confidential portions of such reports promptly after the same are filed.
ARTICLE FIVE
AGREEMENTS OF AREA
SECTION 5.01. REGULATORY APPROVALS AND REGISTRATION STATEMENT.
(a) AREA shall file all regulatory applications required in order
to consummate the Merger, including but not limited to the
necessary applications for the prior approval of the Federal
Reserve Board and the Kentucky Department of Financial
Institutions. AREA shall keep Company reasonably informed as
to the status of such applications and make available to
Company, upon reasonable request by Company from time to
time, copies of such applications and any supplementally
filed materials.
(b) AREA shall file with the SEC the Registration Statement
relating to the shares of AREA Common to be issued to the
shareholders of Company pursuant hereto, and shall use its
best efforts to cause the Registration Statement to become
effective. At the time the Registration Statement becomes
effective, the Registration Statement shall comply in all
material respects with the provisions of the Securities Act
and the published rules and regulations thereunder, and shall
not 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 therein not false or
misleading, and at the time of mailing thereof to the
shareholders of Company, at the time of the Company
Shareholders Meeting and at the Effective Time, the Proxy
Statement/Prospectus included as part of the Registration
Statement, as amended or supplemented by any amendment or
supplement, shall not contain any untrue statement of a
material fact or omit to state any material fact necessary to
make the statements therein not false or misleading. AREA
shall timely file all documents required to obtain all
necessary Blue Sky permits and approvals, if any, required to
carry out the transactions contemplated by this Agreement,
shall
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pay all expenses incident thereto and shall use its best
efforts to obtain such permits and approvals on a timely
basis. AREA shall promptly and properly prepare and file (i)
any application required to list on the Nasdaq the shares of
AREA Common to be issued pursuant to the Merger, and (ii) any
filings required under the Exchange Act relating to the
Merger and the transactions contemplated herein.
SECTION 5.02. BREACHES. AREA shall, in the event it has knowledge of the
occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any
of its representations or agreements contained or referred to herein, give
prompt written notice thereof to Company and use its best efforts to prevent or
promptly remedy the same.
SECTION 5.03. CONSUMMATION OF AGREEMENT. AREA shall use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
or fulfilled under this Agreement and to effect the Merger in accordance with
the terms and conditions of this Agreement.
SECTION 5.04. DIRECTORS AND OFFICERS' LIABILITY INSURANCE AND INDEMNIFICATION.
(a) For a period of three (3) years after the Effective Time,
AREA shall use its reasonable best efforts to cause to be
maintained in effect the current policies of directors' and
officers' liability insurance maintained by Company (provided
that AREA may substitute therefor policies of comparable
coverage with respect to claims arising from facts or events
which occurred before the Effective Time); provided, however,
that in no event shall AREA be obligated to expend, in order
to maintain or provide insurance coverage pursuant to this
Section 5.04(a), any amount per annum in excess of 150% of
the amount of the annual premiums paid as of the date hereof
by Company for such insurance (the "Maximum Amount"). If the
amount of the annual premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount,
AREA shall use all reasonable efforts to maintain the most
advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Amount.
Notwithstanding the foregoing, prior to the Effective Time,
AREA may request Company to, and Company shall, purchase
insurance coverage, on such terms and conditions as shall be
acceptable to AREA, extending for a period of three (3) years
Company's directors' and officers' liability insurance
coverage in effect as of the date hereof (covering past or
future claims with respect to periods before the Effective
Time) and such coverage shall satisfy AREA's obligations
under this Section 5.04(a).
(b) For a period of six (6) years after the Effective Time, AREA
shall indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of Company
and Subsidiary Bank (each, an "Indemnified Party") (including
any person who becomes an officer, director, employee, or
agent prior to the Effective Time) against all losses,
expenses, claims, damages or liabilities
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arising out of actions or omissions occurring on or prior to
the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) to the full
extent then permitted under the KBCA or by Company's or
Subsidiary Bank's Articles of Incorporation and/or Bylaws as
in effect on the date hereof, including provisions relating
to advances of expenses incurred in the defense of any action
or suit.
SECTION 5.05. EMPLOYEE BENEFITS.
(a) AREA shall, with respect to each employee of Company or
Subsidiary Bank at the Effective Time who shall continue in
employment with AREA (the surviving corporation in the
Merger) or its subsidiaries after the Merger, including the
Subsidiary Bank (each a "Continued Employee"), provide the
benefits described in this Section 5.05. Each Continued
Employee shall be entitled, as an employee of a subsidiary of
AREA, to participate in such employee benefit plans, as
defined in Section 3(3) of ERISA, or any non-qualified
employee benefit plans or deferred compensation, stock
option, bonus or incentive plans, or other employee benefit
or fringe benefit programs that may be in effect generally
for employees of AREA and its subsidiaries (the "AREA
Employee Plans"), if and as the Continued Employee shall be
eligible and, if required, selected for participation therein
under the terms thereof, unless the Continued Employee is
participating in a similar plan maintained by Company after
the Effective Time. Continued Employees shall be eligible to
participate on the same basis as similarly situated employees
of AREA and its subsidiaries. All such participation shall be
subject to such terms of such AREA Employee Plans as may be
in effect from time to time and this Section 5.05 is not
intended to give Continued Employees any rights or privileges
superior to those of other employees of AREA's subsidiaries.
AREA may terminate or modify all Company Employee Plans
except insofar as benefits thereunder shall have vested at
the Effective Time and cannot be modified and AREA's
obligation under this Section 5.05 shall not be deemed or
construed so as to provide duplication of similar benefits
but, subject to that qualification, AREA shall, for purposes
of vesting and any age or period of service requirements for
commencement of participation with respect to any AREA
Employee Plans in which Continued Employees may participate
(but not for benefit accruals under any defined benefit
plan), credit each Continued Employee with his or her term of
service with Company and Subsidiary Bank.
(b) Employees of Company and Subsidiary Bank shall become covered
by AREA's welfare benefit plans at such time(s) as shall be
determined by AREA in its reasonable discretion. Until such
time as the employees of Company and Subsidiary Bank become
covered by the AREA welfare benefit plans, employees of
Subsidiary Bank shall remain covered by the welfare benefit
plans of Company and Subsidiary Bank, subject to the terms of
such plans as in effect prior to the Effective Time.
Notwithstanding the foregoing, AREA shall cause Company's
Section 125 Plan to be maintained at least until December 31,
1998.
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(c) If and when AREA's welfare benefit plans are made available
to Continued Employees (and their eligible dependents), any
pre-existing condition limitations under each AREA group
health plan (within the meaning of Section 5000(b)(1) of the
Code) will be waived as to those eligible Continued Employees
(and their eligible dependents) who, at the time of the
conversion, were unaffected by any pre-existing condition
limitations under the corresponding Company Employee Plan
(and will be credited for deductibles and co-pays if
participation begins mid-calendar or plan year, as
appropriate).
SECTION 5.06. ACCESS TO INFORMATION. AREA shall permit Company reasonable
access in a manner which shall avoid undue disruption or interference with
AREA's normal operations to its properties and shall disclose and make
available to Company all books, documents, papers and records relating to its
assets, stock ownership, properties, operations, obligations and liabilities,
including, but not limited to, all books of account (including the general
ledger), tax records, minute books of directors' and shareholders' meetings,
organizational documents, material contracts and agreements, loan files,
filings with any regulatory authority, accountants' workpapers (if available
and subject to the respective independent accountants' consent), litigation
files (but only to the extent that such review would not result in a material
waiver of the attorney-client or attorney work product privileges under the
rules of evidence), plans affecting employees, and any other business
activities or prospects in which Company may have a reasonable and legitimate
interest in furtherance of the transactions contemplated by this Agreement.
Company shall hold any such information which is nonpublic in confidence in
accordance with the provisions of Section 8.01 hereof.
SECTION 5.07. CONDUCT OF BUSINESS.
(a) AREA and each of its subsidiaries shall not, without the
prior written consent of Company (which shall not be
unreasonably withheld) except as otherwise provided or
contemplated herein:
(i) take, or cause to be taken, any action, whether
before or after the Effective Time, which, in the
good faith determination of AREA after consultation
with its advisors and/or Company, would disqualify
the Merger as a "pooling of interests" for
accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code; or
(ii) take any action which would adversely affect or
delay the ability of either Company or AREA to
obtain any necessary approvals of any Regulatory
Agency or other governmental authority required for
the transactions contemplated by this Agreement or
to perform its covenants and agreements under this
Agreement.
(b) AREA shall promptly notify Company in writing of the
occurrence of any matter or event known to and directly
involving AREA, which would not include any changes in
conditions that affect the banking industry generally, that
would have, either individually or in the aggregate, a
Material Adverse Effect on AREA.
