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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1996
REGISTRATION NO. 33-01439
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
FORT WAYNE NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------------
6712 110 WEST BERRY STREET INDIANA
(PRIMARY STANDARD INDUSTRIAL P.O. BOX 110 (STATE OF INCORPORATION)
CLASSIFICATION CODE NO.) FORT WAYNE, INDIANA 46801
(219) 426-0555 35-1502812
(ADDRESS, INCLUDING ZIP CODE, AND (I.R.S. EMPLOYER
TELEPHONE NUMBER, INCLUDING AREA IDENTIFICATION NO.)
CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
---------------------
STEPHEN R. GILLIG
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
FORT WAYNE NATIONAL CORPORATION
110 WEST BERRY STREET
P.O. BOX 110
FORT WAYNE, INDIANA 46801
(219) 426-0555
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------
COPIES TO:
STEVEN H. HAZELRIGG
BAKER & DANIELS
111 EAST WAYNE STREET, SUITE 800
FORT WAYNE, INDIANA 46802
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the 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 this box. [_]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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FORT WAYNE NATIONAL CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K SHOWING THE LOCATION IN THE
PROSPECTUS OF THE RESPONSE TO THE ITEMS OF PART I OF FORM S-4.
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REGISTRATION STATEMENT
ITEM AND CAPTION PROSPECTUS CAPTION
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1. Forepart of Registration Facing Page; Cross-Reference Sheet;
Statement and Outside Front Cover Outside Front Cover Page of
Page of Prospectus Prospectus/Proxy Statement
2. Inside Front and Outside Back Cover Inside Front Cover Page of
Pages of Prospectus Prospectus; Table of Contents;
Available Information; Incorporation
of Certain Information by Reference
3. Risk Factors, Ratio of Earnings to Special Considerations--Absence of
Fixed Charges and Other Information Market for FWNC Class B Preferred
Stock Series 1
4. Terms of the Transaction Summary; The Merger; Description of
FWNC Stock; Comparison of the Rights
of Shareholders
5. Pro Forma Financial Information Pro Forma Financial Information
6. Material Contracts with the Company The Merger
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to Be Underwriters
8. Interests of Named Experts and Legal Opinions; Experts
Counsel
9. Disclosure of Commission Position Incorporation of Certain Information
on Indemnification for Securities by Reference
Act Liabilities
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10. Information with Respect to S-3 Incorporation of Certain Information
Registrants by Reference
11. Incorporation of Certain Incorporation of Certain Information
Information by Reference by Reference
12. Information with Respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other than S-3 or S-2
Registrants
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 or Not Applicable
S-3 Companies
17. Information with Respect to Management's Discussion and Analysis
Companies Other Than S-3 or S-2 of Financial Condition and Results of
Companies Operations of Valley Financial
Services, Inc.; The Company; Valley
Financial Services, Inc. Consolidated
Financial Statements
18. Information if Proxies, Consents Summary; The Special Meeting; The
or Authorizations are to be Solicited Merger
19. Information if Proxies, Consents Not Applicable
or Authorizations are not to be
Solicited or in an Exchange Offer
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VALLEY FINANCIAL SERVICES
310 West McKinley
Mishawaka, Indiana 46545
May 2, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Valley Financial Services, Inc. (the "Company"). The Meeting will be held on
Friday, May 31, 1996, at 9:00 a.m. local time at the executive offices of the
Company located at 310 West McKinley, Mishawaka, Indiana.
At the Meeting, Shareholders will be asked to consider and vote upon the
acquisition of the Company by means of the merger of the Company into Fort Wayne
National Corporation ("FWNC"). In the merger, the outstanding shares of common
stock of the Company will be converted into a right to receive FWNC common stock
having an approximate market value of $20,000,000, FWNC preferred stock having a
stated value of $37,000,000, and cash in the amount of $52,155,250. Outstanding
shares of preferred stock of the Company will be converted into a right to
receive cash in the amount of $844,750. The number of shares of FWNC common
stock to be issued will be determined by dividing $20,000,000 by the average of
the closing prices on the Nasdaq Stock Market's National Market System of FWNC
common stock for the 20 trading days preceding the fifth calendar day prior to
completion of the merger, all as more fully described in the accompanying
Prospectus/Proxy Statement.
The Board of Directors of the Company has approved the merger and
recommends that you vote for approval as well.
It is important that your shares be represented at the Meeting, whether or
not you plan to attend in person. Therefore, we ask that you please sign, date
and return the enclosed proxy card in the postage paid envelope provided. If you
attend the Meeting, you may vote in person if you wish, even if you have
previously mailed in your proxy card.
Sincerely,
Darwin L. Wiekamp
Chairman of the Board
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VALLEY FINANCIAL SERVICES, INC.
310 WEST MCKINLEY
MISHAWAKA, INDIANA 46545
(219) 256-6000
----------------------------------
NOTICE
OF
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, MAY 31, 1996
----------------------------------
A Special Meeting of Shareholders of Valley Financial Services, Inc. (the
"Company"), will be held on Friday, May 31, 1996, at 9:00 A.M., local time (the
"Special Meeting"), at the executive offices of the Company located at 310 West
McKinley, Mishawaka, Indiana, for the following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and
Plan of Merger dated November 6, 1995 (the "Merger Agreement"), between the
Company and Fort Wayne National Corporation ("FWNC"), which provides, among
other things, for (a) the merger of the Company with and into FWNC (the
"Merger"), and (b) the conversion of (i) each share of common stock of the
Company outstanding immediately prior to the Merger into the right to
receive shares of FWNC Common Stock, shares of FWNC Class B Preferred Stock
Series 1, and cash, and (ii) each share of preferred stock of the Company
outstanding immediately prior to the Merger into the right to receive cash,
all specifically on and subject to the terms and conditions set forth in
the Merger Agreement and described herein; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 11, 1996,
as the record date for determination of shareholders entitled to notice of and
to vote at the Special Meeting (the "Record Date"). The holders of the Company's
issued and outstanding preferred stock (the "Company Preferred Stock") and of
the Company's issued and outstanding common stock (the "Company Common Stock")
at the close of business on the Record Date will be entitled to notice of and to
vote at the Special Meeting or any adjournments thereof. The affirmative vote of
holders of at least a majority of the
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outstanding Company Preferred Stock and at least a majority of the outstanding
Company Common Stock is required to take the actions described in Item 1,
above.
A list of shareholders entitled to vote at the meeting will be available
for examination for any purpose relevant to the meeting in the office of the
Secretary of the Company for a period of at least 5 business days prior to the
meeting.
The laws of the State of Indiana provide to shareholders who wish to
dissent from the Merger certain dissenters' rights, in accordance with Indiana
Code Sections 23-1-44-1 through 20. These dissenters' rights are available to
both the holders of the Company Preferred Stock and the Company Common Stock.
These rights are fully discussed in the Prospectus/Proxy Statement accompanying
this Notice, and a copy of the applicable Indiana law is attached hereto as
Appendix B.
By Order of the Board of Directors
Pamela J. Austin, Secretary of Valley
Financial Services, Inc.
Mishawaka, Indiana
May 2, 1996
----------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. EVEN IF YOU PLAN
TO BE PRESENT AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE SPECIAL MEETING,
YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU
IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE
THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FOR SUBMITTING SUCH
CERTIFICATES.
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PROSPECTUS PROXY STATEMENT
FORT WAYNE NATIONAL VALLEY FINANCIAL SERVICES, INC.
CORPORATION
- ------------------------------------------------------------------------------
Up to 770,000 Shares, Common Stock Special Meeting of Shareholders to
(No Par Value) be held on May 31, 1996
740,000 Shares of 6% Cumulative
Convertible Class B Preferred
Stock, Series 1 (No Par Value)
This Prospectus/Proxy Statement is being furnished to the holders of
Company's Preferred Stock, $12.00 par value (the "Company Preferred Stock"), and
to holders of Company's Common Stock, no par value (the "Company Common Stock'),
in connection with solicitation of proxies by the Company's Board of Directors
for use at a Special Meeting of Shareholders of the Company to be held at 9:00
A.M., local time, on May 31, 1996, at the executive offices of the Company,
located at 310 West McKinley, Mishawaka, Indiana, and any and all adjournment or
adjournments thereof (the "Special Meeting"). At the Special Meeting, the
Company's Shareholders will consider and vote upon an Agreement and Plan of
Merger, dated November 6, 1995 (the "Merger Agreement"), between the Company and
Fort Wayne National Corporation ("FWNC"), which provides among other things for
the merger of the Company with and into FWNC (the "Merger").
Upon consummation of the Merger, each issued and outstanding share of
Company Preferred Stock will be converted into the right to receive cash in the
amount of $16.50, and each outstanding share of Company Common Stock will be
converted into the right to receive cash in the amount of $254.68, a pro rata
share of approximately $20 million of FWNC Common Stock, and approximately 3.613
shares of FWNC 6% Cumulative Convertible Class B Preferred Stock Series 1 ("FWNC
Class B Preferred Stock Series 1"), plus cash in lieu of any fractional shares
of FWNC Common Stock or FWNC Class B Preferred Stock Series 1 to which a
shareholder of the Company would otherwise be entitled. The total number of
shares of FWNC Common Stock to be issued to shareholders of Company Common Stock
is to be determined by dividing $20 million by the FWNC Common Stock Average
Price, being the average of the closing prices of a single share of FWNC Common
Stock, as reported on the Nasdaq Stock Market's National Market System, as
reported in The Wall Street Journal (Midwest Edition) during the 20 trading days
preceding the fifth calendar date prior to the Closing Date (the "FWNC Common
Stock Average Price"). The actual number of shares of FWNC Common Stock to be
issued in exchange for each share of Company Common Stock will be determined by
dividing the aggregate number of shares of FWNC Common Stock to be issued in the
Merger by 204,788, being the number of shares of Company Common Stock
outstanding on the Record Date. Assuming the FWNC Common Stock Average Price, as
defined above, to be $31.50, a total of 634,921 shares of FWNC Common Stock will
be issued to all shareholders of
i
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Company Common Stock. Based on this assumed price, therefore, each share of
Company Common Stock would be converted into the right to receive 3.1004 shares
of FWNC Common Stock, and cash in lieu of any resulting fractional shares. It is
not possible to predict exactly what the FWNC Common Stock Average Price will
be. However, the range of FWNC Common Stock prices over the past two calendar
years is disclosed at "Summary--Market for FWNC Common Stock and Dividends,"
below. See also "The Merger--General," The Merger--Consideration," "The
Merger--Fractional Shares."
The outstanding shares of FWNC Common Stock are, and the shares of FWNC
Common Stock to be issued in the Merger will be, traded on the Nasdaq Stock
Market's National Market System.
SHARES OF FWNC CLASS B PREFERRED STOCK SERIES 1 ARE NOT ACTIVELY TRADED;
THIS FACTOR MAY REPRESENT SOME RISK TO SHAREHOLDERS OF THE COMPANY. SEE "FWNC
CLASS B PREFERRED STOCK SERIES 1," ON PAGE xxi, BELOW.
All information contained in this Proxy Statement relating to the Company
has been supplied by the Company, and all information relating to FWNC has been
supplied by FWNC.
The Proxy Statement and the accompanying form of proxy are first being
mailed to shareholders of the Company on or about May 2, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF FWNC COMMON STOCK AND FWNC CLASS B PREFERRED STOCK
SERIES 1 OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ii
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<CAPTION>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION............................................ vii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................. viii
SUMMARY OF PROSPECTUS/PROXY STATEMENT............................ viii
Date, Time and Place of Meeting................................ viii
Outstanding Shares of Company Stock Entitled to Vote
at the Special Meeting....................................... ix
Purpose of the Meeting......................................... ix
Ownership of Shares; Control by Directors of the Company....... ix
Revocation of Proxy............................................ x
Parties to the Merger--FWNC.................................... x
Parties to the Merger--The Company............................. xi
The Merger--Negotiation of Terms............................... xii
Affiliation Between Parties to the Merger...................... xii
The Merger--Terms of Exchange.................................. xii
The Merger--Effect on the Company and Valley American Bank..... xiii
Recommendation of the Board of Directors of the Company........ xiii
Regulatory Approvals........................................... xiv
Conditions to the Merger....................................... xiv
Value of Merger Consideration to be Received by Shareholders
of the Company............................................... xv
Effective Time of the Merger................................... xvii
Termination; Termination Fee................................... xvii
Dissenters' Rights............................................. xvii
Accounting Treatment........................................... xvii
Federal Income Tax Consequences................................ xviii
Post-Merger Regulation and Supervision......................... xviii
Interests of Certain Persons in the Merger..................... xviii
Shareholder Agreement.......................................... xviii
Description of FWNC Common Stock............................... xix
Resale of FWNC Common Stock.................................... xix
Market for FWNC Common Stock and Dividends..................... xix
FWNC Preferred Stock........................................... xx
FWNC Class B Preferred Stock Series 1.......................... xxi
Company Preferred Stock........................................ xxii
Company Common Stock........................................... xxii
Anti-takeover Measures......................................... xxiii
Other Material Changes in Rights of Shareholders............... xxiv
Comparative Per-Share Data..................................... xxiv
Selected Financial Data........................................ xxvi
</TABLE>
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Existing and Pro Forma Capitalization.......................... xxviii
RECENT DEVELOPMENTS CONCERNING FWNC.............................. xxix
Financial Data................................................. xxix
Comparison of Fiscal Quarters Ended March 31, 1996 and 1995.... xxix
Change in Management........................................... xxx
GENERAL INFORMATION.............................................. 1
THE SPECIAL MEETING.............................................. 1
Matters to be Considered....................................... 1
Record Date; Shares Outstanding Entitled to Vote............... 1
Voting, Solicitation and Revocation of Proxies................. 2
Certain Beneficial Owners of Company Stock..................... 3
THE MERGER....................................................... 4
General; The Merger Consideration.............................. 4
Fractional Shares.............................................. 5
Exchange of Stock Certificates................................. 6
Background of and Reasons for the Merger;
Recommendation of the Board of Directors..................... 6
Effects of the Merger.......................................... 9
Effect on the Company's Shareholders......................... 9
Effect on the Company........................................ 9
Effect on Valley American Bank............................... 9
Effect on Employees of the Company and Valley American Bank.. 10
Conditions to the Merger....................................... 10
Regulatory Approvals........................................... 12
Business Pending the Merger.................................... 13
No Solicitation................................................ 13
Effective Time of the Merger; Termination and Amendment;
Termination Fee.............................................. 14
Interests of Certain Persons in the Merger..................... 15
Bonus Payments................................................. 16
RESALE OF FWNC COMMON STOCK AND FWNC PREFERRED STOCK............. 16
Resale of FWNC Common Stock.................................... 16
Resale of FWNC Class B Preferred Stock Series 1................ 17
FEDERAL INCOME TAX CONSEQUENCES.................................. 18
General........................................................ 18
Reporting Requirements......................................... 20
Backup Withholding............................................. 20
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ACCOUNTING TREATMENT OF THE MERGER............................... 21
DISSENTERS' RIGHTS............................................... 21
EXPENSES OF THE MERGER........................................... 24
CERTAIN REGULATORY CONSIDERATIONS................................ 24
General........................................................ 24
Regulatory Capital Requirements................................ 25
Regulatory Enforcement Actions................................. 29
Dividends...................................................... 29
Support of Banking Subsidiaries................................ 30
Transactions with Affiliates................................... 30
FDICIA......................................................... 30
Insurance Premiums........................................... 30
Prompt Corrective Action..................................... 31
Brokered Deposits............................................ 32
Safety and Soundness Standards............................... 33
Other........................................................ 33
Recent Legislative Developments................................ 33
DESCRIPTION OF FWNC STOCK........................................ 34
FWNC Common Stock.............................................. 34
General...................................................... 34
Voting Rights................................................ 34
Dividends.................................................... 34
Preemptive Rights............................................ 34
Liquidation.................................................. 35
FWNC Preferred Stock............................................. 35
FWNC Class B Preferred Stock Series 1............................ 36
Anti-takeover Provisions in FWNC's Articles of
Incorporation and By-Laws...................................... 38
Anti-Takeover Provisions in the Indiana Business
Corporation Law................................................ 39
Control Share Acquisitions....................................... 40
Business Combinations............................................ 40
Transfer Agent................................................... 41
Comparison of the Rights of Shareholders......................... 41
Authorized Capital Stock....................................... 41
Issuance of Capital Stock...................................... 41
Voting Rights.................................................. 41
Dividends and Distributions.................................... 42
Classification and Size of Board of Directors.................. 42
Indemnification of Directors and Officers...................... 42
Procedure for Calling Special Meeting of Shareholders.......... 42
Shareholder Nominations and Proposals.......................... 43
</TABLE>
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Shareholder's Right to Examine Books and Records............. 43
Amendment of Governing Instruments........................... 43
SELECTED INFORMATION CONCERNING COMPANY MANAGEMENT............... 44
Summary Compensation Tables.................................... 44
Options........................................................ 46
THE COMPANY...................................................... 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF VALLEY FINANCIAL SERVICES, INC................................ 58
OTHER MATTERS.................................................... 66
LEGAL OPINIONS................................................... 66
EXPERTS.......................................................... 66
PRO FORMA FINANCIAL INFORMATION.................................. 66
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
APPENDIX A--AGREEMENT AND PLAN OF MERGER......................... A-1
APPENDIX B--INDIANA DISSENTERS' RIGHTS
STATUTE (I.C. (S) 23-1-44-1)..................................... B-1
APPENDIX C--AGREEMENT BETWEEN FWNC AND CERTAIN
SHAREHOLDERS OF VALLEY FINANCIAL SERVICES, INC................. C-1
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vi
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AVAILABLE INFORMATION
FWNC has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), covering the FWNC Common Stock and the FWNC
Class B Preferred Stock Series 1 to be issued in connection with the Merger.
This Prospectus/Proxy Statement also constitutes the Prospectus of FWNC filed as
part of such Registration Statement. The Prospectus/Proxy Statement does not
contain all of the information set forth in the Registration Statement. The
Registration Statement and the exhibits thereto can be inspected and copied at
the Commission's public reference room, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
FWNC is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Reports,
proxy statements and other information filed by FWNC can be inspected and copied
at Room 1024 of the Commission's office at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices in New York at 7 World
Trade Center, Suite 1300, New York, New York 10048, and in Chicago at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Reports,
proxy statements and other information relating to FWNC may also be inspected at
the offices of the National Association of Securities Dealers, Inc., at 1735 K
Street, N.W., Washington, D.C. 20006.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
UPON REQUEST FROM FORT WAYNE NATIONAL CORPORATION, P.O. BOX 110, 110 WEST BERRY
STREET, FORT WAYNE, INDIANA 46801, ATTENTION: STEPHEN R. GILLIG, TELEPHONE
NUMBER: (219) 426-0555. IN ORDER TO INSURE TIMELY DELIVERY OF SUCH DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY MAY 23, 1996.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT OR
INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FWNC OR THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS/PROXY STATEMENT RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF FWNC OR THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR SOLICITATION TO BUY SUCH SECURITIES UNDER ANY
CIRCUMSTANCES IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
vii
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by FWNC with the Commission (SEC File No.
0-10869) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Prospectus/Proxy Statement:
1. FWNC's Annual Report on Form 10-K for the year ended December 31, 1995.
All documents filed by FWNC pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date hereof and prior to the Special
Meeting are also hereby incorporated by reference into this Prospectus/Proxy
Statement and shall be deemed a part hereof from the date of filing of such
documents.
Any statement contained herein, and any supplement or amendment hereto, or
any document incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Prospectus/Proxy Statement to the extent that a statement
contained herein, and any supplement hereto or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement, this Prospectus/Proxy Statement
or any supplement hereto.
SUMMARY OF PROSPECTUS/PROXY STATEMENT
The following is a Summary of certain information contained in the
Prospectus/Proxy Statement. This Summary relates to the Prospectus/Proxy
Statement, generally, although emphasis is placed upon that portion of the
Prospectus/Proxy Statement relating to the Merger. This Summary is not intended
to be a complete statement of the matters described herein. Reference is made
to, and this Summary is qualified in its entirety by, the more detailed
information contained elsewhere in this Prospectus/Proxy Statement and in the
Appendices attached hereto, including the Merger Agreement, a copy of which
(excluding exhibits) is attached hereto as Appendix A, and the information
incorporated herein by reference. Shareholders are urged to carefully read all
of such information.
DATE, TIME AND PLACE OF MEETING
The Special Meeting will be held at 9:00 A.M., local time, on May 31, 1996,
at the executive offices of the Company, 310 West McKinley, Mishawaka,
Indiana.
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OUTSTANDING SHARES OF COMPANY STOCK ENTITLED TO VOTE AT THE SPECIAL MEETING
Only the holders of record of the outstanding shares of Company Preferred Stock
and Company Common Stock at the close of business on April 11, 1996 (the "Record
Date"), are entitled to notice of and to vote at the Special Meeting.
At the Record Date, there were 51,197 shares of Company Preferred Stock
issued, outstanding and entitled to vote. Each share of Company Preferred Stock
is entitled to one vote in respect of all matters properly coming before the
Special Meeting.
At the Record Date, there were 204,788 shares of Company Common Stock
issued and outstanding. Although the holders of shares of Company Common Stock
are typically not entitled to vote, Indiana law confers upon the holders of
shares of Company Common Stock the right to vote separately as a class with
respect to the Merger and the transactions relating thereto. Accordingly, each
share of Company Common Stock is entitled to one vote in respect of all matters
regarding the Merger properly coming before the Special Meeting.
Generally, the ownership of Company Preferred Stock and Company Common
Stock is vested in the same shareholders. Although most shares of Company Common
Stock are held by the shareholders of Company Preferred Stock in a ratio of 4 to
1, there are circumstances under which the record owners of Company Preferred
Stock were not, as of the Record Date, the record owners of Company Common
Stock. Accordingly, and in accordance with Indiana law, a separate vote will be
conducted among holders of Company Preferred Stock and holders of Company Common
Stock, separately by each class of shares, in respect of all matters properly
coming before the Special Meeting.
PURPOSE OF THE MEETING
At the Special Meeting, the Company's shareholders will be asked to
consider and vote upon (1) a proposal to approve the Merger Agreement, and (2)
the transaction of such other business as may properly come before the Special
Meeting and any adjournment or adjournments thereof. The affirmative vote of the
holders of a majority of the outstanding shares of Company Preferred Stock and,
separately, the holders of a majority of the outstanding shares of Company
Common Stock, voting in person or by proxy, is required to approve the Merger
Agreement.
OWNERSHIP OF SHARES; CONTROL BY DIRECTORS OF THE COMPANY
As of the Record Date, the directors of the Company, in the aggregate,
beneficially owned 38,043 shares, or approximately 74.3%, of the outstanding
Company Preferred Stock, and 152,172 shares, or approximately 74.3%, of the
outstanding Company Common Stock. This ownership included 10,375 shares, or
20.3%, of outstanding Company Preferred Stock owned by Darwin L. Wiekamp,
Chairman of the Board of Directors of the Company, and 5,087 shares, or
approximately 9.9%, of outstanding Company Preferred Stock owned by
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<PAGE>
Dennis J. Schwartz, President of the Company. See "The Special Meeting--Certain
Beneficial Owners of Company Stock." Each of the directors of the Company has
informed the Company that he or she intends to vote his or her shares in favor
of the Merger Agreement. In addition, certain significant shareholders of the
Company have entered into an agreement requiring that they vote in favor of the
Merger Agreement. See "The Merger--Shareholder Agreement."
Based upon the percentages of ownership of Company Preferred Stock and
Company Common Stock described in the preceding paragraph, and based upon the
stated intention of the directors of the Company to vote in favor of the Merger
Agreement, it appears likely that the proposal to approve the Merger Agreement
will be approved at the Special Meeting. Nevertheless, proxies are being
solicited from the Company's shareholders because Indiana law requires that the
Company's shareholders be given the opportunity to vote upon the Merger. The
proxy solicitation is offered as a convenience to shareholders who may wish to
vote on the Merger without actually attending the Special Meeting. Company
shareholders should understand that a vote in favor of the Merger will deprive
them of the right to exercise dissenters' rights. See "Dissenters' Rights." A
vote in favor of the Merger may also make it more difficult or impossible to
challenge legally the validity of the Merger or the right of the Company to
merge into FWNC.
REVOCATION OF PROXY
Any shareholder of the Company executing a proxy may revoke it at any time
before it is voted in the manner discussed under the section of this
Prospectus/Proxy Statement entitled "The Special Meeting--Voting, Solicitation
and Revocation of Proxies." A failure to vote, either by not returning the
enclosed proxy or by checking the "abstain" box thereon, will have the same
effect as a vote against the adoption of the Merger Agreement.
PARTIES TO THE MERGER--FWNC
FWNC, an Indiana corporation, is a multi-bank holding company registered
under the Bank Holding Company Act of 1956, as amended ("the BHCA"). FWNC owns
all of the outstanding stock of The Auburn State Bank, Auburn, Indiana;
Churubusco State Bank, Churubusco, Indiana; First National Bank of Huntington,
Huntington, Indiana; First National Bank of Warsaw, Warsaw, Indiana; Old-First
National Bank in Bluffton, Bluffton, Indiana; and its lead bank, Fort Wayne
National Bank, Fort Wayne, Indiana ("FWNB"). Each of the foregoing banks are
national banks, excepting only The Auburn State Bank and Churubusco State Bank,
both of which are chartered under the laws of the State of Indiana (collectively
the "FWNC Banking Subsidiaries"). FWNC conducts its business through its Banking
Subsidiaries throughout northeastern Indiana. FWNC's Banking Subsidiaries
operate a total of 43 offices throughout northeastern Indiana. At December 31,
1995, FWNC had consolidated assets of approximately $2.30 billion, consolidated
deposits of approximately $1.77 billion and consolidated shareholders' equity of
approximately $234
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million. Based on total assets at December 31, 1995, FWNC is the third largest
independent bank holding company headquartered in the State of Indiana.
FWNC's Banking Subsidiaries offer a broad range of commercial and consumer
banking services and products, including accepting demand and time deposits;
making secured and unsecured loans to corporations, individuals and others;
issuing letters of credit; and financial counseling for institutions and
individuals. Lending services include making commercial, industrial, real
estate, installment and credit card loans. Interest and fees on commercial loans
constitute the largest contribution to FWNC's consolidated operating revenues.
In addition, FWNC's Banking Subsidiaries provide a wide range of trust and
trust-related services, including serving as executor of estates and as trustee
under testamentary and inter vivos trusts and various pension and other employee
benefit plans. Corporate trust services include serving as registrar and
transfer agent for corporate securities and as corporate trustee for corporate
trust indentures. FWNC's Banking Subsidiaries actively compete on the local and
regional levels with other commercial banks and financial institutions for all
types of deposits, loans and trust accounts and in providing financial and other
services traditionally offered by banks. They also compete for the banking
business of local and regional offices of national companies. With respect to
certain banking services, FWNC's Banking Subsidiaries compete with insurance
companies, savings and loan associations, credit unions and other financial
institutions. The principal executive offices of FWNC are located at 110 West
Berry Street, Fort Wayne, Indiana 46802.
PARTIES TO THE MERGER--THE COMPANY
The Company, an Indiana corporation, is a single bank holding company
registered under the BHCA. The Company owns all of the issued and outstanding
stock of Valley American Bank and Trust Company, South Bend, Indiana ("Valley
American Bank"). Valley American Bank is chartered under the laws of the State
of Indiana and conducts its business from its headquarters in South Bend,
Indiana, and 20 other branch offices located throughout northwestern Indiana.
Valley American Bank employs approximately 340 persons. At December 31, 1995,
the Company had consolidated assets of approximately $819 million, consolidated
deposits of approximately $564 million and consolidated shareholders' equity of
approximately $44.7 million. Based on total assets at December 31, 1995, the
Company believes it is the sixth largest independent bank holding company
headquartered in the State of Indiana.
Valley American Bank offers a broad range of commercial and consumer
banking services and products, and it competes with other commercial banks,
small loan companies, sales finance companies, credit unions and savings and
loan institutions, some of which have greater financial resources than the
Company or Valley American Bank. The principal executive offices of the Company
are located at 310 West McKinley, Mishawaka, Indiana, 46545.
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<PAGE>
THE MERGER--NEGOTIATION OF TERMS
The terms of the Merger were negotiated for the Company by Darwin L.
Wiekamp, Chairman of the Board of Directors of the Company, and Dennis J.
Schwartz, President of the Company. Their objective was to obtain a price equal
to two times the Company's total book value on a tax-deferred basis, receiving a
mix of FWNC's common and preferred stock for the non-cash portion of the
purchase price. Based upon conservative federal income tax guidelines, the cash
to be received, $53 million, is the highest amount of cash that could be
received in order for the transaction to retain its tax-deferred nature. The mix
of FWNC Common Stock and FWNC Class B Preferred Stock Series 1 to be received
was based upon FWNC's desire to limit dilution to its shareholders and the
Company's desire to have its shareholders receive a higher and preferred cash
dividend of 6%. The value of the Company's $12 preferred stock was based upon
the Company's estimate of its worth confirmed by the written opinion of Southard
Financial dated February 21, 1996. See "The Merger--Conditions to the Merger."
AFFILIATION BETWEEN PARTIES TO THE MERGER
Prior to execution of the Merger Agreement, there had been no material
affiliation between FWNC and the Company or their respective banking
subsidiaries. No director or material shareholder of the Company owns shares in
FWNC, nor does any director or material shareholder of FWNC own shares in the
Company. Neither the Company and FWNC, nor Valley American Bank and any of
FWNC's Banking Subsidiaries, have engaged in any material business transactions
together.
THE MERGER--TERMS OF EXCHANGE
The Merger Agreement provides that at the Effective Time of the Merger,
each outstanding share of Company Preferred Stock will be cancelled and
converted into a right to receive cash only in the amount of $16.50. At the
Effective Time of the Merger, each outstanding share of Company Common Stock
will be cancelled and converted into the right to receive (1) cash in the amount
of $254.68, (2) a pro rata share of approximately $20 million in shares of FWNC
Common Stock, plus cash in lieu of any fractional shares, and (3) 3.613 shares
of FWNC Class B Preferred Stock Series 1, plus cash in lieu of any fractional
share. The total number of shares of FWNC Common Stock to be issued to
shareholders of Company Common Stock is to be determined by dividing $20 million
by the FWNC Common Stock Average Price, being the average at the closing prices
of a single share of FWNC Common Stock, as reported on the Nasdaq Stock Market's
National Market System, as reported in The Wall Street Journal (Midwest Edition)
during the 20 trading days preceding the fifth calendar date prior to the
Closing Date (the "FWNC Common Stock Average Price"). The actual number of
shares of FWNC Common Stock to be issued in exchange for each share of Company
Common Stock will be determined by dividing the aggregate number of shares of
FWNC Common Stock to be issued in the Merger by 204,788, being the number of
shares of Company Common Stock outstanding on the Record
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<PAGE>
Date. Assuming the FWNC Common Stock Average Price, as described above, to be
$31.50, a total of 634,921 shares of FWNC Common Stock will be issued to all
shareholders of Company Common Stock. Based on this assumed price, therefore,
each share of Company Common Stock will be converted into the right to receive
3.1004 shares of FWNC Common Stock, and cash in lieu of any resulting fractional
shares.
THE MERGER--EFFECT ON THE COMPANY AND VALLEY AMERICAN BANK
In accordance with the terms of the Merger Agreement, the Company will be
merged with and into FWNC, with FWNC as the surviving corporation in the Merger.
By operation of corporate law, therefore, the Company will cease to exist as a
separate corporate entity at the Effective Time of the Merger. Thereafter, the
assets of the Company, including all of the issued and outstanding shares of
stock in Valley American Bank, will become the assets of FWNC. Valley American
Bank will, accordingly, become one of FWNC's Banking Subsidiaries. Under the
Merger Agreement, FWNC will not allow the name of Valley American Bank to be
changed for two years after the Merger without the written consent of Darwin L.
Wiekamp or Dennis J. Schwartz. It is anticipated that Valley American Bank will
continue to operate as an independent state chartered banking association,
maintaining its own identity and traditional methods of doing business. Valley
American Bank has traditionally maintained its own separate Board of Directors,
consisting of the following named individuals, each of whom is expected to
remain on that Board of Directors immediately following the Merger:
Thomas P. Bergin
John L. Carey
James R. Cocquyt
Joseph F. Dillon, Sr.
G. Walter Erickson
Austin J. Hickey
William A. Hickey
Thomas W. Mittler
Dennis J. Schwartz
James T. Schwartz
George Wm. Weber
Darwin L. Wiekamp
Donald L. Zimmerman
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors of the Company has unanimously approved the Merger
Agreement and believes that the Merger is in the best interests of the Company
and its shareholders. Accordingly, the Board of Directors of the Company
unanimously recommends that the Company's shareholders vote in favor of adoption
of the Merger Agreement and completion of the Merger.
xiii
<PAGE>
REGULATORY APPROVALS
Consummation of the Merger is subject to prior receipt of all required
approvals, consents or waivers to or in respect of the Merger by applicable
federal and state regulatory authorities, including the Board of Governors of
the Federal Reserve System ("FRB") and the Indiana Department of Financial
Institutions ("DFI"). Applications have been filed with such regulatory
authorities for approval of the Merger. There can be no assurance that necessary
regulatory approvals will be obtained or as to the time at which, or conditions
under which, such approvals may be obtained. See "The Merger--Regulatory
Approvals."
CONDITIONS TO THE MERGER
In addition to regulatory approvals, among other things, consummation of
the Merger is also subject to (1) approval of the Merger Agreement by the
holders of Company Preferred Stock and Company Common Stock, voting separately
by class; (2) absence of any court, governmental or regulatory action which
prohibits, restricts or makes illegal the Merger; (3) effectiveness of the
Registration Statement of which this Prospectus/Proxy Statement comprises a
part; (4) receipt by the Company of an opinion from its counsel to the effect
that the Merger qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and
with respect to certain tax matters relating thereto; (5) the Average Price of
FWNC Common Stock not being less than $26 per share; and (6) receipt of the
opinions described in the next paragraph. For purposes hereof, the term "Average
Price" means the average of the per share closing prices of a share of FWNC
Common Stock as reported on the Nasdaq Stock Market's National Market System, as
reported in The Wall Street Journal (Midwest Edition) during the 20 trading day
period preceding the fifth calendar day prior to closing.
One of the foregoing conditions specifies that the average price of FWNC
Common Stock shall not be less than $26 per share. This provision was
incorporated for the benefit of the Company's shareholders. This condition was
incorporated in order to permit the Company to terminate the transaction and to
refuse to proceed with the Merger should the value, as perceived by the
marketplace, of FWNC decrease materially. Those negotiating on behalf of the
Company did not believe it was necessary to establish a high-end limitation on
the Average Price of FWNC Common Stock, because the market perception of
increased value would not generally harm the shareholders of Company Common
Stock receiving FWNC Common Stock in exchange therefor. As a practical matter,
the higher of the Average Price of FWNC Common Stock, the fewer the number of
shares of FWNC Common Stock which will be received in respect of each share of
Company Common Stock. For example, assuming an Average Price of FWNC Common
Stock of $26, a total of approximately 769,231 shares of FWNC Common Stock would
be issued, in the aggregate, to shareholders of Company Common Stock. Assuming
an Average Price of FWNC Common Stock of $34, however, a total of approximately
588,235 shares of FWNC Common Stock would be issued, in the aggregate, to the
shareholders of the Company Common
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<PAGE>
Stock. Accordingly, at an Average Price of $26 per share, each share of Company
Common Stock would be converted into a right to receive 3.7562 shares of FWNC
Common Stock, plus cash in lieu of fractional shares. At an average price of $34
per share, each share of Company Common Stock would be converted into the right
to receive approximately 2.8724 shares of FWNC Common Stock, plus cash in lieu
of fractional shares.
Substantially all of the conditions to consummation of the Merger except
for required shareholder and regulatory approvals may be waived at any time by
the party for whose benefit they were created, and the Merger Agreement may be
amended at any time by written agreement of the parties, except that no waiver
or amendment occurring after approval of the Merger Agreement by the Company's
shareholders shall reduce the amount or change the nature of consideration which
the Company's shareholders are entitled to receive in the Merger. In addition,
if the Merger is not consummated on or before September 1, 1996, FWNC or the
Company may terminate the Merger Agreement.
The Company maintains for the benefit of its employees the Valley Financial
Services, Inc., Employee Stock Ownership Plan with 401(k) Provisions (the
"ESOP"). The Company's obligation to consummate the Merger is contingent upon
receipt by the plan's Trustees of an opinion from Southard Financial
("Southard") that the consideration to be received in the Merger by the ESOP is
fair from a financial point of view. The opinion of Southard, which is dated
February 24, 1996, describes the procedures followed, assumptions made, matters
considered and limitations on the review undertaken by Southard in rendering
such opinion. Although Southard's opinion is given only for the benefit of the
Trustees of the ESOP, the existence of this opinion is being disclosed to the
shareholders of the Company with the consent of Southard. See "The Merger--
Conditions to the Merger."
In addition, the Company's obligation to effect the Merger is expressly
subject to confirmation from advisors to FWNC that the fair market value of FWNC
Class B Preferred Stock Series 1 at the Effective Time of the Merger is not less
than $45 per share. This confirmation is to be given orally at the Effective
Time of the Merger, and, therefore, it is not included as a part of this
Prospectus/Proxy Statement.
VALUE OF MERGER CONSIDERATION TO BE RECEIVED BY SHAREHOLDERS OF THE COMPANY
As indicated above, the merger consideration consists of cash, FWNC Common
Stock and FWNC Class B Preferred Stock Series 1. The value of FWNC Common Stock
is based upon purchase and sale prices of a share of FWNC Common Stock as
reported on the Nasdaq Stock Market's National Market System. This price is
reported in The Wall Street Journal on a daily basis and, as described above,
the actual number of shares to be received in respect of a single share of
Company Common Stock is based upon the Average Price as reported by the Nasdaq
Stock Market's National Market System during the 20 trading days preceding the
fifth calendar day prior to the Closing Date. The value of a single share of
FWNC Class B Preferred Stock Series 1 is approximately $50. This valuation is
principally based on the 6% annual dividend rate in respect of such shares, the
conversion
xv
<PAGE>
ratio into FWNC Common Stock, the market value of a share of FWNC Common Stock
and the call protection feature inherent in FWNC Class B Preferred Stock Series
1. Typically, preferred stock which is convertible into common stock has a value
which fluctuates based on price movements of the underlying common stock.
Typically, one share of convertible preferred stock would be convertible into a
fixed number of common shares. In this transaction, each share of FWNC Class B
Preferred Stock Series 1 will be convertible into FWNC Common Stock at a
conversion ratio equal to $50 divided by 120% of the FWNC Common Stock Average
Price (that is the average of the per share closing price of a share of FWNC
Common Stock as reported on the Nasdaq Stock Market's National Market System, as
reported in The Wall Street Journal (Midwest Edition) during the 20 trading day
period preceding the fifth calendar date prior to closing). For example, if the
FWNC Common Stock Average Price is $30, the conversion price would be $30 times
120% or $36. The conversion ratio would be calculated by dividing $50 by $36,
producing a conversion ratio of 1.388. Accordingly, each share of FWNC Class B
Preferred Stock Series 1 would be convertible, based on this example, into 1.388
shares of FWNC Common Stock. Using this calculation, the underlying FWNC Common
Stock for each share of FWNC Class B Preferred Stock Series 1 is worth $41.64.
However, the underlying FWNC Common Stock represents only a portion of the
total value of the FWNC Class B Preferred Stock Series 1. The other principal
value component of FWNC Class B Preferred Stock Series 1 is its dividend rate.
With a 6% annual dividend rate on a stated $50 value, the shareholder of each
share of FWNC Class B Preferred Stock Series 1 will receive $3 in dividends per
year for each share. By comparison, the underlying FWNC Common Stock will yield
a dividend totalling approximately $1.04 in annual dividends per common share
times 1.388 or $1.44. The holder of a share of FWNC Class B Preferred Stock
Series 1 has a substantial dividend advantage over the shareholder of FWNC
Common Stock. The differential is the FWNC Common Stock dividend rate ($1.44)
minus the FWNC Class B Preferred Stock Series 1 dividend rate ($3), or $1.56 per
share. It is likely that some distinct differential advantage will be present in
favor of the FWNC Class B Preferred Stock Series 1 over at least six years the
FWNC Class B Preferred Stock Series 1 will be outstanding. If FWNC does not
raise its common dividend rate over that period, the cumulative dividend
enhanced value would be $9.36 per share, based on $1.56 per year times six
years. That dividend enhancement, plus the value of the underlying FWNC Class B
Preferred Stock Series 1 generates a combined value of $51.00. However, some of
this value will not be realized except in future years. The current valuation of
approximately $50 discounts the dividend enhancement that occurs in more distant
future years.
The mechanism establishing the FWNC Class B Preferred conversion exchange
ratio based on the FWNC Common Stock Average Price during a period immediately
prior to the closing of the Merger minimizes risk to the Company's shareholders
that the value of the underlying FWNC Common Stock received at closing will be
substantially different from the value of the underlying FWNC Common Stock at
the time of the conversion exchange ratio was set. If the conversion exchange
ratio had been fixed at the time of announcement
xvi
<PAGE>
of the Merger, and the price of FWNC Common Stock had moved up or down
materially, the value of the underlying FWNC Class B Preferred Stock Series 1
would also materially move. Such a situation would have created undue market
risk for the shareholders of the Company because bank mergers typically require
a long time to close after they are announced.
EFFECTIVE TIME OF THE MERGER
The Merger becomes effective at the time the Articles of Merger are filed
with the Indiana Secretary of State, unless a different date and time is
specified as the effective time in such Articles of Merger (the "Effective
Time"). The Articles of Merger will be filed only after receipt of requisite
regulatory approvals of the Merger, approval of the Merger Agreement by the
requisite vote of the holders of the Company Preferred Stock and the Company
Common Stock, voting separately by class, and the satisfaction or waiver of all
other conditions to the Merger as set forth in the Merger Agreement. See "The
Merger--Conditions to the Merger."
TERMINATION; TERMINATION FEE
The Merger Agreement may be terminated by mutual agreement of the parties,
upon breach or failure of conditions, or if the Merger is not completed by
September 1, 1996. The Merger Agreement also provides that if it is terminated
as a result of certain specified events, the Company will pay to FWNC a
termination fee of $2 million. See "The Merger--Termination Fee."
DISSENTERS' RIGHTS
The laws of the State of Indiana generally afford to shareholders of the
Company certain rights to dissent from the Merger in accordance with Indiana
Code Sections 23-1-44-1 through 20. A complete discussion of the rights of
dissenters in connection with the Merger appears at "Dissenters' Rights." In
addition, a copy of Indiana Code Sections 23-1-44-1 through 20 is attached as
Appendix B to this Prospectus/Proxy Statement.
ACCOUNTING TREATMENT
The Merger is a business combination which will be accounted for by the
purchase method of accounting. Accordingly, purchase accounting adjustments,
consisting of fair value adjustments for assets and liabilities acquired and
adjustments for intangible assets established, and the resultant
amortization/accretion of all such adjustments over the period, will be
reflected. See "Accounting Treatment of the Merger."
xvii
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the Company's obligations under the Merger Agreement
that the Company's counsel, Barnes & Thornburg, deliver an opinion to the
Company to the effect that, if the Merger is consummated in accordance with the
terms set forth in the Merger Agreement, the Merger will constitute a
reorganization within the meaning of (S) 368(a)(1)(A) of the Code. The opinion
must further conclude that cash received by the Company's shareholders as a
result of the Merger will not have the effect of a distribution of a dividend,
and address certain related federal income tax consequences. See "Federal Income
Tax Consequences." The opinion will be based on certain assumptions specified
therein. EACH SHAREHOLDER OF THE COMPANY IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR CONCERNING THE FEDERAL, AND ANY APPLICABLE FOREIGN, STATE AND LOCAL
INCOME TAX CONSEQUENCES OF THE MERGER.
POST-MERGER REGULATION AND SUPERVISION
After the Merger, FWNC will continue to be regulated as a bank holding
company by the FRB. The Company will cease to exist and will, therefore, no
longer be regulated as a bank holding company. Valley American Bank, as a
subsidiary of FWNC, will continue to be regulated by the DFI, the FRB and the
Federal Deposit Insurance Corporation ("FDIC"). See "Certain Regulatory
Considerations."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
According to the Merger Agreement, FWNC has agreed to take such action as
may be necessary to elect Dennis J. Schwartz, President of the Company and of
Valley American Bank, as a member of the Board of Directors of FWNC as of the
first meeting of FWNC's Board following the Effective Time.
The Merger Agreement requires FWNC to continue certain rights to directors'
and officers' liability insurance and to indemnification for directors,
officers, employees and agents of the Company and its subsidiaries for specified
periods and to take such steps as may be necessary to cause officers and
employees of the Company and its subsidiaries to be covered by certain employee
benefit programs sponsored by FWNC for the employees of its Banking
Subsidiaries. Other than as set forth above, no director or executive officer of
the Company has any direct or indirect material interest in the Merger, except
insofar as ownership of Company Preferred Stock and Company Common Stock might
be deemed such an interest. See "The Merger--Interests of Certain Persons in the
Merger."
SHAREHOLDER AGREEMENT
In conjunction with the execution of the Merger Agreement, FWNC has entered
into an Agreement dated November 6, 1995 (the "Shareholder Agreement") with
Dennis J. Schwartz, James T. Schwartz, Mary Lou Schwartz, Darwin L. Wiekamp,
Dorothy J.
xviii
<PAGE>
Wiekamp, Mary E. Zimmerman, and Donald L. Zimmerman, and Mardot, Ltd.
("Designated Company Shareholders"). Pursuant to this Shareholder Agreement, a
copy of which is attached as Appendix C hereto, the Designated Company
Shareholders have agreed not to sell, assign, transfer or otherwise dispose of
their shares of Company Preferred Stock or Company Common Stock prior to the
Effective Time of the Merger. The Designated Company Shareholders also agree not
to sell, assign, transfer or otherwise dispose of any shares of FWNC Common
Stock received by the Designated Company Shareholders pursuant to the Merger for
a two-year period commencing at the Effective Time, except upon death or the
occurrence of a change in control of FWNC. See "The Merger--Shareholder
Agreement."
DESCRIPTION OF FWNC COMMON STOCK
Subject to the rights of holders of any class of preferred stock of FWNC,
if and when outstanding, including the FWNC Class B Preferred Stock Series 1 to
be issued in connection with the Merger, the holders of FWNC Common Stock
possess exclusive voting rights in FWNC, are entitled to such dividends as may
be declared from time to time by the Board of Directors of FWNC and would be
entitled to receive all assets of FWNC available for distribution in the event
of any liquidation, dissolution or winding up of FWNC. Holders of FWNC Common
Stock do not have pre-emptive rights with respect to any shares which may be
issued by FWNC in the future. Upon issuance of the FWNC Common Stock in
consummation of the Merger, each share of FWNC Common Stock offered hereby will
be fully paid and non-assessable. See "Description of FWNC Stock--FWNC Common
Stock."
RESALE OF FWNC COMMON STOCK
Generally, the shares of FWNC Common Stock to be issued in connection with
the Merger would be freely tradeable by the holder of such securities, except
for those shares held by persons who may be deemed to be "affiliates" of the
Company and FWNC under applicable federal securities laws. See "Resale of FWNC
Stock--FWNC Common Stock." Certain shareholders of the Company, however, have
entered into an agreement with FWNC imposing restrictions on such resale of FWNC
Common Stock received in the Merger. See "The Merger--Shareholder Agreement."