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SECTION 5.08. FIRST MEETING OF BOARD OF DIRECTORS. AREA and its Board of
Directors shall take such action as necessary to nominate Ralph L. Oliver and
to cause Mr. Oliver to be elected from time to time after the Effective Time,
as a member of the Board of Directors of AREA. Should Mr. Oliver refuse or be
unable to serve as a director of AREA after the Effective Time, after
consultation with the now existing members of Company's Board of Directors,
AREA shall cause another of the now existing members of Company's Board of
Directors (as selected by such members) to become, at or as soon as practicable
after the Effective Time, a member of AREA's Board of Directors. Mr. Oliver
shall be eligible to serve as a director of AREA without regard to any existing
or future AREA director age limitations until such time as he shall become
seventy (70) years of age. Thereafter until Mr. Oliver shall become seventy-two
(72) years of age, Mr. Oliver shall serve as an advisory director with full
director compensation.
ARTICLE SIX
CONDITIONS PRECEDENT TO MERGER
SECTION 6.01. CONDITIONS TO AREA'S OBLIGATIONS. The obligations of AREA to
effect the Merger shall be subject to the satisfaction (or waiver by AREA)
prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by Company in this
Agreement shall be true and correct (subject to the standard
in Section 1.12 hereof) on and as of the Closing Date with
the same effect as though such representations and warranties
had been made or given on and as of the Closing Date (except
for any such representations and warranties made only as of a
specified date which shall be true and correct as of such
date); and
(b) Company shall have performed and complied in all material
respects with all of its obligations and agreements required
to be performed on or prior to the Closing Date under this
Agreement; and
(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall
be in effect, nor shall any proceeding by any Regulatory
Agency or other person seeking any of the foregoing be
pending. There shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation
of the Merger illegal; and
(d) All necessary regulatory approvals, consents, authorizations
and other approvals, including the requisite approval of this
Agreement and the Merger and the termination of the
Stockholder Agreement by the shareholders of Company,
required by law or the Stockholder Agreement for consummation
of the Merger
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shall have been obtained and all waiting periods required by
law shall have expired, and no regulatory approval shall have
imposed any condition, requirement or restriction which the
Board of Directors of AREA reasonably determines would so
materially adversely impact the economic or business benefits
of the transactions contemplated by this Agreement to AREA
and its shareholders as to render inadvisable the
consummation of the Merger (any such condition, requirement
or restriction, a "Burdensome Condition"); and
(e) AREA shall have received all documents required to be
received from Company on or prior to the Closing Date, all in
form and substance reasonably satisfactory to AREA; and
(f) AREA shall have received a letter from its accountants, KPMG
Peat Marwick LLP, 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; and
(g) The Registration Statement shall be effective under the
Securities Act and no stop orders suspending the
effectiveness of the Registration Statement shall be in
effect or proceedings for such purpose pending before or
threatened by the SEC or any state securities agency; and
(h) AREA shall have received an opinion of its counsel, Powell,
Goldstein, Frazer & Murphy LLP, to the effect that if the
Merger is consummated in accordance with the terms set forth
in this Agreement (i) the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the
Code, (ii) no gain or loss shall be recognized by the holders
of shares of Company Common upon receipt of Merger
Consideration (except for cash received in lieu of fractional
shares), (iii) the basis of shares of AREA Common received by
the shareholders of Company shall be the same as the basis of
shares of Company Common exchanged therefor, and (iv) the
holding period of the shares of AREA Common received by such
shareholders shall include the holding period of the shares
of Company Common exchanged therefor, provided such shares
were held as capital assets as of the Effective Time.
(i) Each of the directors and officers of Company shall have
executed and delivered to AREA letters in substantially the
form of Exhibit 6.01(i).
SECTION 6.02. CONDITIONS TO COMPANY'S OBLIGATIONS. The obligations of Company
to effect the Merger shall be subject to the satisfaction (or waiver by
Company) prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by AREA in this
Agreement shall be true and correct (subject to the standard
in Section 1.12 hereof) on and as of the Closing Date with
the same effect as though such representations and warranties
had been made or given on and as of the Closing Date (except
for any such
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representations and warranties made only as of a specified
date which shall be true and correct as of such date); and
(b) AREA shall have performed and complied in all material
respects with all of its obligations and agreements hereunder
required to be performed on or prior to the Closing Date
under this Agreement; and
(c) No Injunction preventing the consummation of the Merger shall
be in effect, nor shall any proceeding by any Regulatory
Agency seeking any of the foregoing be pending. There shall
not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal;
and
(d) All necessary regulatory approvals, consents, authorizations
and other approvals, including the requisite approval of this
Agreement and the Merger and the termination of the
Stockholder Agreement by the shareholders of Company,
required by law or the Stockholder Agreement for consummation
of the Merger shall have been obtained and all waiting
periods required by law shall have expired; and
(e) Company shall have received all documents required to be
received from AREA on or prior to the Closing Date, all in
form and substance reasonably satisfactory to Company; and
(f) The Registration Statement shall be effective under the
Securities Act and no stop orders suspending the
effectiveness of the Registration Statement shall be in
effect or proceedings for such purpose pending before or
threatened by the SEC or any state securities agency; and
(g) Company shall have received an opinion of AREA's counsel
contemplated by Section 6.01(h) hereof dated the Closing
Date, in form and substance reasonably satisfactory to
Company; and
(h) The opinion from Professional Bank Services, Inc. received by
the Company prior to the date of this Agreement, to the
effect that the Merger is fair to the Company's shareholders
from a financial point of view shall be confirmed and not
withdrawn as of the date of the prospectus-proxy statement
mailed to Company shareholders in connection with the meeting
to be held to approve the Merger Agreement.
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ARTICLE SEVEN
TERMINATION OR ABANDONMENT
SECTION 7.01. MUTUAL AGREEMENT. This Agreement may be terminated by the mutual
written agreement of AREA and Company at any time prior to the Closing Date,
regardless of whether approval of this Agreement and the Merger by the
shareholders of Company shall have been previously obtained.
SECTION 7.02. BREACH OF AGREEMENTS. In the event that there is a breach in any
of the representations and warranties (subject to the standard in Section 1.11
hereof) or a material breach of any of the agreements of AREA or Company, which
breach is not cured within thirty (30) days after written notice to cure such
breach is given to the breaching party by the non-breaching party, then the
non-breaching party, regardless of whether shareholder approval of this
Agreement and the Merger shall have been previously obtained, may terminate and
cancel this Agreement by providing written notice of such action to the other
party hereto.
SECTION 7.03. FAILURE OF CONDITIONS. In the event any of the conditions to the
obligations of either party are not satisfied or waived on or prior to the
Closing Date, and if any applicable cure period provided in Section 7.02 hereof
has lapsed, then such party may, regardless of whether approval of this
Agreement and the Merger by the shareholders of Company shall has been
previously obtained, terminate and cancel this Agreement by delivery of written
notice of such action to the other party on such date.
SECTION 7.04. REGULATORY APPROVAL DENIAL; BURDENSOME CONDITION. If any
regulatory application filed pursuant to Section 5.01(a) hereof should be
finally denied or disapproved by the respective regulatory authority, then this
Agreement thereupon shall be deemed terminated and canceled; provided, however,
that a request for additional information or undertaking by AREA, as a
condition for approval, shall not be deemed to be a denial or disapproval so
long as AREA diligently provides the requested information or undertaking. In
the event an application is denied pending an appeal, petition for review, or
similar such act on the part of AREA (hereinafter referred to as the "appeal")
then the application shall be deemed denied unless AREA prepares and timely
files such appeal and continues the appellate process for purposes of obtaining
the necessary approval. AREA may terminate this Agreement if its Board of
Directors shall have reasonably determined that any of the requisite regulatory
approvals imposes a Burdensome Condition.
SECTION 7.05. SHAREHOLDER APPROVAL/DENIAL; WITHDRAWAL/MODIFICATION OF BOARD
RECOMMENDATION. If this Agreement and the relevant transactions contemplated by
this Agreement, including the Merger and the termination of the Stockholder
Agreement, are not approved by the requisite vote or agreement of the
shareholders of Company at the Company Shareholders Meeting, then either party
may terminate this Agreement. AREA may terminate this Agreement if Company's
Board of Directors shall have failed to approve or recommend this Agreement or
the Merger, or shall have withdrawn or modified in any manner materially
adverse
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to AREA its approval or recommendation of this Agreement or the Merger,
or shall have resolved or publicly announced an intention to do either of the
foregoing.
SECTION 7.06. REGULATORY ENFORCEMENT MATTERS. In the event that Company or
Subsidiary Bank shall, after the date hereof, become a party or subject to any
new or amended written agreement, memorandum of understanding, cease and desist
order, imposition of civil money penalties or other regulatory enforcement
action or proceeding with any Regulatory Agency, which would have a Material
Adverse Effect on Company, then AREA may terminate this Agreement.
SECTION 7.07. FALL-APART DATE. If the Closing Date does not occur on or prior
to January 31, 1999, then this Agreement may be terminated by either party by
giving written notice thereof to the other, unless the failure of the Closing
to occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth in this Agreement.
SECTION 7.08. POSSIBLE PURCHASE PRICE ADJUSTMENT.
(a) As used in this Section 7.08, the term "AREA Average Price"
shall mean the average of the daily closing prices of AREA
Common as reported in The Wall Street Journal (Midwest
Edition) for the ten (10) Nasdaq trading days preceding the
fifth (5th) calendar day prior to the Closing Date (the
"Determination Date"). The AREA Average Price shall be
appropriately and proportionately adjusted to reflect any
Share Adjustment, as contemplated by Section 1.06 hereof.