MARKET FOR FWNC COMMON STOCK AND DIVIDENDS
FWNC Common Stock is traded in the over-the-counter market on the Nasdaq
Stock Market's National Market System. As of December 31, 1995, there were
11,428,717 shares of FWNC Common Stock outstanding, which were held by 3,448
shareholders of record. This number of shareholders does not, however, reflect
the number of individuals or institutional investors holding stock in nominee
names through banks, brokerage firms or others.
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<PAGE>
The following table sets forth during the periods indicated the high and
low prices of FWNC Common Stock as reported by the NASDAQ Stock Market's
National Market and the dividends declared per share of FWNC Common Stock.
<TABLE>
<CAPTION>
Market Price
-------------- Dividends Declared
Year High Low Per Share
- ------------------- -------------- ------------------
<S> <C> <C> <C>
1995 -- 1st Qtr. 27.00 25.25 .22
-- 2nd Qtr. 29.25 25.50 .24
-- 3rd Qtr. 33.50 27.25 .24
-- 4th Qtr. 33.00 30.50 .24
1994 -- 1st Qtr. 26.33 24.17 .21
-- 2nd Qtr. 28.75 23.83 .22
-- 3rd Qtr. 31.25 27.25 .22
-- 4th Qtr. 31.50 24.25 .22
</TABLE>
The closing sale price of a share of FWNC Common Stock on November 3, 1995,
the last business day preceding public announcement of the proposed Merger was
$31.75. The closing sale price of a share of FWNC Common Stock on April 19,
1996, a date shortly prior to mailing of this Prospectus/Proxy Statement was
$30.38.
Shareholders are advised to obtain current market quotations for FWNC
Common Stock. The actual number of shares to be issued to shareholders of the
Company in connection with the Merger is based upon the average closing prices
of those shares over a defined period of time prior to the closing date.
Accordingly, the actual number of shares of FWNC Common Stock to be issued to
shareholders of the Company Common Stock in connection with the Merger may vary,
depending on the average closing prices during this defined period of time. The
Merger Agreement specifies that the actual number of shares of FWNC Common Stock
to be issued to shareholders of the Company Common Stock in connection with the
Merger will be determined with reference to the average of the per-share closing
prices of a share of FWNC Common Stock as reported on the Nasdaq Stock Market's
National Market System during the 20 trading day period preceding the fifth
calendar day prior to the closing date (the "Average Price").
FWNC PREFERRED STOCK
FWNC currently has no shares of preferred stock outstanding. No shares of
preferred stock have been registered by FWNC under (S) 12 of the Exchange Act,
and there has been no public trading market for such stock.
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<PAGE>
FWNC CLASS B PREFERRED STOCK SERIES 1
Owners of Company Common Stock surrendered in consummation of the Merger
will also receive FWNC Class B Preferred Stock Series 1. FWNC Class B Preferred
Stock Series 1 is 6% cumulative convertible, nonvoting Class B Preferred Stock.
A total of 740,000 shares of FWNC Class B Preferred Stock Series 1 shall be
issued in consummation of the Merger. The shares of FWNC Class B Preferred Stock
Series 1 are not and will not be registered under Section 12 of the Exchange
Act, and there will be no public trading market for such stock. See "Description
of FWNC Stock--FWNC Class B Preferred Stock Series 1."
FWNC Class B Preferred Stock Series 1 has no par value, but has a stated
value of $50 per share. Holders of FWNC Class B Preferred Stock Series 1 are
entitled to receive, when and as declared by the FWNC Board of Directors, cash
dividends, accruing from the date of their initial issuance, at a fixed annual
rate of 6% per annum, computed on the stated value of $50 per share. Dividends
are payable quarterly. In the event of liquidation, dissolution or winding up of
the affairs of FWNC, whether voluntary or involuntary, holders of the FWNC Class
B Preferred Stock Series 1 are entitled to receive out of the assets available
for distribution an amount equal to $50 per share, plus accrued and unpaid
dividends through the date of distribution. The merger or consolidation of FWNC
with or into any other corporation, or the sale of assets of FWNC substantially
as an entirety, shall not be deemed a liquidation, dissolution or winding up of
the affairs of FWNC. FWNC Class B Preferred Stock Series 1 may be redeemed by
FWNC at its option at any time or from time to time on or after April 1, 2002,
at an agreed redemption price of $50 per share, plus accrued and unpaid
dividends. Redemption of FWNC Class B Preferred Stock Series 1 may be subject to
prior approval by the FRB.
Holders of FWNC Class B Preferred Stock Series 1 have the right, at their
option, to convert their shares into shares of FWNC Common Stock at any time at
a conversion ratio equal to $50 divided by 120% of the average per share closing
price of FWNC Common Stock as reported on the Nasdaq Stock Market's National
Market System, as reported in The Wall Street Journal (Midwest Edition) during
the 20-day trading period preceding the fifth calendar date prior to the closing
date ("Average Price"). This conversion ratio shall be adjusted from time to
time after the issue date to reflect stock dividends or other distributions in
respect of Common Stock, the issuance of additional rights or warrants to
holders of Common Stock entitling them to subscribe to the purchase of shares of
FWNC Common Stock at a price per share less than its current market value and
distribution to holders of FWNC Common Stock of certain evidences of
indebtedness or the reclassification of FWNC Common Stock into securities
including those other than FWNC Common Stock. FWNC is required to pay all taxes
which may be payable in respect of the issuance of shares of FWNC Common Stock
upon conversion of FWNC Class B Preferred Stock Series 1, but FWNC is not
required to pay taxes which may be payable in respect of any other transfer
involving the issuance of shares of FWNC Common Stock in a name other than that
in which the share of FWNC Class B Preferred Stock Series 1 is
xxi
<PAGE>
registered. Other than is required by law, and except under circumstances where
required dividends have not been paid, holders of FWNC Class B Preferred Stock
Series 1 do not have voting rights.
The sale of shares of FWNC Class B Preferred Stock Series 1 received in the
Merger is prohibited for a period of two years from the date on which they are
issued in consummation of the Merger. While the holder of FWNC Class B Preferred
Stock Series 1 may convert that stock into FWNC Common Stock, as discussed
above, resale of FWNC Common Stock issued in conversion of said FWNC Class B
Preferred Stock Series 1 is likewise restricted for two years from the date of
issuance to the converted FWNC Class B Preferred Stock Series 1. No assurances
can be given that the holder of a share of FWNC Class B Preferred Stock Series 1
will be able to sell such a share in the future or that, if such sale were to
occur, the sale would not be a price less than the $50 stated value of a share
of FWNC Class B Preferred Stock Series 1. Given the lack of a market for the
FWNC Class B Preferred Stock Series 1, the only means for holders to liquidate
these shares would, after two years, be by privately arranged sale or conversion
of the same into FWNC Common Stock and subsequent resale in the open
market.
COMPANY PREFERRED STOCK
The Company Preferred Stock is not registered under (S) 12 of the Exchange
Act, and there is no public trading market for such stock. No broker-dealer firm
makes a market in, and there is only limited trading in, the shares of Company
Preferred Stock. To the Company's knowledge, shares of Company Preferred Stock
have been traded at infrequent, irregular intervals since January 1, 1994.
Except for 25 and 508 shares of Company Preferred Stock, redeemed in 1995 and
1994, respectively, for $1,500 and $23,600, respectively, the Company is not
aware of the price at which trades during this period were conducted. In the
event the Merger is not consummated, there is no reason to believe that a public
trading market will develop for the shares of the Company Preferred Stock.
During the past two fiscal years, the Company has declared quarterly
dividends of thirty cents ($.30) per share in respect of the Company Preferred
Stock. Under the Merger Agreement, the Company has agreed not to declare any
dividends or make distributions of the Company Preferred Stock other than
continuation of regularly quarterly dividends at the rate of thirty cents ($.30)
per share.
COMPANY COMMON STOCK
The Company Common Stock is not registered under (S) 12 of the Exchange
Act, and there is no public trading market for such stock. No broker-dealer firm
makes a market in, and there is only limited trading in, the shares of Company
Common Stock. To the Company's knowledge, shares of Company Common Stock have
been traded at infrequent, irregular intervals since January 1, 1994. Except for
100 and 5,088 shares of Company Common Stock, redeemed in 1995 and 1994,
respectively, for $6,000 and $904,320,
xxii
<PAGE>
respectively, the Company is not aware of the price at which trades during this
period were conducted. In the event the Merger is not consummated, there is no
reason to believe that a public trading market will develop for the shares of
the Company Common Stock.
During the past two fiscal years, the Company has declared no dividends on
Company Common Stock. Under the Merger Agreement, the Company has agreed not to
declare any dividends or make distributions on the Company Common Stock prior to
the Merger.
ANTI-TAKEOVER MEASURES
Because the Company is effectively controlled by members of the Wiekamp and
Schwartz families, the Company does not have in place any traditional anti-
takeover measures. FWNC's Articles of Incorporation and By-Laws, however,
contain a number of provisions which may be deemed to have the effect of
discouraging or delaying attempts to gain control of FWNC, including provisions
in its Articles: (1) classifying the Board of Directors into three classes to
serve for three years each with one class being elected annually, (2)
authorizing the Board to fix the size of the Board between 9 and 31 directors,
(3) authorizing directors to fill vacancies in the Board, (4) increasing the
vote for removal of directors by the shareholders, (5) increasing the amount of
stock required to be held by shareholders seeking to call a special meeting of
shareholders, and (6) requiring an increased vote of shareholders to approve
certain business combinations unless certain price and procedural requirements
are met or the Board of Directors approves the business combination in the
manner provided therein. The provisions of the By-Laws of FWNC include specific
provisions under which (1) persons may be nominated for election to the Board of
Directors of FWNC at an annual meeting of shareholders, and (2) business may be
transacted at an annual meeting of shareholders.
In addition to the foregoing, FWNC's Articles and By-Laws contain
provisions intended to discourage the use by potential acquirers of FWNC of
certain techniques which FWNC's management believes have the tendency to benefit
some shareholders at the expense of others. These provisions are intended to
provide greater assurance that in the event of an actual takeover of FWNC, all
shareholders will be treated fairly and equally. One set of such provisions
provides that each shareholder shall receive for all of his or her shares a
price at least equal to the higher of (1) the price paid for any other share of
FWNC stock, or (2) the fair market value of such a share of FWNC stock. These
provisions could deter a change of control by imposing significant additional
costs upon potential acquirers. In addition, FWNC's Articles of Incorporation
require the affirmative vote of the holders of two-thirds of the then
outstanding shares to approve certain transactions with persons holding 10% or
more of the outstanding FWNC stock, including matters such as a merger,
consolidation or sale of a substantial portion of FWNC's assets to such a party.
These restrictions do not apply, however, if certain conditions are met,
including the approval of the transaction by FWNC's Board of Directors.
xxiii
<PAGE>
All of the foregoing provisions in FWNC's Articles of Incorporation and/or
By-Laws may have the effect of entrenching the current management of FWNC.
OTHER MATERIAL CHANGES IN RIGHTS OF SHAREHOLDERS
Except as may be inherent in the respective rights of holders of FWNC
Common Stock, FWNC Preferred Stock and FWNC Class B Preferred Stock Series 1,
and Company Preferred Stock and Company Common Stock, as described above, there
are no material changes in the aggregate rights of shareholders of Company
Common Stock and Company Preferred Stock.
COMPARATIVE PER-SHARE DATA
The following tables present FWNC and the Company historical per share data and
unaudited pro forma per share data. The information is based on historical
financial statements of FWNC and the Company. The pro forma data do not purport
to be indicative of the results of future operations of the combined entities or
the actual results that would have occurred had the Merger been consummated at
the beginning of 1995. The pro forma data give effect to the Merger under the
purchase method of accounting. The pro forma financial data have been included
as required by the rules of the Commission and are provided for comparative
purposes only. The information presented below should be read in conjunction
with the other unaudited pro forma financial information included elsewhere in
this Prospectus/Proxy Statement, and with the separate consolidated financial
statements of FWNC and the Company, including applicable notes thereto, which
are incorporated by reference or included herein. Because the actual number of
shares of FWNC Common Stock to be issued in consummation of the Merger may vary
based upon fluctuating market values of FWNC Common Stock, the tables reflect
data based on assumed values of $26 and $31.50 per share of FWNC Common Stock:
<TABLE>
<CAPTION>
FWNC The Company
Based on Average Value of $31.50
--------------------------------
Historical Pro Forma Historical Pro Forma (1)
---------- --------- ---------- -------------
<S> <C> <C> <C> <C>
December 31, 1995
- -----------------
Book value per common share...... $20.45 $21.03(2) $280.96 $65.20
Cash dividends per common share.. .94 .94(3) -- 2.91
Net income per common share...... 2.33 2.19(4) 32.50 6.79
Based on Average Value of $26.00
--------------------------------
Historical Pro Forma Historical Pro Forma (5)
---------- --------- ---------- -------------
December 31, 1995
- -----------------
Book value per common share...... $20.45 $20.80(2) $280.96 $78.13
Cash dividends per common share.. .94 .94(3) -- 3.53
Net income per common share...... 2.33 2.16(4) 32.50 8.11
</TABLE>
xxiv
<PAGE>
(1) These amounts show the equivalent book value, cash dividends, and net income
represented by one share of Company Common Stock, after giving effect to the
assumed exchange ratio of 3.1004-to-1 (which would be the exchange ratio if the
FWNC Common Stock Average Price was $31.50, which was the closing price of a
share of FWNC Common Stock on December 31, 1995). These amounts assume that
634,921 shares of FWNC Common Stock will be issued in connection with the Merger
and are derived by multiplying FWNC pro forma amounts by the assumed 3.1004-to-1
exchange ratio.
(2) Derived by dividing FWNC's shareholders' equity as of December 31, 1995,
after making certain pro forma adjustments, by the pro forma number of shares of
FWNC Common Stock which would have been outstanding `following completion of the
Merger had the Merger occurred prior to that date.
(3) Based on the historical dividends of FWNC.
(4) Derived by combining the two companies' net income for 1995, less assumed
dividends of $2,220,000 on the FWNC Class B Preferred Stock Series 1 issued in
consummation of the Merger, after making certain pro forma adjustments, and
dividing the result by the pro forma number of shares of FWNC Common Stock which
would have been outstanding following the Merger had the Merger occurred prior
to 1995.
(5) These amounts show the equivalent book value, cash dividends, and net income
represented by one share of Company Common Stock, after giving effect to the
assumed exchange ratio of 3.7562-to-1 (which would be the exchange ratio if the
FWNC Common Stock Average price was $26.00, which is the minimum allowable
Average Price of FWNC Common Stock under Section 6.01 (i) of the Agreement and
Plan of Merger). These amounts assume that 769,231 shares of FWNC Common Stock
will be issued in connection with the Merger and are derived by multiplying FWNC
pro forma amounts by the assumed 3.7562-to-1 exchange ratio.
xxv
<PAGE>
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
The following table sets forth certain historical and pro forma consolidated
financial information for FWNC and the Company. The information in the table
below should be read in conjunction with the unaudited pro forma financial
information included elsewhere in this Prospectus/Proxy Statement and with
consolidated financial statements of FWNC and of the Company, including
respective notes thereto, which are incorporated by reference or which are
included elsewhere herein.
<TABLE>
<CAPTION>
FORT WAYNE NATIONAL CORPORATION
December 31
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Operations Data
- ---------------
Net interest income............... $ 79,356 $ 78,815 $ 78,465 $ 74,357 $ 65,435
Net income........................ 26,707 26,212 24,133 22,443 20,087
Per common share:
Net income...................... 2.33 2.28 2.11 1.97 1.78
Cash dividends declared......... .94 .87 .81 .76 .71
Ratio of earnings to combined
fixed charges and preferred
stock dividends:
Excluding interest on
deposits........................ 3.29 4.32 5.00 4.28 3.09
Including interest on
deposits........................ 1.46 1.60 1.55 1.41 1.28
Balance Sheet Data
- ------------------
Total assets...................... $2,296,107 $2,135,961 $2,094,425 $2,034,049 $1,972,433
Long-term debt.................... 6,400 7,160 7,920 9,305 10,553
Allowance for possible loan
losses to nonperforming loans..... 100.65% 103.90% 134.13% 99.62% 196.55%
VALLEY FINANCIAL SERVICES, INC.
December 31
1995 1994 1993 1992 1991
Operations Data
- ---------------
Net interest income............... $ 29,783 $ 27,623 $ 25,877 $ 25,240 $ 22,200
Net income........................ 6,719 7,688 6,933 5,858 4,521
Per common share:
Net income...................... 32.50 36.77 31.36 25.40 19.48
Cash dividends declared......... -- -- -- -- --
Balance Sheet Data
- ------------------
Total assets...................... 818,618 742,327 726,040 673,896 619,886
Long-term debt.................... 41,917 23,250 24,827 16,384 9,921
Preferred and common
stock subject to repurchase
in ESOP........................... 13,416 6,882 5,982 4,848 4,026
Allowance for possible loan
losses to nonperforming loans..... 112.74% 186.12% 224.22% 546.30% 141.20%
</TABLE>
xxvi
<PAGE>
FORT WAYNE NATIONAL CORPORATION PRO FORMA
<TABLE>
<CAPTION>
December 31
1995
<S> <C>
Operations Data
- ---------------
Net interest income........................ $106,940
Net income................................. 28,657
Per common share:
Net income............................... 2.19
Cash dividends declared.................. .94
Ratio of earnings to fixed
charges and preferred stock
dividend:
Excluding interest on
deposits................................. 2.23
Including interest on deposits........... 1.33
Balance Sheet Data
- ------------------
Total assets............................... $3,130,813
Long-term debt............................. 63,507
Allowance for possible loan
losses to nonperforming loans.............. 103.94%
</TABLE>
xxvii
<PAGE>
EXISTING AND PRO FORMA CAPITALIZATION
The Pro Forma Combined Capitalization summary sets forth the historical
capitalization of FWNC and the Company and pro forma combined capitalization of
FWNC on the assumption that the transaction had been effective December 31,
1995. The transaction will be accounted for using the purchase method of
accounting. This table should be read in conjunction with the other historical
consolidated financial statements of FWNC and the Company, including notes
thereto, which are incorporated by reference or included elsewhere herein, and
other unaudited pro forma financial information, including applicable notes
thereto, appearing elsewhere in this Prospectus/Proxy Statement.
FORT WAYNE NATIONAL CORPORATION
PRO FORMA COMBINED CAPITALIZATION
(Unaudited)
December 31, 1995
<TABLE>
<CAPTION>
Pro Forma Total
Merger Pro Forma
FWNC Company Adjustments Combined
-------- ------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Subordinated and other
long-term notes..................... $ 6,400 $41,917 $ 15,000 (a) $ 63,507
190 (b)
Preferred and common stock
subject to repurchase
in ESOP............................. -- 13,416 (13,416)(c) --
Shareholders' equity:
Preferred stock, without par value:
Class A Voting...................... -- --
Class B Nonvoting................... -- --
Cumulative convertible.............. -- -- 37,000 (b) 37,000
Preferred Stock, $12 par value....... -- 616 (616)(b) --
Common stock, without par value....... 19,048 206 1,058 (b) 20,106
(206)(b)
Capital surplus....................... 31,502 123 (123)(b) 50,444
18,942 (b)
Retained earnings..................... 170,990 45,156 (45,156)(b) 170,990
Treasury stock........................ -- (2,494) 2,494 (b) --
Unrealized gain on securities
available-for-sale.................. 12,171 1,129 (1,129)(b) 12,171
-------- ------- -------- --------
Total Shareholders' Equity.......... $233,711 $44,736 $ 12,264 $290,711
======== ======= ======== ========
</TABLE>
(a) Adjustment to record the planned borrowing of $15,000,000 by FWNC.
(b) To record the estimated purchase accounting adjustments and the payment of
the cost of acquisition.
(c) The ESOP of the Company will exchange shares of its preferred and common
stock for shares of FWNC preferred and common stock at the Effective Time
of the Merger, and the ESOP will be merged into a
xxviii
<PAGE>
defined contribution plan of FWNC, the result of which effectively
eliminates any obligation to repurchase shares.
RECENT DEVELOPMENTS CONCERNING FWNC
On April 16, 1996, FWNC announced earnings results and certain other
financial condition and operating data for its fiscal quarter ended March 31,
1996, in all cases based upon unaudited financial information.
FINANCIAL DATA
The following table sets forth certain financial data for FWNC for the
fiscal quarter ended March 31, 1996 (unaudited), and for the fiscal quarter
ended March 31, 1995 (unaudited):
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
1996 1995
---------- ----------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Total assets......................... $2,259,429 $2,090,713
Total deposits....................... 1,787,225 1,626,054
Total loans, net of unearned income.. 1,262,614 1,221,561
Allowance for possible loan losses... 20,641 22,290
Total shareholders' equity........... 232,763 212,710
Net interest income.................. 19,836 19,772
Net income........................... 6,891 6,221
Net income per share................. .60 .54
</TABLE>
COMPARISON OF FISCAL QUARTERS ENDED MARCH 31, 1996 AND 1995
Net income of FWNC increased $670,000 or 10.8% to $6.891 million in the
quarter ended March 31, 1996, from $6.221 million in the first quarter of 1995.
Net income per share of $.60 for the first quarter of 1996 compares with $.54
per share for the same period in 1995. The increase in earnings of the first
quarter over last year's first quarter was accomplished by improving FWNC's
efficiency ratio from 58% to 55% and increasing its earning assets. A large part
of the efficiency ratio improvement was a result of the reduction in FDIC
insurance premium. Net charge-offs totalled $286,000 in the first quarter of
1996, compared to $240,000 in the first quarter of 1995. The provision charged
to earnings for possible loan losses in the first quarter of 1996 amounted to
$880,000, an increase of $145,000 over the first quarter of 1995.
xxix
<PAGE>
Total assets of FWNC at March 31, 1996, were $2.259 billion compared with
$2.091 billion at the same date one year ago. Total deposits were $1.787 billion
compared with $1.626 billion on those dates, respectively. Total loans
outstanding on March 31, 1996, were $1.263 billion compared with $1.222 billion
in the prior year. The reserve for possible loan losses amounted to $20.641
million at March 31, 1996, compared to $22.290 million at the same date in the
previous year.
At a meeting of Directors on April 16, 1996, the Directors of FWNC declared
a cash dividend of $.26 per share, payable July 1, 1996, to shareholders of
record June 10, 1996. This new dividend rate represents an increase of 8.33%
over the cash dividends declared in each of the previous four quarters.
CHANGE IN MANAGEMENT
The Chairman of the Board and Chief Executive Officer of Fort Wayne
National Bank, Jackson R. Lehman, announced he will retire from the position of
Chief Executive Officer in June, 1996. Mr. Lehman will remain as the Chairman of
the Board of Directors of FWNC through the end of calendar year 1996. Mr. Lehman
will be succeeded by FWNC's current President and Chief Administrative Officer,
M. James Johnston. Mr. Johnston has been with FWNC's lead banking subsidiary,
Fort Wayne National Bank, for 28 years.
xxx
<PAGE>
GENERAL INFORMATION
This Prospectus/Proxy Statement is being furnished to the shareholders of
the Company in connection with the solicitation of proxies by the Company's
Board of Directors for use at a Special Meeting to be held on May 31, 1996, and
at any adjournment thereof. This document also serves as the Prospectus of FWNC
in connection with the issuance of FWNC Common Stock and FWNC Class B Preferred
Stock Series 1 to owners of the Company Preferred Stock and Company Common Stock
upon consummation of the Merger. The information contained in this
Prospectus/Proxy Statement with respect to FWNC has been supplied by FWNC, and
the information with respect to the Company has been supplied by the Company.
This Prospectus/Proxy Statement, the attached Notice of Special Meeting of
Shareholders, the form of Proxy and other documents enclosed herewith are being
first mailed to the Company shareholders on or about May 2, 1996.
THE SPECIAL MEETING
The Special Meeting will be held at 9:00 A.M. local time, on May 31, 1996,
at the executive offices of the Company at 310 West McKinley, Mishawaka,
Indiana.
MATTERS TO BE CONSIDERED
At the Special Meeting, holders of Company Preferred Stock and Company
Common Stock, voting separately by class, will consider and vote upon (1) a
proposal to adopt the Merger Agreement and to complete the transactions
contemplated by the Merger Agreement and (2) the transaction of such other
business as may properly come before the Special Meeting and any adjournments
thereof.
RECORD DATE; SHARES OUTSTANDING ENTITLED TO VOTE
The Board of Directors of the Company has fixed the close of business on
April 11, 1996, as the Record Date for determination of shareholders entitled to
notice of and to vote at the Special Meeting and any adjournments thereof.
Although Company Common Stock is not entitled to vote on most matters, Indiana
law requires that the holders of Company Common Stock be given the opportunity
to vote, as a class, with respect to adoption of the Merger Agreement and
completion of the transactions contemplated by the Merger Agreement.
Accordingly, holders of both Company Common Stock and Company Preferred Stock
are entitled to and are being given notice of and the opportunity to vote at the
Special Meeting and any adjournments thereof. At the close of business on the
Record Date, there were 51,197 shares of Company Preferred Stock, and 204,788
shares of Company Common Stock, outstanding, issued and entitled to vote. Each
share of Company Preferred Stock and each share of Company Common Stock entitle
the holder thereof to one vote at the Special Meeting on all matters regarding
the Merger properly presented.
1
<PAGE>
Holders of Company Preferred Stock and holders of Company Common Stock will
vote separately, by class, with respect to all matters regarding the Merger
properly coming before the Special Meeting. Because voting will take place by
class, a separate quorum, consisting of the holders of a majority of the issued
and outstanding shares of Company Preferred Stock and the holders of a majority
of the issued and outstanding shares of Company Common Stock, must be present
in person or by proxy before action may be taken at the Special Meeting. The
affirmative vote of the holders of a majority of the outstanding shares of
Company Preferred Stock and the affirmative vote of the holders of a majority
of the outstanding shares of Company Common Stock are each required to approve
the Merger Agreement.
As of the Record Date, directors of the Company in the aggregate
beneficially owned 152,172 shares, or 74.3%, of the outstanding Company Common
Stock and 38,043 shares, or 74.3%, of the outstanding Company Preferred Stock.
These shares include 10,375 shares, or 20.3%, of the outstanding Company
Preferred Stock held by Darwin L. Wiekamp, Chairman of the Board of the Company,
and 5,087 shares, or 9.9%, of the outstanding Company Preferred Stock held by
Dennis J. Schwartz, President of the Company, as well as 151,392 shares, or
73.9%, of the outstanding Company Common Stock held by Mardot, LP, in which
Messrs. Wiekamp and Schwartz are partners. See "Certain Beneficial Owners of the
Company Common Stock."
In conjunction with execution of the Merger Agreement, FWNC has entered
into the Shareholder Agreement with certain Designated Company Shareholders. A
copy of the Shareholder Agreement is attached to this Prospectus/Proxy Statement
as Appendix C. Under the Shareholder Agreement, the Designated Company
Shareholders have agreed to vote all of their shares of both Company Preferred
Stock and Company Common Stock in favor of adoption of the Merger Agreement. As
of the Record Date, the Designated Company Shareholders in the aggregate
beneficially owned 40,159 shares, or 78.4%, of the outstanding Company Preferred
Stock and 160,636 shares, or 78.4%, of the outstanding Company Common Stock.
Assuming the Designated Company Shareholders and the directors of the Company
all vote their shares of Company Preferred Stock and Company Common Stock in
favor of the Merger Agreement, the vote will be more than sufficient for
approval of the Merger Agreement at the Special Meeting.
VOTING, SOLICITATION AND REVOCATION OF PROXIES
A separate Proxy for use at the Special Meeting in respect of Company
Preferred Stock and Company Common Stock accompanies the Prospectus/Proxy
Statement and is solicited by the Board of Directors of the Company. Any Company
shareholder executing a Proxy may revoke it at any time before it is voted by
filing with the Secretary of the Company, at the address of the Company set
forth on the Notice of Special Meeting of Shareholders, written notice of such
revocation; by executing a later dated Proxy; or by attending the Special
Meeting and giving notice of such revocation in person. Attendance at the
Special Meeting will not, in and of itself, effect a revocation of any Proxy.
You may
2
<PAGE>
vote by Proxy in respect of your Company Preferred Stock differently than you
vote in respect of your Company Common Stock. In addition, you may vote your
Common Stock by Proxy and elect not to execute a Proxy or revoke an executed
Proxy in respect of your Company Preferred Stock, or vice versa. Each proxy
returned to the Company and not revoked will be voted in accordance with the
instructions indicated thereon in respect of the shares it represents. If no
instructions are indicated, the Proxy will be voted for approval of the Merger
Agreement.
The Company will bear the cost of mailing this Prospectus/Proxy Statement,
as well as all other costs incurred in connection with the solicitation of
Proxies from the shareholders of the Company on behalf of the Board of
Directors. The Proxies will be solicited by mail or may be further solicited,
for no additional compensation, by directors, officers or employees of the
Company, by telephone or by personal contact.
CERTAIN BENEFICIAL OWNERS OF COMPANY STOCK
The following table sets forth certain information regarding shares of
Company Stock held as of the Record Date by persons known to the Company to be
beneficial owners of more than 5% of the outstanding Company Preferred Stock or
more than 5% of the outstanding Company Common Stock (excluding directors), by
each director of the Company and all of the directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
====================================================================================================================
SHARES OF PERCENT OF
SHARES OF COMPANY PERCENT FWNC
COMPANY PREFERRED OF COMMON
COMMON STOCK PERCENT OF STOCK COMPANY STOCK OWNED
BENEFICIALLY COMPANY BENEFICIALLY PREFERRED AFTER MERGER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED COMMON STOCK OWNED STOCK (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5% or more owners:
------------------
Mardot, LP (1) 151,392 73.93 0 0 3.89
2122 Linden Avenue
Mishawaka, Indiana 46544
- --------------------------------------------------------------------------------------------------------------------
Directors:
----------
Darwin L. Wiekamp 0 0 10,375 20.3 0
2122 Linden Avenue
Mishawaka, Indiana 46544
- --------------------------------------------------------------------------------------------------------------------
Dorothy Jane Wiekamp 0 0 15,586 30.4 0
2122 Linden Avenue
Mishawaka, Indiana 46544
- --------------------------------------------------------------------------------------------------------------------
Dennis J. Schwartz 0 0 5,087 9.9 0
737 River Pointe Place
Mishawaka, Indiana 46544
- --------------------------------------------------------------------------------------------------------------------
Mary Lou Schwartz 0 0 5,102 9.9 0
737 River Pointe Place
Mishawaka, Indiana 46544
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
SHARES OF PERCENT OF
SHARES OF COMPANY PERCENT FWNC
COMPANY PREFERRED OF COMMON
COMMON STOCK PERCENT OF STOCK COMPANY STOCK OWNED
BENEFICIALLY COMPANY BENEFICIALLY PREFERRED AFTER MERGER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED COMMON STOCK OWNED STOCK (2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James T. Schwartz 0 0 1,698 3.32 0
51433 Hunting Ridge Trail
Granger, Indiana 46530
- ------------------------------------------------------------------------------------------------------------------
James R. Cocquyt 740 0.3 185 0.3 Less than .01
54470 Old Bedford Trail
Mishawaka, Indiana 46545
- ------------------------------------------------------------------------------------------------------------------
William D. Shroyer 40 0.02 10 0.02 Less than .01
361 Edgewater Drive
Mishawaka, Indiana 46545
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All Directors and Executive Officers as 152,172 (3) 74.3 38,043 74.3 3.90(4)
a Group (consisting of 7 persons)
===================================================================================================================
</TABLE>
(1) Mardot, LP, is a partnership owned and controlled by partners, Darwin L.
Wiekamp, Dorothy J. Wiekamp, Dennis J. Schwartz, Mary Lou Schwartz and James T.
Schwartz. The partnership owns those shares of Company Common Stock which were
originally issued to the foregoing listed partners. All of the listed partners
are directors of the Company and are listed as such in this table.
(2) Based on FWNC Common Stock Average Price of $31.50.
(3) Includes 151,392 shares, or approximately 73.9%, of Company Common Stock
owned by Mardot, LP.
(4) Includes shares of FWNC Common Stock to be issued to Mardot, LP.
THE MERGER
The following information relating to the Merger does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which (excluding exhibits) is attached to this Prospectus/Proxy
Statement as Appendix A. All shareholders of the Company are urged to read the
Merger Agreement carefully.
GENERAL; THE MERGER CONSIDERATION
In accordance with the Merger Agreement, the Company will be merged with
and into FWNC, with FWNC as the surviving corporation in the Merger. The Merger
Agreement provides for total Merger consideration payable to all shareholders of
the Company (other than those who exercise dissenters' rights) in the Merger
equal to (1) cash in the amount of $53 million, (2) an aggregate number of
shares of FWNC Common Stock having a value of approximately $20 million and (3)
an aggregate of 740,000 shares of FWNC Class B Preferred Stock Series 1 having a
stated value of $50 per share, representing a total of $37 million (together,
the "Merger Consideration"). Of this total Merger Consideration, that portion
allocated to Company Preferred Stock will be made up entirely of cash. The total
amount of cash allocated to Company Preferred Stock will be $844,750, or $16.50
per share. Accordingly, holders of Company Preferred Stock will receive in
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exchange for each share of such stock $16.50 in cash. The balance of the total
Merger Consideration is allocated to the Company Common Stock.
Each share of Company Common Stock will, at the Effective Time of the
Merger, be converted into the right to receive cash of $254.68, for an aggregate
of $52,155,250, less a pro rata share of cash paid to dissenting shareholders
and to eliminate fractional shares.
In addition, holders of Company Common Stock will, at the Effective
Time of the Merger, receive shares of FWNC Common Stock in an aggregate amount
determined by dividing $20 million by the FWNC Common Stock Average Price, being
the average of the closing prices of a share of FWNC Common Stock, as reported
on the Nasdaq Stock Market's National Market System, as reported in The Wall
Street Journal (Midwest Edition), during the 20 trading days preceding the fifth
calendar date prior to the Closing Date (the "FWNC Common Stock Average Price").
Assuming the FWNC Common Stock Average Price, as described above, to be $31.50,
a total of 634,921 shares of FWNC Common Stock would be issued to all
shareholders of Company Common Stock. Based on the number of issued and
outstanding shares of Company Common Stock on the Record Date, therefore,
shareholders of the 204,788 shares of issued and outstanding shares of Company
Common Stock would be entitled to receive in exchange for each share of Company
Common Stock 3.1004 shares of FWNC Common Stock, and cash in lieu of any
resulting fractional shares.
In addition, holders of Company Common Stock will, at the Effective
Time of the Merger, be entitled to receive an aggregate of 740,000 shares of
FWNC Class B Preferred Stock Series 1. Based on the number of issued and
outstanding shares of Company Common Stock on the Record Date, therefore,
shareholders of the 204,788 shares of issued and outstanding shares of Company
Common Stock would be entitled to receive in exchange for each share of Company
Common Stock approximately 3.613 shares of FWNC Class B Preferred Stock Series
1, and cash in lieu of any resulting fractional shares.
FRACTIONAL SHARES
No fractional shares of FWNC Common Stock or FWNC Preferred Stock will
be issued in the Merger. Each holder of shares of Company Common Stock who would
have otherwise been entitled to a fraction of a share of FWNC Common Stock or
FWNC Preferred Stock shall receive in lieu thereof, at the time of surrender of
the certificate or certificates representing such holder's shares of Company
Common Stock, an amount of cash (without interest) determined by multiplying the
fractional share interest to which said holder would otherwise be entitled or by
the FWNC Common Stock Average Price, or by the sum of $50 per share of FWNC
Class B Preferred Stock Series 1, as the case may be.
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EXCHANGE OF STOCK CERTIFICATES
Fort Wayne National Bank, FWNC's lead subsidiary bank, has been
designated by the Merger Agreement to act as Exchange Agent in connection with
the Merger. Shortly after the Effective Time of the Merger, the Exchange Agent
will mail to each record shareholder of the Company whose shares were converted
into the right to receive the Merger Consideration a letter of transmittal and
instructions for use in the surrender of their Company stock certificates in
exchange for Merger Consideration. Upon surrender to the Exchange Agent of a
certificate, together with the accompanying required documents, the holder of
the share certificate will be entitled to receive the Merger Consideration. No
interest on Merger Consideration issuable upon surrender of the certificates
will be paid or accrued for the benefit of the Company's shareholders. No
dividends that are otherwise payable in respect of shares of FWNC Common Stock
or FWNC Class B Preferred Stock Series 1 constituting a portion of Merger
Consideration will be paid to persons entitled to receive such shares until they
have validly surrendered the certificates reflecting their shares in the
Company. In the event a certificate evidencing shares in the Company has been
lost, stolen or destroyed, the holder thereof is required to make an affidavit
of that fact. That affidavit and, if required by FWNC in its sole discretion, a
bond in an amount sufficient to indemnify against claims made in respect of such
certificate, shall be executed and delivered to the Exchange Agent. Upon
execution and delivery of such affidavit and bond, if required by FWNC, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
certificate the Merger Consideration deliverable in respect thereto pursuant to
the Merger Agreement. SHAREHOLDERS OF THE COMPANY ARE URGED NOT TO SURRENDER
THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH LETTER OF TRANSMITTAL AND
INSTRUCTIONS ARE RECEIVED.
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS
On November 1, 1995, the Board of Directors of the Company voted to
enter into the Merger transaction with FWNC and authorized management to execute
the Merger Agreement. In the course of reaching its decision to approve the
Merger Agreement, the Board of Directors of the Company consulted with its legal
advisors regarding the legal terms of the Merger Agreement and the obligations
of the Board of Directors in its consideration thereof.
Beginning in late 1994, the management of the Company began an
internal strategic review to assess its ability to continue to compete
effectively in the financial services marketplace as an independent community
bank.
Management analyzed its position regarding a total technology plan,
including personal computers, local-area networks, wide-area networks and
platform and teller systems and approved a plan to further its ability to serve
its customers on a long-term basis with an efficient, customer-friendly model.
Due to the lack of internal resources, this plan was designed by an independent
consulting firm. This firm expressed to management its concern
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with the ongoing support and maintenance of the technology plan. Management felt
this support would be better served by a larger bank holding company.
Management was also concerned with the ability of an independent
community bank to continue to operate efficiently and to compete against larger
financial institutions in light of increasing regulatory burdens. Management
believed that, in general, a combination with a larger bank holding company
would provide the resources and ability to meet the changing demands of the
financial services marketplace. Such a combination could also provide
competitive advantages through greater diversity of product offerings, cost
savings through integration of operations, improved access to capital and
funding and geographic expansion of operations.
In early 1995, officials from FWNC contacted management of the Company
about potential interest in pursuing a merger. On May 24, 1995, the Company's
management met with FWNC officials to discuss a potential merger with FWNC.
Later in 1995, Dennis J. Schwartz, President of the Company, contacted
another Indiana bank holding company regarding the possibility of merging. This
inquiry led to discussions with this Indiana bank holding company regarding a
merger.
In addition, a large money center bank was contacted. Preliminary
discussions indicated this avenue would not be in the best interests of the
Company's customers, employees, shareholders or the community.
Management determined to continue discussions with FWNC and the other
Indiana bank holding company, and considered a number of factors during the
course of its deliberations, including the following criteria, as a framework to
analyze the best alternative, as follows:
1. competitive price, including a significant cash component to the
merger consideration while also retaining the ability to structure the merger
and the merger consideration in a manner that would qualify as a tax-free
merger;
2. continuation of Valley American Bank as an independent bank with
its own board of directors and management and local decision-making authority;
3. the opportunity for continued equity participation in a larger
financial institution while also providing liquidity to the Company's
shareholders through the ownership of stock of an institution with a liquid
trading market, as compared to the lack of a trading market for the Company's
stock;
4. historical and prospective financial condition, business and
competitive position of the merger partner, together with historical and
prospective market values for its stock;
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<PAGE>
5. the avoidance of undue disruption to the employees of the Company
and Valley American Bank; and
6. no disruption of services or products to the Company's customers.
Darwin L. Wiekamp, Chairman of the Board of Directors of the Company,
and Dennis J. Schwartz, President of the Company, negotiated the terms and
conditions of the Merger on behalf of the Company. Their objective was to obtain
a price equal to twice the Company's book value on a tax-deferred basis. Based
upon conservative federal income tax guidelines, cash to be received in the
transaction could not be permitted to exceed $53 million in order for the Merger
to retain advantageous tax-deferred attributes. The mix of common and preferred
stock of FWNC to be received by Company shareholders was based on the desire
expressed by representatives of FWNC, Jackson R. Lehman, Chairman of the Board
of Directors and Chief Executive Officer, and M. James Johnston, President and
Chief Administrative Officer, to limit dilution to FWNC shareholders. The
allocation of value to the Company's Preferred Stock was based upon the
Company's estimate of its worth confirmed by the written opinion of Southard
Financial dated February 21, 1996. See "The Merger--Conditions to the
Merger."
A due diligence review of the Company was performed by both potential
merger partners during the period of August through October, 1995.
On November 1, 1995, the Company's Board of Directors met to discuss
and consider the terms of the two potential transactions. The Board unanimously
agreed to finalize negotiations with FWNC based on the Board's analysis of the
criteria discussed above, and the following factors regarding FWNC specifically:
it is a well-established bank holding company with a mission to serve the needs
of its affiliate bank communities; it has an established record of maintaining
independence for its affiliate banks; it is dedicated to retaining personnel of
its acquired banks and providing favorable employee benefit plans; and its close
geographical presence would build upon the Company's and FWNC's reputations
regarding customer service.
At this meeting, the Board also reviewed the terms of a draft of the
Merger Agreement and authorized the officers of the Company to proceed with the
negotiation, finalization and execution of the definitive Merger Agreement.
At a meeting held November 6, 1995, Valley American Bank's Board of
Directors also reviewed and approved the terms of the Company's merger with
FWNC.
The Merger Agreement was signed on November 6, 1995, and thereupon the
Merger was announced to the public at a press conference held at 4:00 P.M.,
November 6, 1995.
In reviewing provisions of the Agreement, the Company's Board of
Directors considered carefully the requirement that the Company shall pay to
FWNC a termination
8
<PAGE>
fee of $2 million if, for specified reasons, the Merger is not consummated. In
conducting such review, the Board of Directors was aware that the existence of
such provision would make it more expensive for a third party to offer a price
in excess of FWNC's proposal. The Board of Directors was aware that the
provision might significantly deter potential competing acquirers from making an
offer. The Board of Directors was also aware that FWNC required the provision as
a condition to entering into the Merger Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Jackson R. Lehman, Chairman of the Board of Directors and Chief
Executive Officer of FWNC, and M. James Johnston, President and Chief
Administrative Officer of FWNC, negotiated the terms and conditions of the
Merger on behalf of FWNC. However, the authority granted to Mr. Lehman and Mr.
Johnston to conduct negotiations was granted in advance by FWNC's Board of
Directors. Because Mr. Lehman and Mr. Johnston were able to negotiate the terms
within the authority granted by their Board of Directors, it was not necessary
for the negotiating representatives of FWNC to make a recommendation to FWNC's
Board of Directors. The Board of Directors of FWNC specifically approved the
form of the transaction and authorized execution of the Merger Agreement at its
meeting on October 27, 1995.
EFFECTS OF THE MERGER
EFFECT ON THE COMPANY'S SHAREHOLDERS. Upon consummation of the Merger,
shareholders of the Company will receive the Merger Consideration and will
thereupon cease to be shareholders of the Company.
EFFECT ON THE COMPANY. Upon consummation of the Merger, the separate
existence and corporate organization of the Company will cease. FWNC, as the
surviving corporation in the Merger, will succeed to all rights, obligations and
properties of the Company. After the Effective Time, there will be no further
transfer on the records of the Company of certificates representing shares of
Company Preferred Stock or Company Common Stock. If any such certificates are
presented to the Company for transfer after the Effective Time of the Merger,
they shall be cancelled against delivery of certificates for FWNC Common Stock,
FWNC Class B Preferred Stock Series 1, or cash, as applicable, in accordance
with the Merger Agreement.
EFFECT ON VALLEY AMERICAN BANK. Following the Merger, all of the
issued and outstanding stock in Valley American Bank will be transferred by
operation of law to FWNC, as the survivor of the Merger. Thereafter, Valley
American Bank will be one of FWNC's Banking Subsidiaries. Under the Merger
Agreement, FWNC will not allow the name of the Company's subsidiary bank, Valley
American Bank and Trust Company, to be
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<PAGE>
changed for two years after the Merger without the written consent of Darwin L.
Wiekamp or Dennis J. Schwartz.
EFFECT ON EMPLOYEES OF THE COMPANY AND VALLEY AMERICAN BANK. Upon
consummation of the Merger, FWNC and its Banking Subsidiaries will have the
right, but not the obligation, to offer employment as officers and employees of
FWNC or its Banking Subsidiaries to persons who are officers and employees of
the Company and Valley American Bank immediately prior to the Merger. With
respect to each employee of the Company or Valley American Bank who becomes an
employee of FWNC or its Banking Subsidiaries upon the Merger, FWNC has agreed
that such continuing employees will be eligible to participate on the same basis
as similarly situated employees of FWNC's Banking Subsidiaries in employee
benefit plans, nonqualified employee benefit plans or deferred compensation,
stock option or incentive plans, or other employee benefit or fringe benefit
programs in effect generally for employees of FWNC's Banking Subsidiaries.
Participation is subject to such terms of such plans as may be in effect from
time to time, and FWNC's Banking Subsidiaries shall, for purposes of vesting and
for any age or period of service requirements for commencement of participation
in such plans, credit each continuing employee with his or her term of service
and employment with the Company and/or Valley American Bank.
CONDITIONS TO THE MERGER
The Merger Agreement provides that consummation of the Merger is
subject to the satisfaction or waiver of various conditions prior to the
Effective Time of the Merger. Each party's obligation to consummate the Merger
under the Merger Agreement is subject to the following conditions: (1) the
representations and warranties made by the other party are true; (2) the other
party shall have performed and complied in all material respects with its
obligations under the Merger Agreement; (3) the necessary regulatory approvals
shall have been obtained; (4) the parties shall have received all certificates
and opinions required by the Merger Agreement; (5) the Registration Statement of
which this Prospectus/Proxy Statement is a part shall be in effect; (6) no
court, governmental or regulatory action shall be in effect which prohibits,
restricts or makes illegal the Merger; and (7) the Average Price of FWNC Common
Stock shall not be less than $26.
One of the foregoing conditions specifies that the average price of
FWNC Common Stock shall not be less than $26 per share. This provision was
incorporated for the benefit of the Company's shareholders. This condition was
incorporated in order to permit the Company to terminate the transaction and to
refuse to proceed with the Merger should the value, as perceived by the
marketplace, of FWNC decrease materially. Those negotiating on behalf of the
Company did not believe it was necessary to establish a high-end limitation on
the Average Price of FWNC Common Stock, because the market perception of
increased value would not generally harm the shareholders of Company Common
Stock receiving FWNC Common Stock in exchange therefor. As a practical matter,
the higher of the Average Price of FWNC Common Stock, the fewer the number of
shares of FWNC
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<PAGE>
Common Stock which will be received in respect of each share of Company Common
Stock. For example, assuming an Average Price of FWNC Common Stock of $26, a
total of approximately 769,231 shares of FWNC Common Stock would be issued, in
the aggregate, to shareholders of Company Common Stock. Assuming an Average
Price of FWNC Common Stock of $34, however, a total of approximately 588,235
shares of FWNC Common Stock would be issued, in the aggregate, to the
shareholders of the Company Common Stock. Accordingly, at an Average Price of
$26 per share, each share of Company Common Stock would be converted into a
right to receive 3.7562 shares of FWNC Common Stock, plus cash in lieu of
fractional shares. At an average price of $34 per share, each share of Company
Common Stock would be converted into the right to receive approximately 2.8724
shares of FWNC Common Stock, plus cash in lieu of fractional shares.