(b) Company may terminate this Agreement if its Board of
Directors so determines by a vote of a majority of the
members of its entire Board if the AREA Average Price shall
be less than $27.00 (as adjusted per Section 1.06); subject,
however, to the following two sentences. If Company elects to
exercise its termination right pursuant to the immediately
preceding sentence, it shall give written notice to AREA
within forty-eight (48) hours after the Determination Date.
Within two (2) business days after the date of receipt of
such notice, AREA shall have the option of adjusting the
Conversion Ratio to equal a number equal to a quotient, the
numerator of which is the product of $27.00 and the
Conversion Ratio (as then in effect) and the denominator of
which is the AREA Average Price. If AREA makes an election
contemplated by the preceding sentence, it shall give prompt
written notice to Company of such election and the revised
Conversion Ratio, whereupon no termination shall have
occurred pursuant to this Section 7.08(b) and this Agreement
shall remain in effect in accordance with its terms (except
as the Conversion Ratio shall have been so modified), and any
references in this Agreement to "Conversion, Ratio" shall
thereafter be deemed to refer to the Conversion Ratio as
adjusted pursuant to this Section 7.08(b).
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(c) AREA may terminate this Agreement if its Board of Directors
so determines by a vote of a majority of the members of its
entire Board, if the AREA Average Price shall be greater than
$36.00 (as adjusted per Section 1.06); subject, however, to
the following two sentences. If AREA elects to exercise its
termination right pursuant to the immediately preceding
sentence, it shall give written notice to Company within
forty-eight (48) hours after the Determination Date. Within
two (2) business days after the date of receipt of such
notice, Company shall have the option of adjusting the
Conversion Ratio to equal a number equal to a quotient, the
numerator of which is the product of $36.00 and the
Conversion Ratio (as then in effect) and the denominator of
which is the AREA Average Price. If Company makes an election
contemplated by the preceding sentence, it shall give prompt
written notice to AREA of such election and the revised
Conversion Ratio, whereupon no termination shall have
occurred pursuant to this Section 7.08(c) and this Agreement
shall remain in effect in accordance with its terms (except
as the Conversion Ratio shall have been so modified), and any
references in this Agreement to "Conversion Ratio" shall
thereafter be deemed to refer to the Conversion Ratio as
adjusted pursuant to this Section 7.08(c).
SECTION 7.09. TERMINATION FEE. If this Agreement is properly terminated by AREA
pursuant to the terms of Section 7.02, and a Purchase Event, as defined below,
shall have occurred, or shall occur, in each case, prior to the first
anniversary of the date of the execution of this Agreement, Company shall pay
promptly to AREA, in immediately available funds, on the date of such Purchase
Event, the sum of $2,000,000. A "Purchase Event" shall have occurred when:
(a) Company shall have entered into an agreement with any person
(other than AREA or any of its subsidiaries) pursuant to
which such person would: (i) merge or consolidate with, or
enter into any similar transaction with Company or the
Subsidiary Bank; (ii) purchase, lease or otherwise acquire
all or substantially all of the assets of Company or the
Subsidiary Bank; or (iii) purchase or otherwise acquire (by
merger, consolidation, share exchange, or similar
transaction) securities representing 25% or more of the
voting shares of Company or the Subsidiary Bank; or
(b) Any person (other than AREA or any of its subsidiaries) shall
have purchased or otherwise acquired, pursuant to a tender
offer or otherwise, beneficial ownership of securities
representing 25% or more of the voting shares of Company or
the Subsidiary Bank. "Person" and "beneficial ownership"
shall have the same meanings as in Sections 3(a)(9) and 13(d)
of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder.
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ARTICLE EIGHT
GENERAL
SECTION 8.01. CONFIDENTIAL INFORMATION. The parties acknowledge the
confidential and proprietary nature of the "Information" (as described below in
this Section 8.01) which has heretofore been exchanged and which shall be
received from each other hereunder and agree to hold and keep the same
confidential. Such Information shall include any and all financial, technical,
commercial, marketing, customer or other information concerning the business,
operations and affairs of a party that may be provided to the other,
irrespective of the form of the communications, by such party's employees or
agents. Such Information shall not include information which is or becomes
generally available to the public other than as a result of a disclosure by a
party or its representatives in violation of this Agreement. The parties agree
that the Information shall be used solely for the purposes contemplated by this
Agreement and that such Information shall not be disclosed to any person other
than employees and agents of a party who are directly involved in evaluating
the transaction. The Information shall not be used in any way detrimental to a
party, including use directly or indirectly in the conduct of the other party's
business or any business or enterprise in which such party may have an
interest, now or in the future, and whether or not now in competition with such
other party.
SECTION 8.02. PUBLICITY. AREA and Company shall cooperate with each other in
the development and distribution of all news releases and other public
disclosures concerning this Agreement and the Merger and shall not issue any
news release or make any other public disclosure without the prior consent of
the other party, unless it reasonably believes such is required by law upon the
advice of counsel or is in response to published newspaper or other mass media
reports regarding the transactions contemplated by this Agreement, in which
such latter event the parties shall give reasonable notice, and to the extent
practicable, consult with each other regarding such responsive public
disclosure.
SECTION 8.03. RETURN OF DOCUMENTS. Upon termination of this Agreement without
the Merger becoming effective, each party (i) shall deliver to the other
originals and all copies of all Information made available to such party, (ii)
shall not retain any copies, extracts or other reproductions in whole or in
part of such Information, and (iii) shall destroy all memoranda, notes and
other writings prepared by any party based on the Information.
SECTION 8.04. 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:
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(a) if to AREA:
Area Bancshares Corporation
230 Frederica Street
Owensboro, KY 42301
Attention: Thomas R. Brumley, Chief Executive Officer
Facsimile: 502/686-1519
with a copy to:
Area Bancshares Corporation
230 Frederica Street
Owensboro, KY 42301
Attention: Timothy O. Shelburne, General Counsel
Facsimile: 502/686-1519
And
(b) if to Company:
Peoples Bancorp of Winchester, Inc.
Maple & Broadway
P.O. Box 600
Winchester, KY 40392-0600
Attention: Ralph L. Oliver, President & Chief Executive
Officer
William H. Pitt, Treasurer
Facsimile: 606-745-0365
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, KY 40202-3363
Attention: R. James Straus
David L. Beckman, Jr.
Facsimile: 502-581-1087
SECTION 8.05. LIABILITIES AND EXPENSES. Except as provided in Section 7.09
hereof, in the event that this Agreement is terminated pursuant to the
provisions of Article Seven hereof, no party hereto shall have any liability to
any other party for costs, expenses, damages or otherwise; provided, however,
that, notwithstanding the foregoing, in the event that this Agreement is
terminated pursuant to Article Seven hereof on account of a willful breach of
any of the representations and warranties set forth herein or any willful
breach of any of the agreements set forth herein, then the non-breaching party
shall be entitled to recover appropriate damages from the breaching party,
including, without limitation, reimbursement to the nonbreaching party of its
costs, fees and expenses (including attorneys', accountants' and advisors' fees
and expenses) incident to the negotiation, preparation and execution of this
Agreement and related
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documentation; provided, however, that nothing in this proviso 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.
SECTION 8.06. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Except
for, and as provided in, this Section 8.06, no representation, warranty or
agreement contained herein shall survive the Effective Time or the earlier
termination of this Agreement. The agreements set forth in Sections 5.04, 5.05
and 5.08 hereof shall survive the Effective Time and the agreements set forth
in Sections 7.09, 8.01, 8.02, 8.03 and 8.05 hereof and this Section 8.06 shall
survive the Effective Time or the earlier termination of this Agreement.
SECTION 8.07. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes and cancels any and all prior discussions,
negotiations, undertakings, agreements in principle or other agreements between
the parties relating to the subject matter hereof
SECTION 8.08. HEADINGS AND CAPTIONS. The captions of Articles and Sections
hereof are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
SECTION 8.09. WAIVER, AMENDMENT OR MODIFICATION. The conditions of this
Agreement which may be waived may only be waived by notice to the other party
waiving such condition. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may be amended or modified
by the parties hereto, at any time before or after shareholder approval of the
Agreement; provided, however, that after any such approval no such amendment or
modification shall alter the amount or change the form of the Merger
Consideration contemplated by this Agreement to be received by shareholders of
Company. This Agreement shall not be amended or modified except by a written
document duly executed by the parties hereto.
SECTION 8.10. RULES OF CONSTRUCTION. Unless the context otherwise requires: (i)
a term has the meaning assigned to it, (ii) an accounting term not otherwise
defined has the meaning assigned to it in accordance with generally accepted
accounting principles, (iii) "or" is not exclusive, and (iv) words in the
singular may include the plural and in the plural include the singular.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed one and the same instrument. For purposes of executing this
Agreement, a document (or signature page thereto) signed and transmitted by
facsimile machine or telecopier is to be treated as an original document. The
signature of any party thereon, for purposes hereof, is to be considered as an
original signature, and the document transmitted is to be considered to have
the same binding effect as an original signature on an original document. At
the request of any party, any facsimile or telecopy document shall be
re-executed in original form by the parties who executed the facsimile or
telecopy document. No party may raise the use of a facsimile machine or
telecopier or the fact that any signature was transmitted through the use of a
facsimile or telecopier machine
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as a defense to the enforcement of this Agreement or any amendment or other
document executed in compliance with this Section 8.11.
SECTION 8.12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns subject to Section 8.14. Except as otherwise provided in
Sections 5.04 and 5.08, there shall be no third party beneficiaries hereof.
SECTION 8.13. SEVERABILITY. In the event that any provisions of this Agreement
or any portion thereof shall be finally determined to be unlawful or
unenforceable, such provision or portion thereof shall be deemed to be severed
from this Agreement, and every other provision, and any portion of a provision,
that is not invalidated by such determination, shall remain in full force and
effect. To the extent that a provision is deemed unenforceable by virtue of its
scope but may be made enforceable by limitation thereof, such provision shall
be enforceable to the fullest extent permitted under the laws and public
policies of the State whose laws are deemed to govern enforceability. It is
declared to be the intention of the parties that they would have executed the
remaining provisions without including any that may be declared unenforceable.
SECTION 8.14. GOVERNING LAW; ASSIGNMENT. This Agreement shall be governed by
the laws of the Commonwealth of Kentucky and applicable federal laws and
regulations. This Agreement may not be assigned by either of the parties
hereto.
SECTION 8.15. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto 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 and such right shall be in
addition to any other remedy to which they shall be entitled at law or in
equity.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
PEOPLES BANCORP OF WINCHESTER, INC.
By: /s/ Ralph L. Oliver
-----------------------------------------
Ralph L. Oliver
President and Chief Executive Officer
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AREA BANCSHARES CORPORATION
By: /s/ Thomas R. Brumley
-------------------------------------------
Thomas R. Brumley
President and Chief Executive Officer
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EXHIBIT 4.07
AFFILIATE LETTER
Area Bancshares Corporation
230 Frederica Street
Owensboro, KY 42302
Attention: Timothy O. Shelburne
General Counsel
Re: Agreement and Plan of Merger, dated as of August 24, 1998 (the "Merger
Agreement"), by and between Peoples Bancorp of Winchester, Inc.
("Company") and Area Bancshares Corporation ("AREA")
Gentlemen:
I have been advised that I may be deemed to be an affiliate of Company, as that
term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule 145")
of the Rules and Regulations of the Securities and Exchange Commission (the
"Commission") promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
Pursuant to the terms and conditions of the Merger Agreement, each share of
common stock of Company owned by me as of the effective time of the merger
contemplated by the Merger Agreement (the "Merger") may be converted into the
right to receive shares of common stock of AREA and cash in lieu of any
fractional share. As used in this letter, the shares of common stock of Company
owned by me as of _______________, 1998 (the date 30 days prior to the
anticipated effective time of the Merger) are referred to as the "Pre-Merger
Shares" and the shares of common stock of AREA which may be received by me in
the Merger in exchange for my Pre-Merger Shares are referred to as the
"Post-Merger Shares." This letter is delivered to AREA pursuant to Section 4.07
of the Merger Agreement.
A. I represent and warrant to AREA and agree that:
1. I shall not make any sale, transfer or other disposition of
the Post-Merger Shares I receive pursuant to the Merger in
violation of the Securities Act or the Rules and Regulations
of the Commission promulgated thereunder.
2. I understand that the issuance of the Post-Merger Shares to
me pursuant to the Merger shall be registered with the
Commission under the Securities Act. I also understand that
because I may be deemed an "affiliate" of Company and because
any distributions by me of the Post-Merger Shares shall not
be registered under the Securities Act, such Post-Merger
Shares must be held by me unless (i) the sale, transfer or
other distribution has been registered under the Securities
Act, (ii) the sale, transfer or other distribution of such
Post-Merger Shares is made in accordance with the provisions
of Rule 145, or (iii) in the opinion of counsel
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acceptable to AREA some other exemption from registration
under the Securities Act is available with respect to any
such proposed distribution, sale, transfer or other
disposition of such Post-Merger Shares.
3. In no event shall I sell the Pre-Merger Shares or the
Post-Merger Shares, as the case may be, or otherwise transfer
or reduce my risk relative to the Pre-Merger Shares or
Post-Merger Shares, as the case may be, during the period
beginning 30 days prior to the date on which the Merger is
consummated and ending on the date that AREA has published
financial results covering at least 30 days of the combined
operations of AREA and Company; provided, however, that with
the written prior consent of AREA, which consent shall not be
unreasonably withheld, I shall be permitted to make sales and
dispositions of Shares permitted to be made by affiliates
pursuant to SEC Staff Accounting Bulletin Nos. 65 and 76.
B. I understand and agree that:
1. Stop transfer instructions shall be issued with respect to
the Post-Merger Shares and there shall be placed on the
certificates representing such Post-Merger Shares, or any
certificate delivered in substitution therefor, a legend
stating in substance:
"The shares represented by this Certificate have been issued
to an affiliate of a party to a transaction with Area
Bancshares Corporation pursuant to the provisions of Rule 145
under the Securities Act of 1933. A stop transfer order with
respect to this Certificate has been issued to the Transfer
Agent. The shares represented hereby will be transferred on
the books of Area Bancshares Corporation only upon delivery
to the Transfer Agent of evidence, reasonably satisfactory to
Area Bancshares Corporation, that such transfer complies in
all material respects with the provisions of the Securities
Act of 1933 and the rules and regulations thereunder."
2. Unless the transfer by me of Post-Merger Shares is a sale
made in compliance with the provisions of Rule 145(d) or made
pursuant to an effective registration statement under the
Securities Act, AREA reserves the right to place the
following legend on the Certificates issued to my transferee:
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, and
were acquired from a person who received such shares in a
transaction to which Rule 145 under the Securities Act of
1933, as amended, applied. The shares have not been acquired
by the holder with a view to, or for resale in connection
with, any distribution thereof within the meaning of the
Securities Act of 1933, as amended, and may not be sold or
otherwise transferred unless the shares have been registered
under the Securities Act of 1933, as amended, or an exemption
from registration is available."
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<PAGE> 134
3. It is understood and agreed that this Affiliate Agreement
shall terminate and be of no further force and effect and the
legend set forth in paragraph (e) above shall be removed by
delivery of substitute certificates without such legend, and
the related stop transfer restrictions shall be lifted
forthwith if (i) my Shares shall have been registered under
the 1933 Act for sale, transfer or other disposition by me or
on my behalf, or (ii) I am not at the time an affiliate of
AREA and have held the Shares for at least one (1) year (or
such other period as may be prescribed by the 1933 Act and
the Rules and Regulations promulgated thereunder) and AREA
has filed with the Commission all of the reports it is
required to file under the 1934 Act during the preceding
twelve (12) months, or (iii) I am not at the time an
affiliate of AREA and have not been an affiliate of AREA for
at least three months and have held the Shares for at least
two (2) years (or such other period as may be prescribed by
the 1933 Act and the Rules and Regulations promulgated
thereunder), or (iv) AREA shall have received a letter from
the staff of the Commission, or an opinion of counsel
acceptable to AREA, to the effect that the stop transfer
restrictions and the legend are not required, or (v) the
procedures specified in paragraph (f) above are followed.
C. AREA agrees, for a period of two years after the Effective Time of the
Merger, to file on a timely basis all reports required to be filed by it
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, so
that the public information provisions of Rule 145(d) promulgated by the SEC as
the same are presently in effect will be available to the undersigned in the
event the undersigned desires to transfer any Post-Merger shares.
I have carefully read this letter and understand its requirements and the
limitations imposed upon the distribution, sale, transfer or other disposition
of Pre-Merger Shares or Post-Merger Shares by me.
Very truly yours,
Agreed this ___ day of _____________, 1998.
AREA BANCSHARES CORPORATION
By__________________________________
Name:_______________________________
Title:______________________________
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EXHIBIT 6.01(I)
CLAIMS LETTER
Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
Ladies and Gentlemen:
This letter is delivered pursuant to Section 6.01(i) of the Agreement
and Plan of Merger (the "Agreement"), dated as of August 24, 1998, by and
between Area Bancshares Corporation ("Area") and Peoples Bancorp of Winchester,
Inc. ("Company") which provides for the merger (the "Merger") of Area and
Company.
Concerning claims which I may have against Company or its wholly-owned
subsidiary, Peoples Commercial Bank (the "Subsidiary Bank"), in my capacity as
an officer or director:
(a) Area shall assume all liability (to the extent Company or
Subsidiary Bank were so liable) for claims for indemnification arising under
Company's or Subsidiary Bank's Articles of Incorporation or Bylaws or under any
indemnification contract disclosed to Area, as existing on August 24, 1998, and
for claims for salaries, wages or other compensation, employee benefits,
reimbursement of expenses, or worker's compensation arising out of employment
with the Company through the effective time of the Merger; and
(b) Subsidiary Bank shall retain all liability (to the extent
Subsidiary was so liable) for claims for salaries, wages or other compensation,
employee benefits, reimbursement of expenses, or worker's compensation arising
out of employment with the Subsidiary through the effective time of the Merger;
and
(c) In my capacity as an officer or a director of the
Company, I am not aware that I have any claims (other than those referred to in
paragraphs (a) or (b) above) against Company, or the Subsidiary Bank (other
than the deposit, loan and other banking services conducted with Company or the
Subsidiary Bank, as applicable).