In addition, the obligations of FWNC are conditioned upon (1)
performance by the Designated Company Shareholders under the Shareholders'
Agreement; and (2) since September 30, 1995, there shall have been no material
adverse changes with respect to the Company.
In addition, the obligations of the Company are conditioned upon
receipt of an opinion from the Company's counsel, Barnes & Thornburg, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, and as to other related tax matters.
Furthermore, a total of 7,088 shares, or 13.8%, of Company Preferred Stock and
28,352 shares, or 13.8%, of Company Common Stock are owned by the Company's
Employee Stock Ownership Plan (the "ESOP"). The ESOP is a qualified employee
pension plan, participants in which are the employees of the Company or Valley
American Bank. The Trustees of the ESOP are Dennis J. Schwartz and Darwin L.
Wiekamp. In order to assist the Trustees of the ESOP in discharging their
fiduciary obligation with respect to shares in the Company held by the ESOP at
the Special Meeting, the Company has arranged for the Trustees of the ESOP to
receive the opinion of Southard Financial ("Southard") to the effect that the
consideration be received in the Merger by the ESOP is fair from a financial
point of view. Southard was selected to act as financial advisor to the ESOP
based upon its qualifications, expertise and reputation, as well as its
familiarity with the Company's business and market area. Southard has appraised
the Company's stock value for the ESOP in the past. In addition, Southard
conducted an analysis of FWNC's business as a portion of its investigation as
financial advisor to the Trustees of the ESOP.
On February 24, 1996, Southard delivered its written opinion to the
Trustees of the ESOP that as of such date, the consideration to be received by
the Trustees of the ESOP in exchange for shares in the Company is fair to the
participants in the ESOP from a financial point of view. Southard's opinion is
not provided for the benefit of all of the Company's shareholders or its Board
of Directors. The opinion describes the procedures followed, text of the
opinion, which sets forth assumptions made, matters considered and limits on the
review undertaken.
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Pursuant to the terms of an engagement letter, dated November 15,
1995, the Company has agreed to pay Southard a fee of $7,500, for acting as
financial advisor to the Trustees of the ESOP in connection with the Merger,
including rendering its opinion. Four Thousand Five Hundred Dollars ($4,500) of
this fee was paid to Southard upon execution of the engagement letter, with the
balance of $3,000 paid to Southard upon the completion and delivery of its
opinion. The Company also has agreed to pay Southard Financial reasonable
out-of-pocket expenses and has agreed to indemnify Southard Financial and
certain related persons from liabilities relating to or arising from its
engagement. In addition, the obligations of the Company are conditioned on
receipt of confirmation from advisors to FWNC that the fair market value of FWNC
Class B Preferred Stock Series 1 at the Effective Time of the Merger is not less
than $45 per share. This confirmation is to be given orally at the Effective
Time of the Merger and, therefore, it is not included as a part of this
Prospectus/Proxy Statement.
Any or all of the foregoing conditions may be waived by the party for
whose benefit in favor of whom they operate.
REGULATORY APPROVALS
Consummation of the Merger is subject to prior receipt of all required
approvals, consents or waivers of or to the Merger by applicable federal and
state regulatory authorities. In order to consummate the Merger, FWNC must
obtain the prior consent, approval or waiver, as applicable, of the FRB and the
DFI.
The Merger is subject to prior approval of the FRB under the BHCA.
Pursuant to the BHCA, the FRB may not approve the Merger if it would result in a
monopoly or would be in furtherance of a combination or conspiracy to monopolize
or attempt to monopolize the business of banking in any part of the United
States, or the effect of the transaction would be to substantially lessen
competition. In conducting the review of an application for approval, the FRB
and the DFI are required to consider whether financial and managerial resources
of the acquiring bank holding company and the acquiring bank are adequate,
(including consideration of a variety of means of the competence, experience and
integrity of the applicant's directors, officers and principals, and compliance
with, among other things, fair lending laws). Either the FRB and the DFI have
authority to deny an application if it concludes that the combined organization
would have inadequate capital or if the acquiring organization does not meet the
requirements of the Community Reinvestment Act of 1977.
Applications have been filed with both the FRB and the DFI for
approval of the Merger. Although neither FWNC nor the Company are aware of any
basis for disapproving the Merger, there is no assurance that all requisite
approvals will be obtained; that such approvals will be received on a timely
basis, or that they will not impose conditions or requirements which,
individually or in the aggregate, would have a material adverse effect on the
financial condition, results of operations, business or prospects of FWNC on a
consolidated basis.
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BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed to carry on
its business only in the usual, regular and ordinary course of business as
heretofore conducted. Both the Company and its subsidiary, Valley American Bank,
have agreed that, without the prior written consent of FWNC, which shall not be
unreasonably withheld, neither shall issue additional stock, options, warrants
or rights to subscribe to stock, redeem or purchase any stock, reclassify,
recapitalize, split up or exchange shares, or otherwise readjust capital, change
their respective certificates or articles of incorporation or association, or
their by-laws, grant any unusual increases in compensation to officers, grant
stock options or make any changes in bonus, insurance, pension or other employee
benefit plans for the benefit of officers or employees, borrow or agree to
borrow any funds or guaranty the obligations of others, make or commit to make
any new loan, letter of credit or discretionary advance in a manner inconsistent
with written underwriting policies in effect from the date of the Merger
Agreement, enter into any material agreement outside the ordinary course of
business, pledge, mortgage or permit a lien to attach to their assets or
property, sell or dispose of real property or any material amount of personal
property other than in the ordinary course of business (other than properties
acquired in the foreclosure), breach any material agreement, contract or
commitment which has a material adverse effect on the Company's business, or
take any action which would adversely affect the prospects of obtaining
necessary approvals of regulatory authorities.
According to the Merger Agreement, the Company has also agreed to
notify FWNC of the occurrence of any events which might be materially adverse to
the Company's business. The Company has also agreed not to declare or pay any
dividends or make other distributions to its shareholders, whether in cash,
stock or other property, after the date of the Merger Agreement, except for the
regular quarterly dividends payable in respect of Company's Preferred Stock in
the amount of 30c per share.
Finally, each party has agreed to provide the other and its
representatives with such data and information with respect to its business and
properties as such party may from time to time reasonably request. The parties
have agreed to hold any such nonpublic information obtained with respect to the
other in confidence.
NO SOLICITATION
Under the Merger Agreement, the Company may not solicit or encourage,
or, subject to fiduciary duties of its directors as advised in writing by
counsel, hold discussions or negotiations with or provide information to any
other person relating to the acquisition of all or any substantial portion of
the business, assets, or shares of Company Common Stock or Company Preferred
Stock. The Company has agreed to promptly advise FWNC of the receipt of any such
proposal or inquiry, as well as the identity of the person making such proposal
or inquiry. See "The Merger--Background and Reasons for the Merger,
Recommendation of the Board of Directors."
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EFFECTIVE TIME OF THE MERGER; TERMINATION AND AMENDMENT; TERMINATION FEE
The Effective Time of the Merger is the date and time of filing of the
Articles of Merger with the Secretary of State of Indiana, unless a different
date and time is specified as the Effective Time in such Articles of Merger. A
Closing will also occur prior to or contemporaneous with the Effective Time. The
parties have agreed in the Merger Agreement to use their best efforts to cause
the Effective Time to occur on the same date as the Closing. At the Closing,
each party will deliver to the other certificates, copies of resolutions and
legal opinions as specified in the Merger Agreement.
The Merger Agreement may be terminated, either before or after
approval by the shareholders of the Company by mutual agreement of FWNC and
Company. In addition, the Merger Agreement may also be terminated by either
party (1) in the event of a material breach of the representations and
warranties or agreements of the other party; (2) in the event any of the
conditions to the obligations of such party are not satisfied or waived prior to
the Closing Date; or (3) if any regulatory approval shall finally be denied or
disapproved by the respective regulatory authority.
In addition, the Merger Agreement may be terminated in the event the
Company's shareholders fail to vote to approve the Merger Agreement, separately
by class.
In addition, the Merger Agreement may be terminated by either party if
the Closing Date does not occur on or prior to September 1, 1996, provided the
party seeking to terminate has not breached its representations, warranties,
covenants or agreements in the Merger Agreement.
The Merger Agreement also provides that, notwithstanding any other
provision to the contrary, if the Agreement is terminated as a result of a
specified Triggering Event, the Company will upon demand pay to FWNC the sum of
$2 million; provided, within 12 months thereafter, the competing transaction, as
defined in the Merger Agreement, shall have occurred. For purposes of the Merger
Agreement, a triggering event includes:
(1) Termination by either party due to failure of the Company's
shareholders to approve the Agreement;
(2) A majority of the Board of Directors of the Company shall have
determined to recommend a competing transaction to the Company's
shareholders;
(3) The Company shall have entered into a definitive agreement with
respect to a competing transaction; or
(4) The Board of Directors of the Company shall have withdrawn or
modified in a manner adverse to FWNC, its approval or
recommendation of the Merger or the Merger Agreement.
The Merger Agreement may be amended or modified at any time before or
after approval of the Merger Agreement by the Company's shareholders; provided,
that after such
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approval no amendment or modification may alter the amount or change the form of
the Merger consideration to be received by shareholders of the Company.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the Board of Directors of the Company and certain
executive officers of the Company may be deemed to have interests in the Merger
in addition to their interests as shareholders of the Company generally. The
Board of Directors of the Company was aware of these factors and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Pursuant to the Merger Agreement, FWNC has agreed to take such action
as is necessary to cause Dennis J. Schwartz to be elected as a director of FWNC
as of the first meeting of FWNC's Board following the Effective Time.
On June 15, 1981, Valley American Bank and Darwin L. Wiekamp entered
into an agreement providing for certain deferred compensation payments to Mr.
Wiekamp (the "Deferred Compensation Agreement"). The Deferred Compensation
Agreement has been amended several times. Under the Deferred Compensation
Agreement, as amended, Valley American Bank has agreed to make certain deferred
compensation payments to Mr. Wiekamp in the event at any time after December 31,
1991, Mr. Wiekamp should retire or cease his regular employment by Valley
American Bank as a result of disability or death while in the employ of Valley
American Bank. Under the Deferred Compensation Agreement, Valley American Bank
was required to pay to Mr. Wiekamp, commencing with the month immediately
following his retirement, disability or death, $6,500 per month for the balance
of his life, and that of his wife, Dorothy Wiekamp, but in no event less than
for a duration of 120 consecutive months. Valley American Bank and Mr. Wiekamp
have entered into an agreement calling for termination of the Deferred
Compensation Agreement and requiring payment by Valley American Bank to Mr.
Wiekamp at the Effective Time of the Merger of $293,140. Upon such payment, the
Deferred Compensation Agreement shall be terminated and shall be of no further
effect.
Pursuant to the Merger Agreement, FWNC has agreed to provide directors
and officers of the Company with the same liability insurance coverage that FWNC
provides to its directors and officers and those of its Banking Subsidiaries.
FWNC has also agreed to use its best efforts to obtain an endorsement to its
directors' and officers' liability insurance policy to cover acts and omissions
of the Company's directors and officers which occur or failed to occur prior to
the Merger. FWNC is not required, however, to pay any special premium or other
charge or expense to obtain this endorsement. If FWNC is unable to obtain the
endorsement, then the Company may purchase tail coverage under its existing
directors' and officers' liability insurance policies, provided the total cost
of such coverage may not exceed $100,000. In addition, for six years after the
Merger, FWNC has agreed to indemnify, defend and hold harmless present and
former officers, directors, employees and agents of the Company and the Trustees
of the ESOP against claims arising from acts or
15
<PAGE>
omissions taken in such capacity to the extent permitted under Indiana corporate
law and by the Company's Articles of Incorporation as in effect on November 6,
1995, the date of execution of the Merger Agreement.
BONUS PAYMENTS
The Board of Directors of the Company declared and paid during
calendar year 1995, certain cash bonuses to executive officers of the Company
and/or Valley American Bank. While these bonuses are not contingent upon
successful completion of the Merger, they are unusual and were paid after
execution of the Merger Agreement. They are disclosed because they might be
deemed to represent indirect interests in the Merger.
<TABLE>
<CAPTION>
- --------------------------------------------------------
RECIPIENT TITLE AMOUNT
- --------------------------------------------------------
<S> <C> <C>
William D. Shroyer Executive Vice President $650,000
- --------------------------------------------------------
Donald R. Kyle Executive Vice President 650,000
- --------------------------------------------------------
John E. Ronchetti Senior Vice President 400,000
- --------------------------------------------------------
Dennis J. Schwartz President 100,000
- --------------------------------------------------------
Darwin L. Wiekamp Chairman of the Board 100,000
- --------------------------------------------------------
</TABLE>
RESALE OF FWNC COMMON STOCK AND FWNC PREFERRED STOCK
RESALE OF FWNC COMMON STOCK
Generally, shareholders of the Company who are not "affiliates" of the
Company (as such term is defined by the Securities Act) may resell FWNC Common
Stock acquired in the Merger without restriction. In connection with the Merger
Agreement, the Designated Company Shareholders, each of whom may be deemed an
"affiliate" of the Company, entered into and delivered the Shareholders'
Agreement which provides, among other things, that such affiliate will not sell,
transfer or otherwise dispose of any shares of FWNC Common Stock received
pursuant to the Merger for a two-year period commencing on the Closing Date,
except in the event of death of the Designated Company Shareholder or a change
in control of FWNC (as defined in the Merger Agreement), or except upon
retirement of the holder with respect to shares allocated to the retiring
holder's account under the FWNC Savings and Profit Sharing Plan.
In addition to the restrictions imposed by the Shareholders'
Agreement, shares of FWNC Common Stock held by affiliates of the Company who do
not become affiliates of FWNC after the Merger may not be sold except pursuant
to an effective Registration Statement under the Securities Act covering the
shares of FWNC Common Stock or in compliance with Rule 145 promulgated under the
Securities Act or other applicable
16
<PAGE>
exemption from registration requirements of the Securities Act. The Registration
Statement and this Prospectus/Proxy Statement do not cover resales of FWNC
Common Stock or FWNC preferred stock received in connection with the Merger.
Persons who may be deemed to be affiliates of a party generally include
individuals or entities that control, are controlled by or are under common
control with such party and may include certain officers and directors of such
party, as well as principal shareholders of such party.
Rule 145 permits shares of FWNC Common Stock held by affiliates of the
Company who do not become affiliates of FWNC to be sold in accordance with
certain provisions of Rule 144 under the Securities Act. In general, these
provisions of Rule 144 permit a person to sell on the open market in broker's
transactions within any three-month period a number of shares of FWNC Common
Stock that does not exceed the greater of 1% of the then outstanding number of
shares of FWNC Common Stock and the average weekly trading volume of FWNC Common
Stock on the Nasdaq Stock Market's National Market System during the four
calendar weeks preceding the date of sale. Sales under Rule 144 are also subject
to availability of current public information about FWNC. Rule 145 restrictions
on sales by a former affiliate of the Company who does become an affiliate of
FWNC will cease to apply once the former affiliate of the Company has held the
shares of FWNC Common Stock for at least two years, providing accurate, current
information about FWNC is then available and will cease to apply in total after
the former affiliate of the Company has held the shares of FWNC Common Stock for
at least three years.
RESALE OF FWNC CLASS B PREFERRED STOCK SERIES 1
FWNC currently has no shares of preferred stock outstanding. No shares
of preferred stock have been registered by FWNC under Section 12 of the Exchange
Act, and there has been no public trading market for such stock. See
"Description of FWNC Stock--FWNC Class B Preferred Stock Series 1." No broker-
dealer firm has made a market in any shares of preferred stock of FWNC.
Subsequent to issuance of FWNC Class B Preferred Stock Series 1 as a consequence
of the Merger, FWNC does not anticipate the development of a public trading
market for such stock. The Company's shareholders cannot be assured that there
will be any public trading market or opportunity to dispose of the FWNC Class B
Preferred Stock Series 1 received in the Merger through a market transaction.
Under the terms of the FWNC Class B Preferred Stock Series 1, however, the
holders of shares of FWNC Class B Preferred Stock Series 1 shall have the right,
at their option, to convert such shares into shares of FWNC Common Stock at any
time. The applicable conversion ratio will be equal to $50 divided by 120% of
the average of per-share closing prices of a share of FWNC Common Stock as
reported on the Nasdaq Stock Market's National Market System, as reported in The
Wall Street Journal (Midwest Edition), during the 20 trading day period
preceding the fifth calendar day prior to the date on which the FWNC Preferred
Stock is issued as a consequence of the Merger. This conversion ratio may be
subject to adjustment in response to changes in the capital structure of FWNC,
or the issuance of stock dividends. Even if a market were to exist under the
Merger Agreement, shares of FWNC Class B Preferred Stock Series 1 issued in the
merger,
17
<PAGE>
as well as shares of FWNC Common Stock issued upon conversion of shares of FWNC
Class B Preferred Stock Series 1, may not be sold, assigned or otherwise
transferred by any holder thereof for a two-year period commencing on the
closing date, except in the event of death of the shareholder or a change in
control of FWNC. All shares of FWNC Common Stock received in conversion will be
fully paid and nonassessable and, except as described above, may be disposed of
in the over-the-counter market on the Nasdaq Stock Market's National Market
System.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes the principal federal income tax
aspects of the Merger for a holder of Company Preferred Stock or Company Common
Stock who is a citizen or resident of the United States and holds such shares as
capital assets. The discussion does not purport to deal with all aspects of
taxation that may be relevant to particular shareholders of the Company in light
of their personal circumstances, or to certain types of investors (including
insurance companies, tax exempt organizations, financial institutions, broker
dealers and foreign corporations) subject to special treatment under the Code.
The Merger is expected to qualify as a reorganization under Section
368(a)(1)(A) of the Code. Except for the cash component of the Merger
Consideration and cash received in lieu of a fractional share interest in FWNC
Common Stock or FWNC Class B Preferred Stock Series 1, holders of shares of
Company Common Stock will recognize no gain or loss on the receipt of FWNC
Common Stock and FWNC Class B Preferred Stock Series 1 in the Merger; their
aggregate basis in the shares of FWNC Common Stock and FWNC Class B Preferred
Stock Series 1 received in the Merger will be the same as their aggregate basis
in their shares of Company Common Stock converted in the Merger, decreased by
the portion of the cash component allocable to the holders of Company Common
Stock and increased by the amount of gain recognized on the exchange, and;
provided the shares surrendered are held as a capital asset, the holding period
of the shares of FWNC Common Stock and FWNC Class B Preferred Stock Series 1
received by them will include the holding period of their shares of Company
Common Stock converted in the Merger. Cash received in lieu of fractional share
interests will be treated as a distribution in full payment of such fractional
share interests, resulting in capital gain or loss or ordinary income, as the
case may be, depending upon each shareholder's particular situation. Cash
received by the holders of Company Preferred Stock will be treated as a
distribution in full payment of such stock, resulting in capital gain or loss or
ordinary income, as the case may be, depending upon each shareholder's
particular situation. Cash received by the holders of Company Common Stock who
dissent to the Merger will be treated as received by such shareholders as a
distribution in redemption of the shareholders' Company Common Stock. The
following is a summary of a tax opinion to be issued by Barnes & Thornburg,
counsel for the Company, and included as an exhibit to the Registration
Statement.
18
<PAGE>
If the Merger is consummated in accordance with the terms of the
Merger Agreement described in this Prospectus/Proxy Statement and in accordance
with certain representations made by the parties, and assuming no adverse change
in applicable law, (1) the Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Code, and FWNC and the Company will each
be "a party to a reorganization" within the meaning of Section 368(b) of the
Code; (2) no gain or loss will be recognized by the holders of shares of Company
Common Stock upon receipt of Merger Consideration (except for gain or loss
recognized for receipt of the cash component of the Merger Consideration and
cash received in lieu of fractional shares); (3) the basis of shares of FWNC
Common Stock and FWNC Class B Preferred Stock Series 1 received by the holders
of Company Common Stock will be the same as the basis of shares of Company
Common Stock exchanged therefor, decreased by the portion of the cash component
allocable to the holders of Company Common Stock and increased by the amount of
gain recognized on the exchange; (4) the holding period of the shares of FWNC
Common Stock and FWNC Class B Preferred Stock Series 1 received by the holders
of Company Common Stock will include the holding period of the shares of Company
Common Stock exchanged therefor, provided such shares were held as capital
assets as of the Effective Time; (5) if a cash payment is received by a holder
of Company Common Stock in lieu of a fractional share interest of FWNC Common
Stock or FWNC Class B Preferred Stock Series 1, the cash payment will be treated
as received by the shareholder as a distribution in full payment in exchange for
the fractional share redeemed; (6) assuming certain authority set forth in a
1989 Supreme Court decision applies, the cash component received by the holders
of Company Common Stock will not, under Section 356 of the Code, have the effect
of the distribution of a dividend; (7) assuming more recent authority from the
United States Supreme Court applies, rather than Example 1 of Treasury
Regulation 1.306(3)(d), the FWNC Class B Preferred Stock Series 1 to be received
by the holders of Company Common Stock will not be 306 stock under Section 306
of the Code; (8) the holders of Company Common Stock will not be deemed to have
received a distribution under Section 305 of the Code as a result of the Merger;
(9) cash received by the holders of Company Preferred Stock will be treated as a
distribution in full payment of such stock, resulting in capital gain or loss or
ordinary income as the case may be, depending upon each shareholder's particular
situation, and; (10) where a holder of Company Common Stock dissents to the
Merger and receives solely cash for the shareholder's Company Common Stock, such
cash will be treated as received by the shareholder as a distribution in
redemption of the shareholder's common stock, subject to the provisions and
limitations of Section 302 of the Code.
The opinion is subject to certain assumptions and based on certain
representations of each of the Company and FWNC. Further, the opinion will be
based on current law, which could be amended, revoked, or modified with or
without retroactive effect, in a manner which would change such opinion. The
opinion will neither be binding upon the IRS, nor will the IRS be precluded from
taking a contrary position. Because no authority has been found that directly
addresses the federal income tax consequences of a transaction substantially
similar to the Merger, the opinion will not be entirely free from doubt. If
19
<PAGE>
litigated by the IRS, there can be no assurance that a court would necessarily
agree with the opinion.
THE FOREGOING IS A GENERAL SUMMARY OF ALL OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF THE COMPANY WITHOUT
REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX
SITUATION AND STATUS. EACH SHAREHOLDER OF THE COMPANY SHOULD CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR
HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
LAWS AND THE POSSIBLE EFFECT OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
No ruling from the Internal Revenue Service will be applied for with
respect to the federal income tax consequences of the Merger or the holding and
disposition of FWNC Common Stock and FWNC Class B Preferred Stock Series 1
issued in exchange for Company Common Stock. There can be no assurance that the
Internal Revenue Service will agree with the conclusions set forth herein.
REPORTING REQUIREMENTS
Treasury Regulation Section 1.368-3 requires each shareholder who
participates in the Merger to provide a special statement in his or her tax
return for the year in which the Merger occurs. The special statement must set
forth a complete statement of all facts pertinent to the nonrecognition of gain
or loss pursuant to the Merger. In addition, the shareholder must keep
permanent records showing the information necessary to determine gain or loss on
the subsequent disposition of shares of FWNC Common Stock or FWNC Class B
Preferred Stock Series 1 received in the Merger.