Sincerely,
----------------------------------
Signature of Officer or Director
----------------------------------
Printed Name of Officer or Director
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On behalf of Area, I hereby acknowledge receipt of this letter and
affirm the assumption by Area of the liabilities described in paragraph (a) and
(b) above, as of this _____ day of ___________, 199__.
AREA BANCSHARES CORPORATION
By________________________________
Thomas R. Brumley
President and Chief Executive Officer
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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).
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;
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(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
(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
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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.)
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:
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(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.
(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.
(2) 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
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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.)
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
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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.
(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.
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(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.
(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
PROFESSIONAL BANK SERVICES, INC.
SUITE 305
6200 DUTCHMAN'S LANE
LOUISVILLE, KENTUCKY 40205
August 24, 1998
Board of Directors
Peoples Bancorp of Winchester, Inc.
Broadway & Maple Streets
Winchester, Kentucky 40391
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the shareholders of Peoples Bancorp of Winchester,
Inc., Winchester, Kentucky (the "Company") of the proposed merger of the
Company with Area Bancshares, Inc., Owensboro, Kentucky ("Area"). In the
proposed merger, Company shareholders will receive 17.33 Area common shares per
Company common share or an aggregate of 1,300,000 Area common shares for all
75,000 Company common shares outstanding, subject to adjustment, as further
defined in the Agreement and Plan of merger between Area and the Company (the
"Agreement"). On August 14, 1998, the proposed consideration to be received
represents an aggregate value of $38,512,500 or $513.50 per Company common
share based on the average of the bid/ask price for Area common stock of
$29.625 as quoted on the National Association of Securities Dealers Automated
Quotation System.
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 subsidiary The Peoples
Commercial Bank, Winchester, Kentucky (the "Bank") including: (i) March 31,
1998, December 31, 1997 and December 31, 1996 Consolidated Reports of Condition
and Income filed by the Bank with the FDIC; (ii) December 31, 1997, 1996 and
1995 audited annual reports of the Company; (iii) December 31, 1997 Uniform
Bank Performance Reports of the Bank; (iv) December 31, 1997 FR Y-6 Annual
Report of the Company filed with the Federal Reserve; (v) and May 31, 1998
unaudited internal financial statements of the Company and the Bank. We have
reviewed and tabulated statistical data regarding the loan portfolio,
securities portfolio and other performance ratios and statistics. Financial
projections were prepared
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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 and financial conditions, our experience in other transactions,
and our knowledge of the banking industry generally.
We have taken into consideration all other offers and associated correspondence
received by the Company regarding a possible combination.
We have not compiled, reviewed or audited the financial statements of the
Company 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 or Area.
As part of preparing this Fairness Opinion, PBS performed a due diligence
review of Area on August 17, 1998. As part of the due diligence, PBS reviewed
the following items: minutes of the Board of Directors meetings of Area, from
January 1996 through July 1998; reports of independent auditors for the years
ending December 31, 1996 and 1997; the most recent analysis and calculation of
allowance for loan and lease losses for Area; internal loan review reports;
investment portfolio activity reports; asset/liability management reports;
asset quality reports; Uniform Holding Company Report for Area as of December
31, 1997; March 31, 1998 report of Condition and Income for the subsidiary
banks; June 30, 1998 Report of Condition and Income for Area; and discussion of
any material pending litigation and other issues with senior management of
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/ 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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
1. -- Agreement and Plan of Merger, dated as of August 24, 1998, between
Area and Peoples (included as Appendix A to the Proxy
Statement/Prospectus contained herein).
3.1 -- Articles of Incorporation of the Registrant, as amended.(1)
3.2 -- Bylaws of the Registrant, as amended.
5.1 -- Legal opinion of Timothy O. Shelburne, Esq., including consent.
8.1 -- Tax opinion of Powell, Goldstein, Frazer & Murphy LLP, including consent.
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 Crowe, Chizek and Company LLP regarding Peoples consolidated financial statements.
23.5 -- Consent of Professional Bank Services, Inc.
24 -- Power of Attorney (see signature page to the Registration Statement).
99.1 -- Form of Proxy.
99.2 -- Area's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, previously filed by Area and
incorporated by reference herein (File No. 0-26032).
99.3 -- Area's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, previously filed by Area and incorporated by
reference herein (File No. 0-26032).
99.4 -- Area's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, previously filed by Area and incorporated by
reference herein (File No. 0-26032).
99.5 -- Area's Current Report on Form 8-K dated September 21, 1998, previously filed by Area and incorporated by reference
herein (File No. 0-26032).
</TABLE>
- -----------------------------------------------------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-38037).
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(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.
(b) The undersigned Registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions (see Item 20), or
otherwise, the Registrant has been advised that in the opinion of the
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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.
(d) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) 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,
Commonwealth of Kentucky, on October 15, 1998.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Anthony G. Bittel Director October 15, 1998
- --------------------------------
Anthony G. Bittel
/s/ Samuel A. Boone Director October 15, 1998
- --------------------------------
Samuel A. Boone
/s/ Thomas R. Brumley President, Chief Executive October 15, 1998
- -------------------------------- Officer and Director
Thomas R. Brumley (principal executive officer)
/s/ Cecile Garmon Director October 15, 1998
- --------------------------------
Cecile Garmon
</TABLE>
II-5
<PAGE> 151
<TABLE>
<S> <C> <C>
/s/ C.M. Gatton Chairman of the Board of Directors October 15, 1998
- --------------------------------
C.M. Gatton
/s/ Gary H. Latham Director October 15, 1998
- --------------------------------
Gary H. Latham
/s/ Raymond McKinney Vice Chairman of the Board October 15, 1998
- -------------------------------- of Directors
Raymond McKinney
/s/ John S. Penn Executive Vice President and October 15, 1998
- -------------------------------- Director
John S. Penn
/s/ John A. Ray Treasurer (principal financial October 15, 1998
- -------------------------------- officer)
John A. Ray
/s/ Allan R. Rhodes Director October 15, 1998
- --------------------------------
Allan R. Rhodes
/s/ David W. Smith, Jr. Director October 15, 1998
- --------------------------------
David W. Smith, Jr.
- -------------------------------- Director -----------------
William H. Thompson
/s/ Don Vitale Director October 15, 1998
- --------------------------------
Don Vitale
/s/ Gary R. White Controller (principal accounting October 15, 1998
- -------------------------------- officer)
Gary R. White
/s/ Pollard White Director October 15, 1998
- --------------------------------
Pollard White
</TABLE>
II-6
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
1 -- Agreement and Plan of Merger, dated as of August 24, 1998, between Area and Peoples (included as Appendix A to the
Proxy Statement/Prospectus contained herein).
3.1 -- Articles of Incorporation of the Registrant, as amended.(1)
3.2 -- Bylaws of the Registrant, as amended.
5.1 -- Legal opinion of Timothy O. Shelburne, Esq. including consent.
8.1 -- Tax opinion of Powell, Goldstein, Frazer & Murphy LLP, including consent.
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 Crowe, Chizek and Company LLP regarding Peoples financial statements
23.5 -- Consent of Professional Bank Services, Inc.
24 -- Power of Attorney (see signature page to the Registration Statement).
99.1 -- Form of Proxy.
99.2 -- Area's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, previously filed by Area and
incorporated by reference herein (File No. 0-26032).
99.3 -- Area's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, previously filed by Area and incorporated
by reference herein (File No. 0-26032).
99.4 -- Area's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, previously filed by Area and incorporated
by reference herein (File No. 0-26032).
99.5 -- Area's Current Report on Form 8-K dated September 21, 1998, previously filed by Area and incorporated by reference
herein (File No. 0-26032).
</TABLE>
- -----------------------------------------------------
(1) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-38037).
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
AREA BANCSHARES CORPORATION
AS AMENDED AND RESTATED
THROUGH APRIL 15, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C>
ARTICLE I OFFICES...............................................................................................1
SECTION 1.1: Principal Office............................................................................1
SECTION 1.2: Other Offices...............................................................................1
ARTICLE II MEETINGS OF SHAREHOLDERS..............................................................................1
SECTION 2.1: Annual Meeting..............................................................................1
SECTION 2.2: Special Meetings............................................................................1
SECTION 2.3: Notice of Meetings..........................................................................2
SECTION 2.4: Place of Meetings...........................................................................2
SECTION 2.5: Conduct of Meetings.........................................................................2
SECTION 2.6: Quorum......................................................................................2
SECTION 2.7: Voting of Shareholders......................................................................2
SECTION 2.8: Voting Record...............................................................................3
ARTICLE III BOARD OF DIRECTORS...................................................................................3
SECTION 3.1: Board of Directors..........................................................................3
SECTION 3.2A: Director Retirement.........................................................................4
SECTION 3.2B: Director Emeritus...........................................................................4
SECTION 3.2C: Miscellaneous...............................................................................4
SECTION 3.2D: Grandfather Provision.......................................................................4
SECTION 3.3: Regular Meetings............................................................................5
SECTION 3.4: Special Meetings............................................................................5
SECTION 3.5: Conduct of Meetings.........................................................................5
SECTION 3.6: Quorum......................................................................................6
ARTICLE IV MANAGEMENT COMMITTEES.................................................................................6
SECTION 4.1: Committees..................................................................................6
SECTION 4.2: Committee Policies..........................................................................6
ARTICLE V OFFICERS...............................................................................................6
SECTION 5.1: Officers....................................................................................7
SECTION 5.2: Term of Office..............................................................................7
SECTION 5.3: Chairman of the Board.......................................................................7
SECTION 5.4: Vice Chairman of the Board..................................................................7
SECTION 5.5: The President...............................................................................7
SECTION 5.6: The Vice President..........................................................................8
SECTION 5.7: The Secretary...............................................................................8
SECTION 5.8: The Treasurer...............................................................................8
ARTICLE VI CORPORATE SEAL........................................................................................9
SECTION 6.1: Seal........................................................................................9
SECTION 6.2: Affixing and Attesting......................................................................9
ARTICLE VII MISCELLANEOUS........................................................................................9
SECTION 7.1: Signatures on Negotiable Instruments........................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
Page
<S> <C>
SECTION 7.2: Execution of Contracts and Other Instruments................................................9
SECTION 7.3: Shares of Other Corporations...............................................................10
ARTICLE VIII AMENDMENTS.........................................................................................10
SECTION 8.1: Amendments.................................................................................10
</TABLE>
ii
<PAGE> 4
BY-LAWS
AREA BANCSHARES CORPORATION
AS AMENDED AND RESTATED
THROUGH APRIL 15, 1996
ARTICLE I
OFFICES
SECTION 1.1: Principal Office: The principal office and place of business of the
Corporation shall be at 230 Frederica Street, Owensboro, Kentucky.
SECTION 1.2: Other Offices: The Corporation may establish, continue, or
discontinue from time, such other offices and places of business as may be
deemed proper for the conduct of the Corporation's business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1: Annual Meeting: The annual meeting of shareholders for the election
of the Directors and transaction of such other business as may properly come
before the meeting shall be held in May of each year, on a date and at a time to
be timely agreed upon by the Board.
SECTION 2.2: Special Meetings: Special meetings of shareholders may be called by
the Board of Directors or the holders of not less than one-fifth (1/5) of all
shares entitled to vote at the meeting.
1
<PAGE> 5
SECTION 2.3: Notice of Meetings: Written notice stating the place, day and hour
of the meeting, and in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be deposited by or at the direction of
the Chairman of the Board, the President, the Secretary or the persons calling
the meeting, in the United States mail, postage prepaid, not less than ten (10)
nor more than fifty (50) days before the date of the meeting, addressed to each
shareholder of record entitled to vote at the meeting at his address as it
appears on the stock transfer books of the Corporation.
SECTION 2.4: Place of Meetings: Meetings of shareholders shall be held at the
principal office of the Corporation, unless the Board of Directors shall fix
another place for the holding of any such meeting.
SECTION 2.5: Conduct of Meetings: The Chairman of the Board, or in his absence,
the Vice Chairman, shall preside at all shareholders' meetings. The Secretary of
the Corporation, or any other person designated by the officer presiding, shall
act as secretary of the meeting.
SECTION 2.6: Quorum: A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders. If
there is less than a quorum, the meeting may be adjourned until such time as a
quorum is present, but no such adjournment shall be for more than thirty (30)
days.
SECTION 2.7: Voting of Shareholders: A shareholder may vote in person or by
proxy executed in writing by the Shareholder or by his duly authorized attorney
in fact. No proxy shall be valid
2
<PAGE> 6
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy, but in no event shall a proxy, unless coupled with an
interest, be voted after three (3) years from the date of its execution. All
proxies shall be filed with the Secretary at or prior to the time of voting.
Except as a replacement for a bona fide nominee, no person shall be eligible for
election as a Director of the Corporation at a meeting of shareholders unless a
shareholder eligible to vote thereon shall have placed such person's name in
nomination by written notice delivered to the President or Secretary of the
Corporation at its principal office not less than seventy-two (72) hours prior
to the scheduled time for the election.
SECTION 2.8: Voting Record: The Officer of the Corporation having charge of the
stock transfer books for shares of the Corporation shall make a complete record
of shareholders entitled to vote at the meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. Such record shall be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any shareholder during
the whole time of the meeting for the purposes thereof.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1: Board of Directors: The business and affairs of the Corporation
shall be managed by a Board of not less than five (5) nor more than twelve (12)
directors.
3
<PAGE> 7
SECTION 3.2A: Director Retirement: Directors will be considered to be retired
from the Board and will not be considered for re-election as a regular Director
at the Annual Meeting following his or her seventieth (70th) birthday.
SECTION 3.2B: Director Emeritus: A Director who has served on the Board of
Directors for twenty (20) years will be elected for life as a Director Emeritus
at the first annual shareholders meeting following his or her seventieth (70th)
birthday. Each Director Emeritus is encouraged to attend each monthly meeting of
the Board of Directors and he or she will be paid a fee of $100 per month for
his or her advice and counsel whether in attendance or absent from the monthly
meeting. Director Emeritus will have all the rights and privileges of regular
Directors except the power to vote, which effectively eliminates all personal
liability.
SECTION 3.2C: Miscellaneous: A Director whose occupational or professional
status has changed since first being elected may be re-elected as a regular
director for one (1) year at the next Annual Meeting. He or she will qualify as
a Director Emeritus if they have served the required twenty (20) years.
SECTION 3.2D: Grandfather Provision: All Directors elected at the Annual Meeting
held April 15, 1996, will be excluded from the requirements of Sections 3.2A,
3.2B, and 3.2C, but may at their election request the status of Director
Emeritus regardless of length of service.
Exceptions to the rules for Director's qualifications may be made by the Holding
Company Board of Directors when recommended by the President on an individual
basis.
4
<PAGE> 8
SECTION 3.3: Regular Meetings: Regular meetings of the Board of Directors shall
be at 2:00 P.M. on the third (3rd) Monday of January, March, April, June,
August, October and December, unless another day is fixed by the Chairman of the
Board, or in his absence, Vice Chairman. If the date of a regular meeting is
changed by the Chairman or Vice Chairman, notice of the meeting shall be given
as in the case of special meetings. Otherwise, no notice of a regular meeting
need be given, but the secretary shall follow the practice of sending reminders.
SECTION 3.4: Special Meetings: Special meetings of the Board of Directors shall
be called by the Secretary at the direction of the Chairman of Vice Chairman in
his absence, or upon the written request of any three (3) directors or a simple
majority of the then named directors specifying the purpose or purposes of the
meeting. Under normal circumstances, notice of any special meeting shall be
mailed to each director, postage prepaid by, or at the direction of, the
Chairman of the Board, the Vice Chairman, the President or the Secretary,
addressed to him at his residence or usual place of business, not less than five
(5) days before the meeting is to be held; but under unusual circumstances, any
reasonable notice shall be sufficient, including one day's notice by telephone
or by telegram directed to the director's residence or usual place of business.
SECTION 3.5: Conduct of Meetings: The Chairman, or in his absence, the Vice
Chairman, shall preside at the meetings of the Board of Directors. The Secretary
of the Corporation or such other person as may be designated by the officer
presiding shall act as secretary of the meeting.
5
<PAGE> 9
SECTION 3.6: Quorum: A majority of the directors shall constitute a quorum for
the transaction of business. The act of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
ARTICLE IV
MANAGEMENT COMMITTEES
SECTION 4.1: Committees: The Board may from time to time appoint management
committees, consisting of officers and employees of the Corporation and having
such powers and functions as the Board may prescribe. The members of each such
committee shall serve at the pleasure of the Board, and the functions of each
such committee may be suspended or terminated at any time by the Board. Each
such committee shall keep such minutes and other records as it may deem
advisable or as may be required by law or directed by the Board in the
resolution establishing the committee.
SECTION 4.2: Committee Policies: Each such committee, if directed by the Board,
shall submit a written policy governing its operation for approval of the Board.
ARTICLE V
OFFICERS
SECTION 5.1: Officers: The Officers of the Corporation shall consist of a
Chairman of the Board, a Vice Chairman, a President, an Executive Vice
President, a Secretary and a Treasurer. Any two or more offices may be held by
the same person except of President and Secretary.
6
<PAGE> 10
SECTION 5.2: Term of Office. All officers shall hold office at the pleasure of
and until removed by the Board of Directors. All officers shall be subject to
the supervision and direction of the Board. The authority, duties or
responsibilities of any officer of the Corporation may be suspended by the
Chairman or the President with or without cause, and any officer elected or
appointed by the Board may be removed by the Board with or without cause. Any
vacancy occurring in any office, unless such office be abolished by the Board,
may be filled at any meeting of the Board.