BACKUP WITHHOLDING
The Exchange Agent will be required to withhold 31% of the gross cash
proceeds to be received by a shareholder or other payee pursuant to the Merger,
unless (1) the shareholder provides the shareholder's taxpayer identification
number and certifies under penalties for perjury that such number is correct,
(2) the shareholder certifies under penalties for perjury that (a) the
shareholder is not subject to backup withholding as a result of failure to
report all interest or dividends, or (b) that the IRS has notified the
shareholder that the shareholder is no longer subject to backup withholding, or
(3) an exception applies under applicable laws and regulations. Unless such an
exemption exists and is proven in a manner satisfactory to the Exchange Agent,
each shareholder of the Company should complete and sign the substitute Form W-9
accompanying the letter of transmittal forwarded by the Exchange Agent so as to
provide information and certification necessary to avoid backup withholding.
20
<PAGE>
The federal income tax discussion set forth above is based on current
law and is intended for general information only because individual
circumstances may differ and the Merger may have tax consequences other than
federal income tax, Company shareholders are urged to consult their tax advisors
concerning their individual tax consequences resulting from the Merger,
including but not limited to consequences under federal, state and local income
tax and other tax laws.
ACCOUNTING TREATMENT OF THE MERGER
As required by generally accepted accounting principles, the purchase
method of accounting will be used by FWNC to reflect the Merger upon
consummation. Accordingly, purchase accounting adjustments, consisting of fair
value adjustments for assets and liabilities acquired and adjustments for
intangible assets established, and the resultant amortization/accretion of all
such adjustments over the period, will be reflected.
DISSENTERS' RIGHTS
The Company, and the rights of its dissenting shareholders, if any,
are governed by the provisions of the Indiana Business Corporation Law (the
"BCL"). Under the BCL, a shareholder whose shares are not registered on a
United States securities exchange registered under the Securities Exchange Act
of 1934 or traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-The-Counter Markets National Market Issues
("Nasdaq"), or a similar market, is entitled to dissent from, and obtain payment
of the fair market value for his shares in the event of consummation of, a plan
of merger to which the corporation is a party and for which shareholder approval
is required by the BCL or the corporation's articles of incorporation.
A corporation proposing to merge with another corporation must send a
written notice to each of its shareholders entitled to vote at the meeting.
That notice must state that the shareholders are or may be entitled to assert
dissenters' rights under the BCL. The required notice appears in the Notice of
Special Meeting of Shareholders accompanying this Prospectus/Proxy Statement. A
copy of Indiana Code Chapter 23-1-44, governing the exercise of dissenters'
rights under the BCL, is attached to this Prospectus/Proxy Statement as Appendix
B.
Any shareholder who wishes to assert dissenters' rights must deliver
to the Company a written notice indicating that shareholder's intent to demand
payment for his shares. This notice should be addressed to Darwin L. Wiekamp,
Chairman of the Board of Directors, Valley Financial Services, Inc., 310 West
McKinley, Mishawaka, Indiana 46545. The shareholder's notice must be delivered
to the Company before the vote is taken, and the shareholder must not vote in
favor of the proposed Merger. Shareholders who wish to exercise dissenters'
rights must exercise them as to all shares they own. Shareholders who own
shares beneficially but not of record must, in addition to the other
requirements described herein, submit to the Company the consent of the record
holder of such shares
21
<PAGE>
no later than the time dissenters' rights are asserted. Any shareholder who
fails to deliver the shareholder's notice or votes in favor of the proposed
Merger will not be entitled to payment for his shares under dissenters' rights
according to the BCL.
Following the meeting at which the Merger is authorized, the Company
must deliver a written dissenter's notice to all shareholders who notified the
Company that they intended to demand payment for their shares and who did not
vote in favor of the Merger. This dissenters' notice must be sent no later than
10 days after approval of the Merger by shareholders and must (i) state where
demand for payment should be sent and where and when certificates for
certificates shares should be deposited; (ii) inform holders of uncertificated
shares of the extent of transfer restrictions imposed upon such shares after the
demand for payment is received; (iii) supply a form for demanding payment for
shares that includes the date of the first announcement to the news media or to
shareholders of the terms of the proposed Merger, which in the case of this
proposed Merger was November 6, 1995, and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date; (iv) establish a date by which the
Company must receive a demand for payment, which date shall be not less than 30
nor more than 60 days after the dissenters' notice is delivered; and (v) be
accompanied by a copy of the Indiana Code Chapter 23-1-44, pertaining to
dissenters' rights. A dissenting shareholder must demand payment, certify
whether beneficial ownership of his shares was acquired before the date set
forth in the dissenters' notice and deposit his certificates in accordance with
the terms of such notice. Any shareholder who demands payment and deposits
shares in accordance with the terms of the dissenters' notice shall retain all
other rights as a shareholder until the rights are cancelled or modified by
consummation of the Merger. Any shareholder who fails to demand payment or
deposit shares as required by the dissenters' notice by the respective dates set
forth therein will not be entitled to payment for his shares and shall be
considered to have voted in favor of the proposed Merger.
If a dissenting shareholder was the beneficial owner of his shares on
or before the date of the first announcement to news media or to shareholders of
the terms of the proposed merger (a "Pre-announcement Shareholder"), which in
this case was November 6, 1995, the BCL requires the Company to pay such
shareholder the amount the Company estimates to be the fair value of his shares.
Payment shall be made as soon as the Merger is consummated and must be
accompanied by year-end and interim financial statements of the Company, a
statement of the Company's estimate of the fair value of the shares, a statement
of the dissenting shareholder's right to demand payment under Indiana Code
Section 23-1-44-18 and a copy of Indiana Code Chapter 23-1-44, pertaining to
dissenters' rights. If a dissenting shareholder was not the beneficial owner of
his shares prior to the date of the first announcement to the news media or to
shareholders of the proposed Merger (a "Post-announcement Shareholder"), the
Company may elect to withhold payment of the fair value of the dissenting
shareholder's shares. To the extent such payment is withheld, the Company is
required to estimate the fair value of the dissenting shareholder's shares and
offer to pay this amount to each Post-announcement Shareholder who agrees to
22
<PAGE>
accept it in full satisfaction of his demand. The offer must be accompanied by
a statement of the Company's estimate of value and a statement of the dissenting
shareholder's right to demand payment under Indiana Code Section 23-1-44-18.
Indiana Code Section 23-1-44-18 provides that dissenting shareholder
may notify the Company in writing of his estimate of the fair value of his
shares and demand payment of the amount of such estimate (less any payment
already made by the Company), or reject the Company's offer (if a Post-
announcement Shareholder) and demand payment of the fair value of his shares if
(i) the dissenter believes the amount paid or offered is less than the fair
value of his shares, (ii) the Company fails to pay Pre-announcement Shareholders
within 60 days after the date set for demanding payment, or (iii) if the
proposed Merger is not consummated, the Company fails to return the deposited
certificates or release transfer restrictions imposed on uncertificated shares
within 60 days after the date set for demanding payment. In order to exercise
rights granted under Indiana Code Section 23-1-44-18, a dissenter must notify
the Company in writing within 30 days after the Company made or offered payment
for the dissenter's shares.
If a demand for payment by a dissenting shareholder under Indiana Code
Section 23-1-44-11 or Section 23-1-44-18 remains unsettled within 60 days after
the Company's receipt of the demand for payment, the Company must commence a
proceeding in the circuit or superior court of the Company's home county and
petition the court to determine the fair value of the shares. If such a
proceeding is not commenced within the 60-day period, the Company must pay each
dissenting shareholder whose demand remains unsettled the amount demanded. All
dissenting shareholders whose demands remain unsettled must be made parties to
the proceeding and must be served with a copy of the petition. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. In any such proceeding, each dissenting
shareholder made a party is entitled to a judgment in the amount of the
difference between the fair value found by the court and the amount paid by the
Company plus interest on such difference, in the case of a Pre-announcement
Shareholder; or the fair value, plus accrued interest, of the dissenting
shareholder's shares for which the Company elected to withhold payment in the
case of a Post-announcement Shareholder. The court in an appraisal proceeding
has the authority to determine and assess the costs of the proceeding, including
the compensation and expenses of court-appointed appraisers, in such amounts and
against such parties as it deems equitable. The court may also assess fees and
expenses of attorneys and experts for the parties against the Company if the
court finds that the Company did not substantially comply with the requirements
of Indiana Code Sections 23-1-44-10 through 18, or against any party if the
court finds that such party acted arbitrarily, vexatiously or not in good faith.
The BCL also makes provision for compensation of attorneys for any dissenting
shareholder whose services benefitted other dissenting shareholders similarly
situated to be paid out of the amounts awarded the dissenting shareholders who
were benefitted, if not assessed against the Company.
23
<PAGE>
EXPENSES OF THE MERGER
The Merger Agreement provides that each party shall pay expenses and
costs incurred in connection with the Merger, including the fees and expenses of
its own financial consultants, accountants and counsel, provided that in the
event of termination of the Merger Agreement resulting from a willful breach of
any of the representations, warranties or covenants set forth in the Merger
Agreement, the nonbreaching party is entitled to recover appropriate damages
from the breaching party. An element of such damage would likely include the
expenses incurred in performing under the Merger Agreement.
CERTAIN REGULATORY CONSIDERATIONS
This description of laws and regulations applicable to FWNC and the
Company are brief summaries which do not purport to be complete and are
qualified in their entirety by reference to such laws and regulations.
GENERAL
Each of FWNC and Company is a bank holding company within the meaning
of the BHCA and, as such, is registered with, and subject to regulation and
supervision by, the FRB. Under the BHCA, a bank holding company is required to
file annually with the FRB a report of its condition and, with its nonbanking
subsidiaries, is subject to examination by the FRB. The BHCA also requires each
bank holding company to obtain the prior approval of the FRB before it may
acquire substantially all of the assets of any bank, or before it may acquire
ownership or control of any voting shares of any bank, if after such
acquisition, it would own or control directly or indirectly more than 5% of the
voting shares of that bank. The BHCA also restricts the types of businesses and
operations in which a bank holding company and its nonbank subsidiaries may
engage. Generally, permissible activities are limited to banking and activities
found by the FRB to be so closely related to banking as to be a proper incident
thereto.
FWNC's lead bank subsidiary, Fort Wayne National Bank, as well as most
of its other Banking Subsidiaries, are subject to extensive regulation and
examination by the OCC. FWNC's state chartered banking subsidiaries are also
subject to regulation and examination by the Indiana Department of Financial
Institutions ("DFI") and by the FDIC, which insures the deposits of each of
FWNC's Banking Subsidiaries to the extent permitted by law.
Federal and state laws and regulations which are applicable to insured
depository institutions such as FWNC, and its Banking Subsidiaries, the Company
and Valley American Bank, regulate, among other things, the scope of their
business, their investments, their reserves against deposits, the timing of
availability of deposited funds and the nature and amount of collateral for
loans. In addition, approval of appropriate regulatory authorities is required
for branching and for mergers of depository institutions. The laws and
regulations governing banks and insured depository institutions generally have
been
24
<PAGE>
promulgated to protect depositors and not for the purpose of protecting their
shareholders.
REGULATORY CAPITAL REQUIREMENTS
The federal banking agencies which have jurisdiction over FWNC and its
Banking Subsidiaries and the Company and Valley American Bank generally measure
capital adequacy by using a risk-based capital framework and by monitoring
compliance with minimum leverage capital ratio guidelines. The required minimum
ratio of total risk-based capital to risk-weighted assets (including certain
off-balance sheet items, such as standby letters of credit) is 8%. At least half
of the total capital, or 4%, is to be comprised of common equity and qualifying
perpetual preferred stock, less deductible intangibles ("Tier I Capital"). The
remainder ("Tier II Capital") may consist of mandatory convertible debt
securities, qualifying subordinated debt, other preferred stock and a portion of
the reserve for possible credit losses up to 1.25% of total calculated assets.
The aggregate amount of Tier I Capital and Tier II Capital is referred to herein
as "Total Capital."
In addition, the federal banking agencies have established minimum
leverage capital ratio guidelines in order to measure capital adequacy. These
guidelines provide for a minimum leverage capital ratio (Tier I Capital to
quarterly average total assets less deductible intangibles) of 3% for bank
holding companies and banks that meet certain criteria, including the
maintenance of the highest regulatory rating. All other bank holding companies
and banks are required to maintain a leverage ratio of 3% plus an additional
cushion of at least 100 to 200 basis points.
In addition to the foregoing requirements, the federal banking
agencies have proposed regulations which modify the risk-based capital
requirements to take into account interest rate risk. Moreover, regulatory
agencies review capital adequacy in light of a variety of factors, including
asset quality. Therefore, the capital adequacy of a banking organization will be
impacted by, and assessed in relation to, its asset quality.
Under the "prompt corrective action" provisions of the Federal Deposit
Insurance Act ("FDIA"), as amended by the Federal Deposit Insurance Corporation
Act of 1991 ("FDICIA"), the federal banking agencies have established five
capital categories: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." The prompt corrective action provisions of the FDIA, and the
regulations promulgated thereunder, require certain mandatory actions and
authorize other discretionary actions to be taken by the appropriate federal
banking agency ("prompt corrective action") with respect to institutions in the
three undercapitalized categories, with the nature and extent of such action
dependent primarily on the category in which the institution is placed. See
"FDICIA," below. As of December 31, 1995, each of FWNC's Banking Subsidiaries'
and Valley American Bank's capital levels qualified them as "well-capitalized"
institutions under these regulations.
25
<PAGE>
The following table reflects the historical risk-based capital ratios
of the Company and FWNC, and on a pro forma basis, as of December 31, 1995:
26
<PAGE>
FORT WAYNE NATIONAL CORPORATION
DECEMBER 31, 1995
CAPITAL RATIOS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FWNC Historical
<S> <C>
Total equity capital $ 233,711
Less: Net unrealized gain on securities available for sale 12,171
Less: Disallowed intangibles 2,061
----------
Total Tier I capital 219,479
Qualifying allowance for loan losses and other debt 18,261
----------
Total Tier I and Tier II capital $ 237,740
==========
Risk-weighted assets $1,461,033
Total Tier I capital ratio 15.02%
Total Tier I and Tier II capital ratio 16.27%
Leverage ratio 9.57%
Required total Tier I and Tier II capital ratio 8.00%
Excess total Tier I and Tier II capital $ 120,862
Excess total Tier I and Tier II capital ratio 8.27%
The Company Historical
Total equity capital $ 58,152
Less: Net unrealized gain on securities available for sale 1,129
Less: Disallowed intangibles --
----------
Total Tier I capital 57,023
Qualifying allowance for loan losses and other debt 6,540
----------
Total Tier I and Tier II capital $ 63,563
==========
Risk-weighted assets $ 520,739
Total Tier I capital ratio 10.95%
Total Tier I and Tier II capital ratio 12.21%
Leverage ratio 7.53%
Required total Tier I and Tier II capital ratio 8.00%
Excess total Tier I and Tier II capital $ 21,904
Excess total Tier I and Tier II capital ratio 4.21%
Pro Forma Combined
Total equity capital $ 290,711
Less: Net unrealized gain on securities available for sale 12,171
Less: Disallowed intangibles 52,590
----------
Total Tier I capital 225,960
Qualifying allowance for loan losses and other debt 24,656
----------
Total Tier I and Tier II capital $ 250,606
==========
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Risk-weighted assets $1,972,520
Total Tier I capital ratio 11.45%
Total Tier I and Tier II capital ratio 12.70%
Leverage ratio 7.34%
Required total Tier I and Tier II capital ratio 8.00%
Excess total Tier I and Tier II capital $92,804
Excess total Tier I and Tier II capital ratio 4.70%
</TABLE>
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REGULATORY ENFORCEMENT ACTIONS
Bank holding companies, insured depository institutions and their
institution-affiliated parties may be subject to potential enforcement actions
by applicable federal banking authorities for unsafe or unsound practices in
conducting their businesses, or for violations of any law, rule or regulation or
provision, any consent order with any agency, any condition imposed in writing
by the agency or any written agreement with the agency. Enforcement actions may
include cease-and-desist orders and written agreements, the termination of
insurance deposits, the imposition of civil money penalties and removal and
prohibition orders against institution-affiliated parties, among other things.
Neither FWNC nor any of its Banking Subsidiaries are subject to any such
enforcement actions. Nor are the Company or Valley American Bank subject to any
such enforcement action.
DIVIDENDS
Each of FWNC and the Company is a legal entity separate and distinct from
its respective banking subsidiaries. FWNC's principal source of revenue for
general corporate purposes, such as the payment of dividends on FWNC Common
Stock and, after the Merger, payment of dividends on FWNC Preferred Stock,
consists of dividends from its Banking Subsidiaries, and the Company's principal
source of revenue consists of dividends from Valley American Bank. The payment
of dividends by FWNC's Banking Subsidiaries and Valley American Bank is subject
to various regulatory requirements.
The payment of dividends by FWNC and its Banking Subsidiaries and the
Company and Valley American Bank also may be affected by other factors, such as
the maintenance of adequate capital. For example, FDICIA generally prohibits an
undercapitalized institution from paying dividends. In addition, if, in the
opinion of the applicable regulatory authority, a banking holding company or a
bank under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such organization cease and desist from
such practice. The federal banking agencies also have issued policy statements
which provide that bank holding companies and insured depository institutions
should generally only pay dividends out of current operating earnings.
Under the National Bank Act, the approval of the OCC is required for any
dividend by a national bank if the total of all dividends declared by the bank
in any calendar year would exceed the total of its net profits, as defined, for
that year, combined with its retained net profits for the preceding two years.
In calculating net profits for purposes of this limitation, a national bank may
add back its provision for loan losses for years prior to 1991, but not for
periods after January 1, 1991. In addition, a national bank may not pay a
dividend in an amount greater than its undivided profits then on hand after
deducting its losses and bad debts. For this purpose, bad debts generally are
defined to include the
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principal amount of loans which are in arrears with respect to interest by six
months or more unless such loans are fully secured and in the process of
collection.
As of December 31, 1995, FWNC's Banking Subsidiaries had approximately
$21.6 million available to pay dividends to FWNC and Valley American Bank had
approximately $15.7 million available to pay dividends to the Company, under
legal restrictions.
SUPPORT OF BANKING SUBSIDIARIES
Under FRB policy, bank holding companies such as FWNC and the Company are
expected to act as a source of financial strength to each of their subsidiary
banks and to commit resources to support each subsidiary bank in circumstances
when it might not do so absent such policy. The FRB takes the position that in
implementing this policy it may require bank holding companies to provide such
support when the holding company otherwise would not consider itself able to do
so.
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989, in the event of a loss suffered by the FDIC in connection with a banking
subsidiary of a bank holding company (whether due to a default or the provision
of FDIC assistance), other banking subsidiaries of the holding company could be
assessed for such loss.
TRANSACTIONS WITH AFFILIATES
Federal laws limit the transfer of funds by a subsidiary bank to its
holding company in the form of loans or extensions of credit, investments or
purchases of assets. Transfers of this kind are limited to 10% of a bank's
capital stock and surplus with respect to each affiliate and to 20% in the
aggregate, and are also subject to certain collateral requirements. These
transactions, a well as other transactions between a subsidiary bank and its
holding company, also must be on terms substantially the same as, or at least as
favorable as, those prevailing at the time for comparable transactions with
nonaffiliated companies or, in the absence of comparable transactions, on terms
or under circumstances, including credit standards, that would be offered to, or
would apply to, nonaffiliated companies.
FDICIA
INSURANCE PREMIUMS. Each of FWNC's Banking Subsidiaries and Valley
American Bank are members of the Bank Insurance Fund ("BIF") administered by the
FDIC. Pursuant to FDICIA, the FDIC developed a risk-based assessment system,
under which the semi-annual assessment rate for an insured depository
institution varies according to the level of risk incurred in its activities. An
institution's risk category is based upon whether the institution is well
capitalized, adequately capitalized or less than adequately capitalized. Each
insured depository institution also is to be assigned to one of three groups
based on supervisory evaluations of the institution. Based on the foregoing,
each member of BIF administered by the FDIC currently is assigned an annual FDIC
assessment rate varying
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<PAGE>
between 0.23% per annum (for well capitalized Subgroup A institutions) and 0.31%
per annum (for undercapitalized Subgroup C institutions). Each of FWNC's
material Banking Subsidiaries and Valley American Bank are currently considered
to be "well capitalized." See "Certain Regulatory Considerations--Regulatory
Capital Requirements" above.
Financial institutions which are members of the BIF are likely to
experience lower deposit insurance premiums in the future because the BIF has
higher reserves and is expected to be responsible for fewer troubled
institutions. In February, 1995, the FDIC proposed that the premium schedule for
BIF members be revised to provide a range of .04% to .31% of insured deposits
(as compared to a range of .23% to .31% of insured deposits for SAIF-insured
institutions), so that well-capitalized and healthy BIF members would pay the
lowest premiums. In May, 1995, the BIF reached its capitalization target. As a
result, the FDIC refunded excess premiums paid by Banks from June through
September and reduced FDIC premium rates. Except for a $2,000 per bank
assessment, the current FDIC premium is fixed at zero for well-capitalized
banks.
PROMPT CORRECTIVE ACTION. FDICIA substantially revised the bank regulatory
provisions of the FDIA and several other federal banking statutes. Among other
things, FDICIA requires federal banking agencies to broaden the scope of
regulatory corrective action taken with respect to depository institutions that
do not meet minimum capital requirements and to take such actions promptly in
order to minimize losses to the FDIC. In connection with FDICIA, federal banking
agencies are required to establish capital measures (including both a leverage
measure and a risk-based capital measure) and to specify for each capital
measure the levels at which depository institutions will be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized."
Under FDICIA, each of the banking regulatory agencies adopted regulations
establishing relevant capital measures and relevant capital levels. Under the
regulations, an institution is considered to be (i) well capitalized if it has a
Total Capital to risk adjusted assets ratio of 10% or greater, a Tier I Capital
to risk adjusted ratio of 6% or greater and a leverage capital ratio of 5% or
greater and is not subject to any order or written directive by the appropriate
federal banking agency to meet and maintain a specific capital level for any
capital measure; (ii) adequately capitalized if it has a Total Capital to risk
adjusted assets ratio of 8% or greater, a Tier I Capital to risk adjusted ration
of 4% or greater and a leverage capital ratio of 4% or greater (3% in certain
circumstances) and is not well capitalized; (iii) undercapitalized if it has a
Total Capital to risk adjusted assets ratio of less than 8%, a Tier I Capital to
risk adjusted ratio of less than 4% or a leverage capital ratio of less than 4%
(3% in certain circumstances); (iv) significantly undercapitalized if it has a
Total Capital to risk adjusted assets ratio of less than 6%, a Tier I Capital to
risk adjusted ratio of less than 3% or a leverage capital ratio of less than 3%;
and (v) critically undercapitalized if its tangible equity is equal to or less
than 2% of average quarterly tangible assets. As discussed above, each of FWNC's
material Banking Subsidiaries and
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Valley American Bank is currently considered to be a "well capitalized"
institution under these regulations.
FDICIA authorizes the appropriate federal banking agency, after notice and
an opportunity for a hearing, to treat a well capitalized, adequately
capitalized or undercapitalized insured depository institution as if it had a
lower capital-based classification if it is in an unsafe or unsound condition or
engaging in an unsafe or unsound practice. Thus, an adequately capitalized
institution can be subjected to the restrictions on undercapitalized
institutions (provided that a capital restoration plan cannot be required of the
institution) described below and an undercapitalized institution can be
subjected to the restrictions applicable to significantly undercapitalized
institutions described below.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining among other
things that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, any parent holding company of the depository
institution must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of (i) an amount equal to five percent of the depository
institution's total assets at the time it became undercapitalized, and (ii) the
amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect
to such institution as of the time it fails to comply with the plan. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority of payment. If a depository institution fails to submit an acceptable
plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of depositions from correspondence banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
BROKERED DEPOSITS. Under FDICIA, a bank cannot accept brokered deposits
(which term is defined to include payment of an interest rate more than 75 basis
points above prevailing rates) unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDIC. A bank is defined to
be well capitalized for purposes of this restriction if it maintains a leverage
capital ratio of at least 5%, a Tier I Capital to risk adjusted ratio of 6% and
a Total Capital to risk adjusted assets ratio of at least 10% and is not
otherwise in a "troubled condition" as specified by its appropriate federal
regulatory
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<PAGE>
agency. A bank is defined to be adequately capitalized if it meets all of its
minimum capital requirements. A bank that cannot receive brokered deposits also
cannot offer "pass-through" insurance on certain employee benefit accounts. In
addition, a bank that is "adequately capitalized" may not pay an interest rate
on any deposits in excess of 75 basis points over certain prevailing market
rates. There are no such restrictions on a bank that is "well capitalized."