SECTION 5.3: Chairman of the Board. The Chairman shall be the Chief Executive
Officer of the Corporation and shall have general executive powers as well as
specific powers conferred by these By-laws. He shall preside at meetings of the
Board of Directors and at meetings of the shareholders. The Chairman will be
non-voting unless a tie exists in voting by other board members.
SECTION 5.4: Vice Chairman of the Board. The Vice Chairman of the Board shall
have the authority of the Chairman upon the absence or inability of the Chairman
to serve. He also shall not vote except in the event of a tie vote.
SECTION 5.5: The President. The President shall be the Chief Administrative
Officer of the Corporation and shall have general administrative powers as well
as the specific powers conferred by these By-laws. He shall have any and all
powers and duties pertaining by law, regulation or practice to the office of
President.
7
<PAGE> 11
SECTION 5.6: The Vice President. The Vice President shall perform such duties
and have such powers as may from time to time be assigned to him by the Board of
Directors, the Chairman, or the President.
SECTION 5.7: The Secretary. The Secretary shall attend to the giving of notice
of meetings of shareholders and of the Board of Directors and committees thereof
and shall keep minutes of proceedings at meetings of the shareholders and of the
Board of Directors; shall have charge of the Corporate seal and authority to
attest to any and all instruments or writings to which the same may be affixed;
and shall generally perform all duties usually appertaining to the office of the
Secretary. In the absence of the Secretary, an Assistant Secretary or another
person designated by the Chairman of the Board shall perform such duties.
SECTION 5.8: The Treasurer. The Treasurer shall be the chief financial officer
of the Corporation. He shall have the care and custody of all the funds of the
Corporation and shall deposit the same in such banks or other depositories as
the Board of Directors shall from time to time direct or approve. He shall keep
a full accurate record of all moneys received and paid on account of the
Corporation and shall render a statement of his accounts whenever the Board of
Directors shall desire. He shall perform all other necessary acts and duties in
connection with the administration of the financial affairs of the Corporation,
and shall generally perform all the duties usually appertaining to the office of
Treasurer.
8
<PAGE> 12
ARTICLE VI
CORPORATE SEAL
SECTION 6.1: Seal. The seal of the Corporation shall be in such form as may be
approved from time to time, by the Board of Directors.
SECTION 6.2: Affixing and Attesting. In the absence of the Secretary or an
Assistant Secretary, the seal of the Corporation may be affixed and attested by
any other person or persons designated by the Chairman, or in his absence, the
President.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1: Signatures on Negotiable Instruments. All bills, notes, checks or
other instruments for the payment of money shall be signed or countersigned by
such officers or agents and in such manner as, from time to time, may be
prescribed by resolution of the Board of Directors, or may be prescribed by any
officer or officers, or any office and agent jointly, thereunto duly authorized
by the Board of Directors.
SECTION 7.2: Execution of Contracts and Other Instruments. The Chairman, Vice
Chairman, President, or such other officers or such other agents as the Board of
Directors may from time to time authorize, shall each have in general, authority
to execute contracts, bonds, deeds, and powers of attorney in the name of and on
behalf of the Corporation.
9
<PAGE> 13
SECTION 7.3: Shares of Other Corporations. Except where another person is
authorized by resolution of the Board, the Chairman or the President, or a proxy
appointed by them, shall vote shares of any other corporation held by the
Corporation. Unless the Chairman cannot be reached, such shares shall be voted,
after consultation with him, as he may direct.
ARTICLE VIII
AMENDMENTS
SECTION 8.1: Amendments. The By-laws may be altered, amended, or repealed, from
time to time, by the Board of Directors at any regular or special meeting.
10
<PAGE> 1
EXHIBIT 5.1
October 13, 1998
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
Commonwealth 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 Peoples Bancorp of Winchester, Inc.("Peoples") with Area (the
"Merger").
The Merger is intended to be effected pursuant to an Agreement and Plan
of Merger dated as of August 24, 1998 (the "Agreement") between Area and
Peoples, pursuant to which each outstanding share of no par value common stock
of Peoples (other than shares held by Peoples, Area or their subsidiaries or by
shareholders who perfect their dissenters' rights) will be converted into and
exchanged for the right to receive 17.333333 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 Peoples 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 Proxy Statement/Prospectus
constituting part of the Registration Statement.
Very truly yours,
/s/ Timothy O. Shelburne
<PAGE> 1
EXHIBIT 8.1
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
Sixteenth Floor
191 Peachtree Street
Atlanta, Georgia 30303
October 13, 1998
Area Bancshares Corporation
230 Frederica Street
Owensboro, Kentucky 42301
Peoples Bancorp of Winchester, Inc.
Maple & Broadway
Winchester, Kentucky 40392
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of the proposed merger of Peoples Bancorp of Winchester, Inc.,
a corporation organized and existing under the laws of the Commonwealth of
Kentucky ("Peoples"), with and into Area Bancshares Corporation ("Area"), a
corporation organized and existing under the laws of the Commonwealth of
Kentucky. For purposes of rendering this opinion, we have reviewed and relied on
the Agreement and Plan of Merger by and between Peoples and Area, dated as of
August 24, 1998, (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 meanings 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. In addition, we have assumed with your permission that
the facts and representations certified to us in writing by Peoples 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 Peoples 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 Peoples Common Stock as a "capital asset" within the meaning of Section
1221 of
<PAGE> 2
Area Bancshares Corporation
Peoples Bancorp of Winchester, Inc.
Page 2
the Internal Revenue Code, and shareholders who acquired their shares of Peoples
Common Stock pursuant to the exercise of Peoples options or otherwise as
compensation.
Based upon and subject to the foregoing, we are of the opinion that the
Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code, and that the following are certain of
the federal income tax consequences, which will result:
(a) No gain or loss will be recognized for federal income tax
purposes by Peoples shareholders upon the exchange of their shares of
Peoples Common Stock for shares of Area Common Stock. Each Peoples
shareholder's basis in the Area Common Stock received in the exchange
will be equal to such shareholder's basis in the Peoples Common Stock
surrendered in exchange for Area Common Stock in the Merger. Each
Peoples 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 Peoples Common Stock
surrendered in exchange for Area Common Stock in the Merger provided
that the Peoples 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 redemption
of fractional shares of Area Common Stock 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. Peoples 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) Peoples 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 Peoples shareholder will be capital gain or
loss, provided (i) the Peoples 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. Peoples
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).
<PAGE> 3
Area Bancshares Corporation
Peoples Bancorp of Winchester, Inc.
Page 3
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 Peoples.
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
PEOPLES BANCORP OF WINCHESTER, INC.
MAPLE & BROADWAY
WINCHESTER, KENTUCKY 40392-0600
October 13, 1998
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Ladies and Gentlemen:
This STATEMENT OF FACTS AND REPRESENTATIONS made by the management of Peoples
Bancorp of Winchester, Inc. is intended to provide Powell, Goldstein, Frazer &
Murphy LLP with certain facts and representations that may be relied upon in
connection with the issuance of an opinion as to certain Federal income tax
consequences that would arise upon the statutory merger (the "Merger") of
Peoples Bancorp of Winchester, Inc. ("Peoples") with and into Area Bancshares
Corporation ("Area") with Area as the survivor.
The undersigned hereby certifies, to the best of his knowledge and belief
acquired during the course of negotiation of the Merger and through normal
operation of Peoples, as follows:
(a) Except for the receipt of cash by dissenters or in lieu of the
issuance of fractional shares of Area in the Merger, all of the Peoples
stock outstanding immediately prior to the Merger will be exchanged
solely for Area common stock. Thus, other than the receipt of cash by
dissenters or in lieu of fractional shares, no consideration will be
paid or received (directly or indirectly, actually or constructively)
for the Peoples stock exchanged in the Merger, other than Area common
stock.
(b) The fair market value of the Area stock and other consideration, if
any, received by each Peoples shareholder in the Merger will be
approximately equal to the fair market value of the Peoples stock
surrendered in the exchange.
(c) Area has no present plan or intention to redeem any of its stock
issued in the Merger and there is no present plan or intention on the
part of the Peoples' shareholders to sell any of the Area stock
received in the Merger to a person related (as defined in Treasury
Regulation Section 1.368-1(e)(3)) to Area.
<PAGE> 5
Area Bancshares Corporation
Peoples Bancorp of Winchester, Inc.
Page 2
(d) The liabilities, if any, of Peoples to be assumed by Area and the
liabilities, if any, to which the transferred assets of Peoples are
subject were incurred by Peoples in the ordinary course of its
business.
(e) Peoples and its shareholders will pay their respective expenses, if
any, incurred in connection with the Merger.
(f) There is no indebtedness, other than indebtedness that arose in the
ordinary course of the parties' trades or businesses, existing between
Area (or its subsidiaries prior to the Merger) and Peoples (or its
subsidiaries prior to the Merger) that was issued, acquired or will be
settled at a discount.
(g) Peoples is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(h) The aggregate amount of cash to be issued Peoples shareholders in
connection with the Merger, including cash issued to Peoples
shareholders who will exercise their dissenters' rights by electing to
accept cash for their Peoples stock in lieu of Area stock, will not
exceed 50 percent of the value of the Peoples stock outstanding at the
time of the Merger.
(i) None of the compensation received by any shareholder-employees of
Peoples will be separate consideration for, or allocable to, any of
their shares of Peoples stock; none of the shares of Area stock
received by any shareholder-employees will be separate consideration
for, or allocable to, any employment agreement; and the compensation
paid to any shareholder-employees will be for services actually
rendered and will be determined by bargaining at arm's length.
(j) Peoples is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(k) The fair market value and total adjusted basis of the assets of
Peoples transferred to Area will equal or exceed the sum of the
liabilities, if any, assumed by Area, plus the amount of liabilities,
if any, to which the transferred assets are subject.
(l) The Merger will be effected in accordance with the Agreement and
Plan of Merger by and between Peoples and Area.
<PAGE> 6
Area Bancshares Corporation
People Bancorp of Winchester, Inc.
Page 3
(m) Peoples is participating in the Merger for good and valid business
reasons and not for tax purposes.
PEOPLES BANCORP OF WINCHESTER, INC.
by /s/ William H. Pitt
----------------------------------
William H. Pitt
<PAGE> 7
AREA BANCSHARES CORPORATION
230 FREDERICA STREET
OWENSBORO, KENTUCKY 42301
October 13, 1998
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Ladies and Gentlemen:
This STATEMENT OF FACTS AND REPRESENTATIONS made by the management of Area
Bancshares Corporation is intended to provide Powell, Goldstein, Frazer & Murphy
LLP with certain facts and representations that may be relied upon in connection
with the issuance of an opinion as to certain Federal income tax consequences
that would arise upon the statutory merger (the "Merger") of Peoples Bancorp of
Winchester, Inc. ("Peoples") with and into Area Bancshares Corporation ("Area")
with Area as the survivor.
The undersigned hereby certifies, to the best of his knowledge and belief
acquired during the course of negotiation of the Merger and through normal
operation of Area, as follows:
(a) Except for the receipt of cash by dissenters or in lieu of the
issuance of fractional shares of Area stock in the Merger, all of the
Peoples stock outstanding immediately prior to the Merger will be
exchanged solely for Area common stock. Thus, other than the receipt of
cash by dissenters or in lieu of fractional shares, no consideration
will be paid or received (directly or indirectly, actually or
constructively) for Peoples stock other than Area common stock.
(b) The fair market value of the Area stock and other consideration, if
any, received by each Peoples shareholder will be approximately equal
to the fair market value of the Peoples stock surrendered in the
exchange.
(c) Neither Area nor any "related person" of Area (as such term is
defined by Treasury Regulation 1.368-1(e)(3)) will acquire, purchase or
redeem any of the Area common stock to be issued to the Peoples
shareholders in connection with the Merger.
(d) Area has no plan or intention to sell or otherwise dispose of any
of the assets of Peoples or its subsidiaries to be acquired in the
Merger, except for dispositions to be made in the ordinary course of
business.
<PAGE> 8
Area Bancshares Corporation
Peoples Bancorp of Winchester, Inc.
Page 2
(e) Following the Merger, Area will continue a historic business of
Peoples and its subsidiaries, or use a significant portion of the
historic business assets of Peoples and its subsidiaries in a business.
(f) Area will pay the expenses, if any, it incurs in connection with
the Merger.
(g) There is no indebtedness, other than indebtedness that arose in the
ordinary course of the parties' trades or businesses, existing between
Area (or its subsidiaries) and Peoples (or its subsidiaries) that was
issued, acquired, or will be settled at a discount.
(h) Area is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as
amended (the "Code").
(i) The payment of cash in lieu of the issuance of fractional shares of
Area stock is solely for the purposes of avoiding the expense and
inconvenience to Area of issuing fractional shares and does not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the transaction to Peoples
shareholders instead of issuing fractional shares of Area will not
exceed one percent of the total consideration that will be issued in
the transaction to Peoples shareholders. The fractional share interest
of each Peoples shareholder will be aggregated and no shareholder will
receive cash in an amount equal to or greater than the value of one
full share of Area stock.
(j) None of the compensation received by any shareholder-employees of
Peoples will be separate consideration for, or allocable to, any of
their shares of Peoples stock; none of the shares of Area stock
received by any shareholder-employees will be separate consideration
for, or allocable to, any employment agreement; and the compensation
paid to any shareholder-employees will be for services actually
rendered and will be determined by bargaining at arm's length.
(k) The Agreement and Plan of Merger between Area and Peoples dated as
of August 24, 1998 and the attachments thereto represent the entire
understanding of Peoples and Area with respect to the Merger.
(l) Unless required by a "determination" (as defined in Section 1313 of
the Code) or as otherwise required by applicable law, Area will not
take any position on any tax returns or any other action or reporting
position which is inconsistent with the qualification of the Merger as
a reorganization under Section 368(a)(1) of the Code or which is
inconsistent with any of the representations in this letter.
(m) The aggregate amount of cash to be paid to Peoples shareholders in
connection with the Merger, including cash paid to Peoples shareholders
who will exercise their dissenters' rights by electing to accept cash
for their Peoples stock in lieu of
<PAGE> 9
Area Bancshares Corporation
Peoples Bancorp of Winchester, Inc.
Page 3
Area stock, will not exceed 50 percent of the value of the Peoples
stock outstanding at the time of the Merger.
(n) Area is participating in the Merger for good and valid business
reasons and not for tax purposes.
AREA BANCSHARES CORPORATION
By: /s/ Thomas R. Brumley
----------------------------------
Thomas R. Brumley
President and CEO
By: /s/ Gary R. White
----------------------------------
Gary R. White
Vice President and Controller
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
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 proxy
statement/prospectus.
/s/ KPMG PEAT MARWICK LLP
Louisville, Kentucky
October 15, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Proxy Statement/Prospectus forming a
part of the Registration Statement on Form S-4 filed by Area Bancshares
Corporation of the report of Eskew & Gresham, PSC dated February 27, 1998, on
their audit of the consolidated balance sheets of Peoples Bancorp of Winchester,
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of income, stockholders' equity, and cash flows for the years then ended. We
also consent to the reference to their firm under the caption "EXPERTS" in the
Proxy Statement/Prospectus.
/s/ Crowe, Chizek and Company LLP (successor to Eskew & Gresham, PSC)
Lexington, Kentucky
October 15, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF PROFESSIONAL BANK SERVICES, INC.
In connection with the proposed Merger of Peoples Bancorp of
Winchester, Inc., Winchester, Kentucky, and Area Bancshares Corporation,
Owensboro, Kentucky, the undersigned, acting as an independent financial analyst
to the common shareholders of Peoples Bancorp of Winchester, Inc. hereby
consents to the reference to our firm in the Proxy Statement/Prospectus and to
the inclusion of our fairness opinion as an Appendix to the Proxy
Statement/Prospectus.
October 13, 1998
/s/ PROFESSIONAL BANK SERVICES, INC.
<PAGE> 1
EXHIBIT 99.1
PEOPLES BANCORP OF WINCHESTER, INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _______________, 199__
The undersigned hereby appoints _________________ and ________________,
or either of them, as Proxies, each with the power to appoint his substitute,
and hereby authorizes them or either of them to represent and to vote, as
designated below, all of the Common Stock of Peoples Bancorp of Winchester,
Inc. ("Peoples"), Maple & Broadway, Winchester, Kentucky, which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Shareholders (the "Special Meeting") to be held at the main office of Peoples
Commercial Bank, Maple & Broadway, Winchester, Kentucky, on _______________,
199__ at _____ __.m., and at any adjournments thereof, upon the proposals
described in the accompanying Notice of the Special Meeting and the Proxy
Statement/Prospectus relating to the Special Meeting, receipt of which are
hereby acknowledged.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSALS.
PROPOSAL ONE: To vote on the Agreement and Plan of Merger, dated as of
August 24, 1998, between Area Bancshares Corporation and
Peoples.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL TWO: To vote on terminating the Amended and Restated Stockholder
Agreement, dated as of November 21, 1997, among Peoples and
its shareholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT WILL
BE VOTED FOR THE PROPOSALS.
DISCRETIONARY AUTHORITY IS HEREBY CONFERRED AS TO ALL OTHER MATTERS WHICH MAY
COME BEFORE THE SPECIAL MEETING, INCLUDING ADJOURNING THE SPECIAL MEETING TO
PERMIT THE FURTHER SOLICITATION OF PROXIES, IF NECESSARY.
If stock is held in the name of more than one person, all holders
should sign. Signatures should correspond exactly with the name or names
appearing on the stock certificate(s). When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
<TABLE>
<S> <C>
Please mark, date and sign this Proxy, and Date:_______________________,199___
return it in the enclosed return-addressed envelope.
No postage is necessary.
-----------------------------------
Name(s) of Shareholder(s)
IF POSSIBLE, PLEASE RETURN PROXY ON OR
BEFORE _______________, 199__.
-----------------------------------
Signature(s) of Shareholder(s)
</TABLE>
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