Neither FWNC's Banking Subsidiaries nor Valley American Bank presently utilizes
brokered deposits as a source of funds.
SAFETY AND SOUNDNESS STANDARDS. FDICIA requires that each of the federal
bank regulatory agencies prescribe by regulation the depository institution and
depository institution holding company standards relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and employee compensation,
fees and benefits and standards specifying minimum earnings sufficient to absorb
losses without impairing capital, to the extent feasible a minimum ratio of
market value to book value for publicly traded shares and such other standards
relating to the foregoing as it deems appropriate. A holding company or
institution that fails to comply with such standards will be required to submit
a plan designed to achieve such compliance. If no such plan is submitted or a
failure to implement such a plan exists, the depository institution or holding
company would become subject to additional regulatory action or enforcement
proceedings.
In November, 1993, the federal banking agencies published proposed safety
and soundness standards under FDICIA. Among other things, the proposed
regulations set forth general standards relating to internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure and employee compensation. The proposed
regulations also outline proposed rules setting forth a maximum ratio of
classified assets to capital and for determining minimum earnings, but decline
to propose either a quantitative limit on asset growth or a minimum ratio of
market value to book value for publicly traded shares. Neither FWNC nor the
Company currently believe that the adoption of such standards as proposed will
have a material adverse effect on its respective financial condition and
operations.
OTHER. FDICIA also contains a variety of other provisions that may affect
the operations of bank holding companies, banks and savings banks, including new
reporting requirements, revised regulatory standards for real estate lending,
"truth in savings" provisions, and the requirement that a depository institution
give 90 days' prior notice to customers and regulatory authorities before
closing any branch.
RECENT LEGISLATIVE DEVELOPMENTS
Several bills recently have been introduced in the U.S. Congress which, if
enacted, could significantly affect the operations and oversight of savings
institutions and other financial institutions. Included in such proposed
legislation is the "Bank Regulatory Consolidation and Reform Act of 1995," which
would merge the Office of Thrift Supervision
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<PAGE>
into the OCC, the "Financial Services Competitive Act of 1995," which would
repeal portions of the Glass-Steagall Act and permit certain affiliations
between commercial banks and securities brokerage firms, and the "Risk
Management Improvement and Derivatives Oversight Act of 1995," which would
create a Federal Derivatives Commission to establish principles and standards
for the supervision of both dealers of derivatives and investors. In addition,
the "Depository Institution Affiliation Act of 1995," which would establish
financial services holding companies and would permit any entity, financial or
commercial, to become affiliated with an insured depository institution, has
been introduced in both the United States Senate and the United States House of
Representatives. FWNC and the Company currently are unable to predict whether
any of the foregoing legislative proposals may be passed or, if passed, what the
final contents of such legislation will be and their effects, if any, on FWNC
and the Company.
DESCRIPTION OF FWNC STOCK
FWNC is authorized to issue up to 20 million shares of FWNC Common Stock
and up to 2 million shares of Preferred Stock. The capital stock of FWNC
does not represent or constitute a deposit account and is not insured by
the FDIC. The following description of FWNC Common Stock and Preferred
Stock does not purport to be complete and is qualified in all respects by
reference to FWNC's Articles of Incorporation ("Articles") and By-Laws
("By-Laws"), as well as the Indiana Business Corporation Law ("IBCL").
FWNC COMMON STOCK
GENERAL. Each share of FWNC Common Stock has the same relative rights and
is identical in all respects to each other share of FWNC Common Stock.
FWNC Common Stock is not subject to call for redemption and, upon receipt by
FWNC of the shares of Company Common Stock surrendered in exchange for FWNC
Common Stock, as applicable, each share of FWNC Common Stock offered in the
Merger will be fully paid and nonassessable.
VOTING RIGHTS. The holders of FWNC Common Stock currently possess
exclusive voting rights with respect to FWNC. Each holder of FWNC Common
Stock is entitled to one vote for each share held on all matters voted upon by
shareholders, and shareholders are not permitted to accumulate votes in the
election of directors.
DIVIDENDS. Subject to the rights of holders of any series of preferred
stock issued by FWNC, the holders of FWNC Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors of
FWNC from funds legally available.
PREEMPTIVE RIGHTS. Holders of FWNC Common Stock do not have any preemptive
rights with respect to any shares which may be issued by FWNC in the future.
Thus, FWNC may sell shares of FWNC stock without first offering them to the then
holders of FWNC Common Stock.
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LIQUIDATION. In the event of any liquidation, dissolution or winding up of
FWNC, the holders of FWNC Common Stock are entitled to receive, after payment of
all debts and liabilities of FWNC, all assets of FWNC available for
distribution, subject to the rights of the holders of any preferred stock which
may be issued by FWNC having a priority in liquidation or dissolution over that
of the holders of FWNC Common Stock.
FWNC PREFERRED STOCK
FWNC is authorized to issue up to 2 million shares of Preferred Stock,
consisting of 1 million shares of no par value Class A Preferred Stock and 1
million shares of no par value Class B Preferred Stock. Owners of Class A
Preferred Stock have the right, voting in common with the holders of Common
Stock and not separately by class, to vote on each question or matter submitted
generally to the shareholders of FWNC in respect of which voting by class is not
required. In addition, holders of Class A Preferred Stock have the right,
voting separately by class and without regard to series, to vote upon each
question or matter in respect of which they are entitled by law to vote by
class. Holders of Class A Preferred Stock also have the right, voting
separately by class and without regard to series, to elect a number of
additional members of the Board of Directors as is equal to the number of
classes of Common Directors if FWNC were to fail to pay fixed, minimal or other
dividends payable in respect of any series of those shares in an aggregate
amount equal to full dividends for six calendar quarters. As long as there is
any Class A Preferred Stock of any series outstanding, FWNC may not, without the
affirmative vote of at least two-thirds of the aggregate number of shares of
Class A Preferred Stock of all series then outstanding, voting separately by
class and without regard to series, change or repeal any voting rights of such
shares then outstanding or authorize or create any class of stock ranking as to
voting rights or as to relative rights, preferences, qualifications, limitations
and restrictions, prior to the Class A Preferred Stock of any series then
outstanding.
Class B Preferred Stock has no voting rights, and holders thereof are not
entitled to receive notice of any meeting at which they are not entitled to
vote. However, holders of Class B Preferred Stock have the right, voting
separately by class and without regard to series, to elect a number of
additional members of the Board of Directors as is equal to the number of
classes of Common Directors if FWNC were to fail to pay dividends payable with
respect to any series of such shares in an aggregate amount equal to full
dividends for six full calendar quarters.
The Board of Directors of FWNC is authorized to issue either Class A or
Class B preferred stock from time to time in series, and to fix and state voting
powers, designations, preferences or other special rights of such shares and the
qualifications, limitations and restrictions thereof. Such classes and series of
FWNC preferred stock may be issued in distinctly designated series, may be
convertible into FWNC Common Stock, and may rank prior to the FWNC Common Stock
and the FWNC Class B Preferred Stock Series 1 to be issued in the Merger as to
dividend rights, liquidation preferences or both.
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The authorized but unissued shares of other classes and series of preferred
stock (as well as the authorized but unissued and unreserved shares of FWNC
Common Stock) are available for issuance in future mergers or acquisitions and
future public offerings or in private placements or for other general purposes.
Except as otherwise required to approve the transaction in which the additional
shares of FWNC may be issued, shareholder approval is generally not required for
the issuance of these shares. Depending on the circumstances, a shareholder may
be approved or required pursuant to the requirements for a continued listing of
any FWNC Common Stock on the Nasdaq Stock Market's National Market System or the
requirements of any exchange on which FWNC Common Stock may then be listed.
FWNC CLASS B PREFERRED STOCK SERIES 1
The Board of Directors of FWNC has exercised its power to issue Class B
Preferred Stock by entering into the Merger Agreement under such terms and
conditions as shall require the issuance of FWNC Class B Preferred Stock Series
1 in consummation of the Merger. The particular voting powers, designations,
preferences or other special rights of FWNC Class B Preferred Stock Series 1 are
described specifically in this section. FWNC Class B Preferred Stock Series 1 is
6% cumulative convertible nonvoting Class B Preferred Stock. A total of 740,000
shares of FWNC Class B Preferred Stock Series 1 shall be issued in consummation
of the Merger. FWNC Class B Preferred Stock Series 1 will be without par value,
but has a stated value of $50 per share. FWNC has no other classes or series of
preferred stock issued or outstanding at this time, but FWNC's Board of
Directors may issue additional classes or series of preferred stock in the
future. Holders of FWNC Class B Preferred Stock Series 1 are entitled to
receive, when and as declared by the FWNC Board of Directors, cash dividends,
accruing from the date of their initial issuance, at the fixed annual rate of 6%
per annum, computed on the stated value of $50 per share. Dividends are payable
quarterly. In the event of liquidation, dissolution or winding up of the affairs
of FWNC, whether voluntary or involuntary, holders of the FWNC Class B Preferred
Stock Series 1 are entitled to receive out of assets available for distribution
an amount equal to $50 per share, plus accrued and unpaid dividends through the
date of distribution. The merger or consolidation of FWNC with or into any other
corporation, or the sale of assets of FWNC substantially as an entirety, shall
not be deemed a liquidation, dissolution or winding up of the affairs of FWNC.
The FWNC Class B Preferred Stock Series 1 may be redeemed by FWNC at its option
at any time or from time to time on or after April 1, 2002 at an agreed
redemption price of $50 per share, plus accrued and unpaid dividends. Redemption
of FWNC Class B Preferred Stock Series 1 may be subject to prior approval by the
FRB.
Holders of FWNC Class B Preferred Stock Series 1 have the right, at their
option, to convert their shares into shares of FWNC Common Stock at any time at
a conversion ratio equal to $50 divided by 120% of the average per-share closing
price of FWNC Common Stock as reported on the Nasdaq Stock Market's National
Market as reported in The Wall Street Journal (Midwest Edition) during the 20
day trading period preceding the fifth calendar day prior to the closing date
("Average Price"). This conversion ratio shall be
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adjusted from time to time after the issue date to reflect stock dividends or
other distributions in respect of shares of Common Stock, the issuance of
additional rights or warrants to holders of Common Stock entitling them to
subscribe for the purchase of shares of FWNC Common Stock at a price per share
less than its current market value and distribution to holders of FWNC Common
Stock of certain evidence of indebtedness or the reclassification of FWNC Common
Stock into securities including those other than FWNC Common Stock. FWNC is
required to pay all taxes which may be payable in respect of the issuance of
shares of FWNC Common Stock upon conversion of FWNC Class B Preferred Stock
Series 1, but FWNC is not required to pay taxes which may be payable in respect
of any transfer involved in the issuance of shares of FWNC Common Stock in a
name other than that in which the share of FWNC Class B Preferred Stock Series 1
is registered. Other than as required by law, and except under circumstances
where required dividends have not been paid, holders of FWNC Class B Preferred
Stock Series 1 do not have voting rights. See "Description of FWNC Stock--
Description of FWNC Preferred Stock."
The value of a single share of FWNC Class B Preferred Stock Series 1 is
approximately $50. This valuation is principally based on the 6% annual dividend
rate in respect of such shares, the conversion ratio into FWNC Common Stock, the
market value of a share of FWNC Common Stock and the call protection feature
inherent in FWNC Class B Preferred Stock Series 1. Typically, preferred stock
which is convertible into common stock has a value which fluctuates based on
price movements of the underlying common stock. Typically, one share of
convertible preferred stock would be convertible into a fixed number of common
shares. In this transaction, each share of FWNC Class B Preferred Stock Series 1
will be convertible into FWNC Common Stock at a conversion ratio equal to $50
divided by 120% of the FWNC Common Stock Average Price (that is the average of
the per share closing price of a share of FWNC Common Stock as reported on the
Nasdaq Stock Market's National Market System, as reported in The Wall Street
Journal (Midwest Edition) during the 20 trading day period preceding the fifth
calendar date prior to closing). For example, if the FWNC Common Stock Average
Price is $30, the conversion price would be $30 times 120% or $36. The
conversion ratio would be calculated by dividing $50 by $36, producing a
conversion ratio of 1.388. Accordingly, each share of FWNC Class B Preferred
Stock Series 1 would be convertible, based on this example, into 1.388 shares of
FWNC Common Stock. Using this calculation, the underlying FWNC Common Stock for
each share of FWNC Class B Preferred Stock Series 1 is worth $41.64.
However, the underlying FWNC Common Stock represents only a portion of the
total value of the FWNC Class B Preferred Stock Series 1. The other principal
value component of FWNC Class B Preferred Stock Series 1 is its dividend rate.
With a 6% annual dividend rate on a stated $50 value, the shareholder of each
share of FWNC Class B Preferred Stock Series 1 will receive $3 in dividends per
year for each share. By comparison, the underlying FWNC Common Stock will yield
a dividend totalling approximately $1.04 in annual dividends per common share
times 1.388 or $1.44. The holder of a share of FWNC Class B Preferred Stock
Series 1 has a substantial dividend advantage over the shareholder of FWNC
Common Stock. The differential is the FWNC Common Stock dividend rate
($1.44)
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minus the FWNC Class B Preferred Stock Series 1 dividend rate ($3), or $1.56 per
share. It is likely that some distinct differential advantage will be present in
favor of the FWNC Class B Preferred Stock Series 1 over at least six years the
FWNC Class B Preferred Stock Series 1 will be outstanding. If FWNC does not
raise its common dividend rate over that period, the cumulative dividend
enhanced value would be $9.36 per share, based on $1.56 per year times six
years. That dividend enhancement, plus the value of the underlying FWNC Class B
Preferred Stock Series 1 generates a combined value of $51.00. However, some of
this value will not be realized except in future years. The current valuation
of approximately $50 discounts the dividend enhancement that occurs in more
distant future years.
The mechanism establishing the FWNC Class B Preferred conversion exchange
ratio based on the FWNC Common Stock Average Price during a period immediately
prior to the closing of the Merger minimizes risk to the Company's shareholders
that the value of the underlying FWNC Common Stock received at closing will be
substantially different from the value of the underlying FWNC Common Stock at
the time of the conversion exchange ratio was set. If the conversion exchange
ratio had been fixed at the time of announcement of the Merger, and the price of
FWNC Common Stock had moved up or down materially, the value of the underlying
FWNC Class B Preferred Stock Series 1 would also materially move. Such a
situation would have created undue market risk for the shareholders of the
Company because bank mergers typically require a long time to close after they
are announced.
The sale of shares of FWNC Class B Preferred Stock Series 1 received in the
Merger is prohibited for a period of two years from the date on which they are
issued in consummation of the Merger. While the holder of FWNC Class B Preferred
Stock Series 1 may convert that stock into FWNC Common Stock, as discussed
above, resale of FWNC Common Stock issued in conversion of said FWNC Class B
Preferred Stock Series 1 is likewise restricted for two years from the date of
issuance to the converted FWNC Class B Preferred Stock Series 1. No assurances
can be given that the holder of a share of FWNC Class B Preferred Stock Series 1
will be able to sell such a share in the future or that, if such sale were to
occur, the sale would not be a price less than the $50 stated value of a share
of FWNC Class B Preferred Stock Series 1. Given the lack of a market for the
FWNC Class B Preferred Stock Series 1, the only means for holders to liquidate
these shares would, after two years, be by privately arranged sale or conversion
of the same into FWNC Common Stock and subsequent resale in the open market .
ANTI-TAKEOVER PROVISIONS IN FWNC'S ARTICLES OF INCORPORATION AND BY-LAWS
FWNC's Articles of Incorporation and By-Laws contain a number of provisions
which may be deemed to have the effect of discouraging or delaying attempts to
gain control of FWNC, including provisions in the Articles: (1) classifying the
Board of Directors into three classes to serve for three years each with one
class being elected annually, (2) authorizing the Board to fix the size of the
Board between 9 and 31 directors, (3) authorizing directors
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to fill vacancies in the Board, (4) increasing the vote for removal of directors
by shareholders, (5) increasing the amount of stock required to be held by
shareholders seeking to call a special meeting of shareholders, and (6)
requiring an increased vote of shareholders to approve certain business
combinations unless certain price and procedural requirements are met or the
Board of Directors approves the business combination in the manner provided
therein. The provisions of the By-Laws of FWNC include specific conditions
under which (1) persons may be nominated for election of directors at FWNC at
an annual meeting of shareholders, and (2) business may be transacted at an
annual meeting of shareholders.
In addition to the foregoing, FWNC's Articles and By-Laws contain
provisions intended to discourage the use by potential acquirers of FWNC of
certain techniques which FWNC's management believes have the tendency to benefit
some shareholders at the expense of others. These provisions are intended to
provide greater assurance that in the event of an actual takeover of FWNC, all
shareholders will be treated fairly and equally.
One set of such provisions provides that each shareholder shall receive for
all of his shares a price at least equal to the higher of (1) the price paid for
any other share of FWNC stock, or (2) the fair market value of such a share of
FWNC stock. These provisions could deter a change of control by imposing
significant additional costs upon potential acquirers.
In addition, FWNC's Articles require the affirmative vote of the holders of
two-thirds of the then outstanding shares to approve certain transactions with
persons holding 10% or more of the outstanding FWNC stock, including matters
such as a merger, consolidation or sale of a substantial portion of FWNC's
assets to such a party. These restrictions do not apply, however, if certain
conditions are met, including the approval of the transaction by FWNC's Board of
Directors .
These anti-takeover provisions and measures may have the effect of
entrenching FWNC's current management.
ANTI-TAKEOVER PROVISIONS IN THE INDIANA BUSINESS CORPORATION LAW
The Indiana Business Corporation Law (the "BCL") includes two chapters that
may have a direct effect on change of control transactions. These are Chapter 42
(IC 23-1-42), the Control Share Acquisitions Chapter, and Chapter 43 (IC 23-1-
43), the Business Combinations Chapter. The BCL permits a corporation to elect
whether or not to be governed by these Chapters. FWNC has elected not to be
governed by either of these Chapters. FWNC could elect to become subject to
either or both of these Chapters at any time, although the Board of Directors
presently does not plan to do so.
39
<PAGE>
CONTROL SHARE ACQUISITIONS
The Control Share Acquisitions Chapter of the BCL ("Chapter 42") limits
the voting rights of shares acquired by a person or group if the total number of
shares the votes of which are controlled by such acquiring shareholder or group
after such acquisition exceeds certain specified levels of ownership, unless and
until certain independent shareholders have adopted a resolution granting the
right to vote the excess acquired shares to the acquiring shareholder. Upon
appropriate request, an acquiring shareholder can demand that the corporation
submit to its shareholders within 50 days the issue of the right of the
acquiring shareholder or group to vote the excess shares acquired. If no proper
request is made by the acquiring shareholder, then Chapter 42 provides that the
issue of voting rights is to be considered at the next shareholders' meeting.
The restrictions on the right to vote, and the obligation to seek independent
shareholder authority for voting, arises at three levels of shareholder
ownership or voting power: when the acquiring shareholder owns or has voting
power in excess of 20%, 33 1/3% and 50% of the outstanding voting securities of
the corporation. Assuming the authority exists in the corporation's articles of
incorporation or by-laws in advance of the control share acquisition, unless the
acquiring shareholder files with the corporation an appropriate informational
statement, the corporation can redeem the shares acquired by the acquiring
shareholder within a period of 60 days following the last acquisition of shares.
If, on the other hand, the acquiring shareholder files an appropriate
informational statement, then its shares can only be redeemed in the event that
the independent shareholders refuse the acquiring shareholder the right to vote,
assuming the authority to redeem such shares exists in the corporation's
articles of incorporation or by-laws in advance of the control share
acquisition. If the shareholders grant the acquiring shareholder the right to
vote and the acquiring shareholder owns or controls the votes of a majority of
the outstanding voting securities of the corporation, then shareholders may
exercise dissenters' rights of appraisal and receive the "fair value" of their
shares, as defined in the BCL. FWNC has elected not to be subject to Chapter 42.
This election may be rescinded at any time, although the Board of Directors
presently does not plan to do so.
BUSINESS COMBINATIONS
The Business Combinations Chapter of the BCL ("Chapter 43") provides that
persons who own or control (directly or through their affiliates or associates),
voting power over at least 10% of the voting shares of a corporation are, under
certain circumstances, prohibited from engaging in certain mergers, stock
purchases, asset purchases, loans, or other financial transactions with the
corporation in which they own their 10% interest, unless that corporation's
Board of Directors expressly approved the acquisition of the 10% interest before
the 10% shareholder acquired his interest. For those 10% shareholders who do not
obtain their interest with prior approval of the Board of Directors, Chapter 43
will freeze such financial transactions for five years from the share
acquisition date, regardless of whether the Board of Directors or shareholders
then favor the transaction, and after the five-year period the transaction will
be permissible only if certain "fair price" requirements or "disinterested
shareholder approval" requirements are observed. FWNC has elected not
40
<PAGE>
to be subject to Chapter 43. This election may be rescinded at any time,
although the Board of Directors presently does not plan to do so.
TRANSFER AGENT
The transfer and agent registrar for FWNC Common Stock is Fort Wayne
National Bank.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS
Both FWNC and the Company are Indiana corporations subject to the
provisions of the BCL. Accordingly, no change in the law governing a
relationship between FWNC and the Company on the one hand, and their respective
shareholders, on the other, will occur as a result of the Merger. Upon
consummation of the Merger, shareholders of the Company will become shareholders
of FWNC, and their rights as shareholders of FWNC will be governed by the
Articles and By-Laws of FWNC and by the BCL. The differences inherent in
shareholdership are outlined as follows:
AUTHORIZED CAPITAL STOCK. The Company's Articles of Incorporation authorize
the issuance of up to 240,000 shares of Company Common Stock, of which 204,788
were outstanding as of the Record Date. The Company's Articles of Incorporation
authorize the issuance of up to 60,000 shares of Company Preferred Stock, of
which 51,197 were outstanding on the Record Date. On the other hand, FWNC's
Articles authorize the issuance of up to 20 million shares of FWNC Common Stock,
of which 11,428,717 were outstanding on December 31, 1995; up to 1 million
shares of Class A Preferred Stock and up to 1 million shares of Class B
Preferred Stock. After issuance of the FWNC Preferred Stock in the Merger, only
260,000 shares of Class B Preferred Stock will remain authorized but unissued.
Each class of preferred stock is issuable in series, each series having such
rights and preferences as FWNC's Board of Directors may fix and determine by
resolution.
ISSUANCE OF CAPITAL STOCK. Under the BCL, FWNC and the Company could both
issue rights, options or warrants for the purchase of shares of capital stock on
such terms and for consideration as may be determined by the respective Board of
Directors. Neither the BCL nor the Company's Articles of Incorporation or By-
Laws require shareholder approval of any such action. However, the By-Laws of
the National Association of Securities Dealers, Inc., generally requires
corporations, such as FWNC, with securities which are quoted on the Nasdaq Stock
Market's National Market System to obtain shareholder approval of most stock
compensation plans for directors, officers and key employees of the corporation.
Shareholder approval of stock-related compensation plans may be sought in
certain instances in order to qualify such plans for federal income tax and
securities law treatments under current laws and regulations.
VOTING RIGHTS. Each share of Company Preferred Stock carried with it the
right to one vote per share on all matters properly presented at meetings of the
shareholders of the
41
<PAGE>
Company. Holders of Company Common Stock do not have the right to vote except as
provided by the BCL. Each share of FWNC Common Stock is entitled to one vote per
share on all matters properly presented at meetings of shareholders of FWNC, but
the FWNC Class B Preferred Stock Series 1 is not entitled to vote, except as
required by the BCL. Neither the Company's Articles or By-Laws nor FWNC's
Articles or By-Laws permit shareholders to accumulate their votes in an election
of directors.
DIVIDENDS AND DISTRIBUTIONS. Under the BCL, and subject to restrictions
contained in Articles of Incorporation, as well as restrictions imposed by
banking laws and regulations, either the Company or FWNC may make distributions
to shareholders, provided no distribution may be made if, after giving it
effect, the corporation would not be able to pay its debts as they become due in
the ordinary course of business and the corporation's total assets would be less
than the sum of its total liabilities. In addition, under a credit agreement the
annual cash dividends which the Company may pay are limited to $77,000. Except
as described above, there are no significant differences with respect to the
right to pay dividends or make distributions between the Company and FWNC. For a
description of regulatory capital requirements applicable to bank holding
companies such as FWNC and the Company, and regulatory limitations on the
ability of their banking subsidiaries to pay dividends, see "Certain Regulatory
Considerations--Dividends."
CLASSIFICATION AND SIZE OF BOARD OF DIRECTORS. The Company's By-Laws
provided that the term of office of each director of the Company shall be one
year or until his successor shall be elected and qualified. FWNC's Articles and
By-Laws require the Board of Directors of FWNC to be divided into three classes
with members of each class to be elected for a term of three years, one class
being elected annually.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Articles of Incorporation of
the Company provide that each director and officer, whether or not then in
office, is to be indemnified by the Company against liability and expenses
reasonably incurred by or imposed upon him in connection with his official
capacity, except relating to matters as to which the director or officer shall
be determined to have not met the prescribed standard of conduct, all as set
forth in the Articles of Incorporation.
The By-Laws of FWNC also provide that directors, officers, employees and
agents of FWNC are to be indemnified by FWNC against liability and expenses
incurred by or imposed upon him in connection with or arising out of actions or
claims in which such person is or may become involved as a party by reason of
having had such a relationship with FWNC and arising from actions taken or not
taken by him in such capacity.
PROCEDURE FOR CALLING SPECIAL MEETING OF SHAREHOLDERS. Special meetings of
shareholders of FWNC may be called in writing by FWNC's President, its Secretary
or its Board of Directors. In addition, special meetings of FWNC's shareholders
may be called by the holders of at least 25% of the outstanding shares of FWNC
entitled to vote upon
42
<PAGE>
business to be transacted at the meeting, provided such shareholders deliver to
FWNC's Secretary a written demand that such meeting be held.
SHAREHOLDER NOMINATIONS AND PROPOSALS. Nominations for election to the Board
of Directors of FWNC may be made by any shareholder of an outstanding class of
stock entitled to vote for election of that class of director. Shareholder
nominations must be made in writing and must be delivered to the President of
FWNC not less than 30 nor more than 90 days prior to the date of any meeting of
the shareholders called for the election of directors. The nomination must
contain the signed consent of the nominee to serve, as well as his name and
address, principal occupation, total number of shares of FWNC that the
nominating shareholders know will be voted for the nominee, the name and
residence address of the nominating shareholders and the number of shares of
stock of FWNC owned by the nominating shareholders. Nominations not made in
accordance with the By-Laws of FWNC may be disregarded by the Chairman of the
meeting at which the election is to occur, and upon his instruction, the vote
tellers may disregard all votes cast for such nominee.
SHAREHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. The BCL provides that a
list of shareholders of an Indiana corporation such as FWNC and the Company must
be available for inspection by shareholders entitled to vote at the meeting
beginning 5 business days before the date of the meeting from which the list was
prepared and continuing through the meeting. The list is to be maintained at
the corporation's principal office or at the place identified in the meeting
notice where the meeting will be held. The BCL also provides that a shareholder
of an Indiana corporation may inspect and copy certain specified records of the
corporation during regular business hours if the shareholder (1) has made a
written demand at least 5 business days in advance of the date on which he or
she desires to inspect and copy records, and such demand is made in good faith
and states a proper purpose; (2) describes with reasonable particularity the
purpose and the records to be inspected; and (3) the records are directly
connected with that purpose. The BCL authorizes a shareholder of an Indiana
corporation that refuses to permit an authorized inspection to bring a legal
action for an order directing a corporation to permit such inspection and, if
successful, to be awarded costs incurred in obtaining the order unless the
corporation proves that it refused inspection in good faith because it had a
reasonable basis for doubt about the right of the shareholder to inspect the
records demanded. The Articles of Incorporation and By-Laws of both FWNC and
the Company contain no further or other rights conferred upon shareholders with
respect to examination or copying of shareholder's lists or other corporate
records.
AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of FWNC's Articles of
Incorporation may generally be made unless first proposed by its Board of
Directors, which shall recommend adoption of the amendment by shareholders
unless there is a conflict of interest or other special circumstances.
Thereafter, the proposed amendment must be approved by the holders of a majority
of the total votes eligible to be cast at a legal meeting. However, certain
sections of FWNC's Articles of Incorporation may only be
43
<PAGE>
amended by the affirmative vote of the holders of not less than 2/3 of the
holders of the common stock of FWNC, voting separately by class. The sections in
FWNC's Articles of Incorporation requiring a higher vote of shareholder for
amendment include those relating to change or repeal of voting rights, class of
stock ranking as to voting rights or relative rights, preferences,
qualifications, limitations and restrictions, numbers and classes of directors
and provisions relating to removal of directors, filling vacancies, and the
provisions relating to certain business combinations and transactions described
above.
The By-Laws of FWNC may be amended by the affirmative vote of more than 2/3
of the common directors and more than 2/3 of the whole board, which numbers are
determined as if there are no vacancies on the board even if they exist, at any
regular or special meeting notice of which contains the proposed amendment or a
digest thereof. In addition, FWNC's By-Laws may be amended by written consent of
all directors.
SELECTED INFORMATION CONCERNING COMPANY MANAGEMENT
Darwin L. Wiekamp and Dennis J. Schwartz are the only directors or
executive officers of the Company who will serve as directors or executive
officers of FWNC following the Merger. Mr. Wiekamp is named because he will
continue to be an executive officer of Valley American Bank following the
Merger, and Valley American Bank will be a significant subsidiary of FWNC
following the Merger. As of the date hereof, Mr. Wiekamp is 81 years old. He
currently serves as Chairman of the Board of Directors of the Company, as
Chairman of the Board of Directors and Chief Executive Officer of Valley
American Bank and as a director of VBT Realty, a wholly owned subsidiary of the
Company. He was initially elected to the Board of Directors of Valley American
Bank in 1966, and his current term as director of Valley American Bank will
expire in May, 1996. His term as a member of the Board of Directors of the
Company will expire at the time of the Merger as the Company's separate legal
existence will cease.
Mr. Schwartz is the only director or executive officer of the Company or
Valley American Bank who will serve as a director of FWNC following the Merger.
As of the date hereof, Mr. Schwartz is 55 years old. He currently serves as a
director and President of the Company, Valley American Bank and VBT Realty. He
was initially elected to the Board of Directors of Valley American Bank in 1969
and of the Company in 1968. His current term as a director of Valley American
Bank will expire in May, 1996. His term as a member of the Board of Directors of
the Company will expire at the time of the Merger as the Company's separate
legal existence will cease.
SUMMARY COMPENSATION TABLES
The following table sets forth the compensation received by Messrs. Wiekamp
and Schwartz for each of the last three fiscal years ended December 31, 1995.
44
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
SUMMARY COMPENSATION TABLE OF VALLEY AMERICAN BANK
- ---------------------------------------------------------------------------------------------------------------
Name and Long-Term Compensation
Principal -----------------------------------
Position Annual Compensation Awards Payouts
-----------------------------------------------------------------------------
Other Securities All
Annual Restricted Underlying Other
Com- Stock Options/ LTIP Compen-
Salary Bonus pensation Awards SARs Payouts sation
Year ($) ($) ($) ($) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Darwin L. Wiekamp, 1995 228,000 175,000(a) 0 0 0 0 48,000(b)
Chairman of the Board
and Chief Executive
Officer
- ---------------------------------------------------------------------------------------------------------------
1994 208,000 58,591 0 0 0 0 49,698
- ---------------------------------------------------------------------------------------------------------------
1993 188,000 42,136 0 0 0 0 47,800
- ---------------------------------------------------------------------------------------------------------------
Dennis J. Schwartz, 1995 270,000 175,000(a) 0 0 0 0 8,500(b)
President
- ---------------------------------------------------------------------------------------------------------------
1994 250,000 58,591 0 0 0 0 9,634
- ---------------------------------------------------------------------------------------------------------------
1993 230,000 42,136 0 0 0 0 9,651
===============================================================================================================
</TABLE>
(a) Includes cash bonus of $100,000 paid by the Company.
(b) An estimate of contributions under the Company's ESOP has been included in
this column.
45
<PAGE>
OPTIONS
Neither the Company nor Valley American Bank has issued any stock
options to any directors or executive officers at any time.
THE COMPANY
The Company, an Indiana corporation formed in 1945, is a single bank
holding company registered under the BHCA. The Company owns all of the issued
and outstanding stock of Valley American Bank, formed in 1966 as Valley Bank and
Trust Company. Valley American Bank is chartered under the laws of the State of
Indiana and conducts its business from headquarters in South Bend, Indiana, and
20 other branch offices located throughout north central Indiana. Valley
American Bank is a result of combining Valley Bank & Trust Company located in
Mishawaka, Indiana, and American National Bank located in South Bend, Indiana.
This merger effective October 1, 1983, combined two banks with each having
approximately $150,000,000 in assets and a branch network in the two cities
contiguous to each other. Both banks were commercially oriented, in particular,
serving the needs of small and medium size businesses in the local geographic
area. At December 31, 1995, Valley American Bank employed approximately 375
persons. At December 31, 1995, the Company had consolidated assets of
approximately $819,000,000, consolidated deposits of approximately $564,000,000
and consolidated shareholders' equity of approximately $44,700,000. Based on
total assets at December 31, 1995, the Company believes it is the sixth largest
independent bank holding company headquartered in the State of Indiana.
Valley American Bank offers a broad range of commercial and consumer
banking services and products. These services and products include accepting
demand and time deposits; making secured and unsecured loans to individuals,
corporations and other entities and issuing letters of credit. Valley American
Bank's lending services include making commercial, industrial, real estate,
installment and lease receivable loans. Commercial lending is the Bank's
primary lending category and is expected to continue growth commensurate with
past years. Credit risk is inherent in commercial lending. The Bank mitigates
this risk by the periodic review and evaluation of loan underwriting policies
and procedures as well as a loan review and credit department function that
monitors the commercial loan portfolio on an ongoing basis. In addition,
interest and fees on commercial loans are the most significant components of
Valley American Bank's revenue. Valley American Bank also offers a wide range
of trust services, serving both personal and corporate customers and a wide
range of employee benefit programs, primarily 401(k) plans for commercial
customers.
Funding for the recent and anticipated commercial loan growth has
mostly come from repurchase agreements and advances from the Federal Home Loan
Bank. In particular, the Bank has been successful in obtaining the cash
management contracts for six local public entities with total balances averaging
approximately $45,000,000. These
46
<PAGE>
contracts expire at the end of 1996 and are subject for another two-year
renewal. If the Bank is unsuccessful in retaining these contracts, other
wholesale funding opportunities will be explored along with a more aggressive
posture to obtain consumer deposits.
Valley American Bank intends to pursue new growth opportunities by
offering additional investment alternative vehicles to their customers via fixed
and variable annuities and mutual funds. These alternative investment products
will be offered in addition to an existing successful discount brokerage
operation.
Valley American Bank actively competes with other local and regional
commercial banks, savings and loans, mortgage companies, credit unions and
others for all types of deposits, loan and trust accounts. Some of their
competition have greater financial resources than the Company or Valley American
Bank. The principal executive offices of the Company are located at 310 West
McKinley, Mishawaka, Indiana 46545.
The Company and Valley American Bank are subject to periodic reviews
or examinations, as applicable, by the Federal Reserve Bank System, the Indiana
Department of Financial Institutions and The Federal Deposit Insurance
Corporation.
The earnings of commercial banks are affected not only by general
economic conditions, but also by the policies of various governmental regulatory
authorities. In particular, the FRB regulates money and credit conditions and
interest rates in order to influence general economic conditions, primarily
through open-market operations in U.S. Government securities, the discount rate
on bank borrowings, setting the reserves that banks must maintain against
certain bank deposits and the regulation of interest rates payable by banks on
certain time and savings deposits. These policies have a significant effect on
the overall growth and distribution of bank loans, investments and deposits.
They influence interest rates charged on loans, earned on investments and paid
for time and savings deposits. FRB monetary policies have had significant
effect on the operating results of commercial banks in the past and are expected
to exert similar influence in the future. The general effect, if any, of such
policies upon the future business and earnings of the Registrant and the Bank
cannot be reasonably predicted.
The following schedules disclose certain
summary financial information about the Company:
47
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
EARNINGS
Total interest income $ 59,176 $ 48,972 $ 46,509 $ 49,232 $ 51,362
Total interest expense 29,393 21,349 20,632 23,992 29,162
Net interest income 29,783 27,623 25,877 25,240 22,200
Provision for loan losses 1,676 1,743 2,873 2,196 1,925
Total noninterest income 5,061 4,727 5,192 4,588 3,739
Total noninterest expense 23,157 18,589 17,529 18,061 16,950
Income tax expense 3,292 4,330 3,734 3,713 2,543
Net income 6,719 7,688 6,933 5,858 4,521
PER COMMON SHARE DATA
Net income /(1)/ $ 32.50 $ 36.77 $ 31.36 $ 25.40 $ 19.48
Cash dividends declared - - - - -
Book value at year end /(2)/ 215.87 205.52 176.95 143.51 121.71
Book value at year end/ (2) (3)/ 280.96 238.69 205.04 164.39 139.00
FINANCIAL CONDITION
Total assets $818,618 $742,327 $726,040 $673,896 $619,886
Long-term debt 41,917 23,250 24,827 16,384 9,921
Preferred and common
stock subject to
repurchase in ESOP 13,416 6,882 5,982 4,848 4,026
Stockholders' equity 44,736 42,637 37,692 33,311 28,343
Average daily assets 756,857 694,213 667,963 638,356 577,703
Average daily loans/ (4)/ 520,487 477,316 443,259 442,664 402,164
Average daily deposits 542,828 527,006 519,348 516,621 469,821
Average stockholders'
equity 46,160 40,364 36,161 30,247 25,956
Average stockholders'
equity /(3)/ 54,604 46,796 41,576 34,684 29,677
OTHER DATA
Average common shares
outstanding 204,838 207,432 218,996 228,016 228,670
Return on average assets .89% 1.11% 1.04% .92% .78%
Return on average stock-
holders' equity 14.55% 19.05% 19.17% 19.37% 17.42%
Return on average
stockholders' equity /(3)/ 12.30% 16.43% 16.68% 16.89% 15.23%
Common dividend payout
ratio (dividends divided
by net income) - - - - -
Average stockholders'
equity to average total assets 6.10% 5.81% 5.41% 4.74% 4.49%
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average stockholders'
equity to average
total assets /(3)/ 7.21% 6.74% 6.22% 5.43% 5.14%
</TABLE>
(1) Net income per share has been adjusted to exclude dividends on preferred
stock.
(2) Book value per share has been adjusted to exclude preferred stock
outstanding.
(3) Calculated based on stockholders' equity and preferred and common stock
subject to repurchase in ESOP.
(4) Averages do not include allowances for loan losses.
49
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INTEREST
INCOME/EXPENSE AND YIELDS/RATES
<TABLE>
<CAPTION>
1995 1994 1993
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balances Interest Rate Balances Interest Rate Balances Interest Rate
- ---------------------- --------- --------- -------- --------- --------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Interest-earning deposits $ 309 $ 14 4.53% $ 61 $ 2 3.28% $ 1,210 $ 30 2.48%
Federal funds sold and securities
purchased under agreements to resell 38,343 2,251 5.87 23,680 1,173 4.95 25,641 891 3.47
Investment securities:
Taxable /(1)/ 133,705 8,370 6.26 121,770 6,897 5.66 122,578 7,630 6.22
Nontaxable /(2)(4)/ 18,166 1,426 7.85 24,752 1,582 6.39 29,166 1,855 6.36
Loans and lease financing net of
unearned income /(3)(4)/ 520,487 47,773 9.18 477,316 40,114 8.40 443,259 37,034 8.35
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earning assets 711,010 59,834 8.42 647,579 49,768 7.69 621,854 47,440 7.63
Less allowance for loan and lease
losses (8,564) (7,416) (6,755)
-------- -------- --------
702,446 640,163 615,099
NON-EARNING ASSETS
Cash and due from banks 31,662 33,959 31,443
Land, buildings and equipment, net 13,907 14,101 14,608
Other assets 8,842 5,990 6,813
-------- -------- --------
Total assets $756,857 $694,213 $667,963
======== ======== ========
INTEREST-BEARING LIABILITIES
Deposits:
Demand $ 51,277 1,184 2.31 $ 54,162 1,168 2.16 $ 51,369 1,377 2.68
Savings 73,274 1,965 2.68 84,095 2,061 2.45 83,926 2,448 2.92
Time 321,084 17,556 5.47 292,980 13,100 4.47 299,053 13,417 4.49
Securities sold under repurchase
agreements 109,515 5,887 5.38 87,337 3,245 3.72 77,974 1,981 2.54
Other short-term borrowings 5,966 281 4.71 6,028 216 3.58 7,249 164 2.26
Advances from Federal Home Loan Bank 31,816 1,929 6.06 14,999 877 5.85 8,593 529 6.16
Other long-term debt 8,158 591 7.24 9,469 682 7.20 9,824 716 7.29
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 601,090 29,393 4.89 549,070 21,349 3.89 537,988 20,632 3.84
------- ---- ------- ---- ------- ----
NON-INTEREST BEARING LIABILITIES
Non-interest-bearing deposits 97,193 95,769 85,000
Other liabilities 3,970 2,578 3,399
-------- -------- --------
Total liabilities 702,253 647,417 626,387
Preferred and common stock subject to
repurchase in ESOP 8,746 6,432 5,415
Stockholders' equity 45,858 40,364 36,161
-------- -------- --------
Total liabilities and stockholders'
equity $756,857 $694,213 $667,963
======== ======== ========
Net interest income/earning assets 30,441 4.28% 28,419 4.39% 26,808 4.31%
==== ==== ====
Tax equivalent adjustment /(4)/ (658) (796) (931)
------- ------- -------
Net interest income $29,783 $27,623 $25,877
======= ======= =======
</TABLE>
50
<PAGE>
(1) Investment balances include Federal Home Loan Bank stock.
(2) Investment balances exclude unrealized gains (losses) for purposes of these
computations.
(3) Loan balances include principal balances on non-accrual loans for purposes
of these computations.
(4) Interest income on tax-exempt investments and loans have been adjusted to a
taxable equivalent basis using a marginal federal income tax rate of 34%.
51
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
INTEREST INCOME AND EXPENSE RATE/VOLUME ANALYSIS
The following table illustrates the approximate effect on net interest
differentials of volume and rate changes between 1995 and 1994 and between 1994
and 1993. For each category of interest earning assets and interest bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) total changes in rate
and volume. The combined effects of changes in both volume and rate, which
cannot be separately identified, have been allocated proportionately to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
1995 OVER 1994 1994 OVER 1993
-------------------------- --------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
(In thousands) Volume Rate Total Volume Rate Total
- -------------- -------- ------ ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest-earning deposits $ 11 $ 1 $ 12 $ (35) $ 7 $ (28)
Federal funds sold and
securities purchased
under agreements to
resell 830 248 1,078 (73) 355 282
Investment securities:
Taxable 710 763 1,473 (50) (683) (733)
Nontaxable (1) (473) 317 (156) (282) 9 (273)
Loan and lease financing (1) 3,794 3,865 7,659 2,861 219 3,080
------ ------ ------- ------ ------ ------
Total interest income 4,872 5,194 10,066 2,421 (93) 2,328
------ ------ ------- ------ ------ ------
INTEREST EXPENSE
Demand deposits (64) 80 16 72 (281) (209)
Savings deposits (280) 184 (96) 5 (392) (387)
Time deposits 1,341 3,115 4,456 (272) (45) (317)
Securities sold under
repurchase agreements 957 1,685 2,642 261 1,003 1,264
Other short-term
borrowings (2) 67 65 (31) 83 52
Advances from Federal
Home Loan Bank 1,018 34 1,052 376 (28) 348
Other long-term debt (95) 4 (91) (26) (8) (34)
------ ------ ------- ------ ------ ------
Total interest expense 2,875 5,169 8,044 385 332 717
------ ------ ------- ------ ------ ------
Increase in interest differential $1,997 $ 25 $ 2,022 $2,036 $ (425) $1,611
====== ====== ======= ====== ====== ======
</TABLE>
(1) Interest income on tax-exempt investments and loans have been adjusted to a
taxable equivalent basis using a marginal federal income tax rate of 34%.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
The following table sets forth the carrying amount of investment securities at
December 31, 1995, 1994 and 1993:
1995 1994 1993
------ ------ ------
(Dollars in thousands) AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ---------------------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
Government agencies $128,218 88.17% $108,639 80.35% $104,637 79.93%
States and political
subdivisions 11,759 8.09 13,722 10.15 12,694 9.70
Mortgage-backed securities 859 .59 10,524 7.78 11,414 8.72
Corporate and other debt
securities 159 .11 135 .10 110 .08
Other securities (1) 4,419 3.04 2,187 1.62 2,050 1.57
-------- ------ -------- ------ -------- ------
Total $145,414 100.00% $135,207 100.00% $130,905 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
(1) Other securities includes Federal Home Loan Bank stock.
52
<PAGE>
INVESTMENT SECURITIES (CONTINUED)
The maturity distribution and weighted average interest rates of investment
securities at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Estimated Maturity at December 31, 1995
---------------------------------------
Within 1 Year 1-5 Years 5-10 Years After 10 years Total
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------ ------- ------ ------- ------ ------ ------- ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Government
agency $39,291 6.25% $85,839 6.22% $3,088 6.82% $ - -% $128,218 6.24%
States and political
subdivisions 1,758 8.79 6,921 8.02 2,268 8.17 812 8.97 11,759 8.23
Mortgage-backed securities 15 5.26 70 5.28 112 5.33 662 5.19 859 5.22
Corporate and other debt
securities 10 5.50 25 8.50 124 6.74 - - 159 6.94
Other securities - - - - - - 4,419 8.07 4,419 8.07
------- ---- ------- ---- ------ ---- ------ ---- -------- ----
Total investment securities $41,074 6.36% $92,855 6.35% $5,592 7.34% $5,893 7.87% $145,414 6.45%
======= ==== ======= ==== ====== ==== ====== ==== ======== ====
</TABLE>
The calculations of the weighted average interest rates for each maturity
category are based on yield weighted by the respective costs of the securities.
The weighted average rates on state and political subdivisions are computed on a
taxable equivalent basis using a 34% tax rate. For purposes of the above
presentation, maturities of mortgage-backed pass through certificates and
collateralized mortgage obligations are based on estimated maturities. Other
securities includes Federal Home Loan Bank stock.
Excluding those holdings of the investment portfolio in U.S. Treasury and other
agencies of U.S. Government, there were no securities of any one issuer which
exceeded 10% of the stockholders' equity of the Company at December 31, 1995.
53
<PAGE>
LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
------------
(Dollars in thousands) 1995 1994 1993 1992 1991
- --------------------------------- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Commercial $302,563 $294,054 $267,361 $224,685 $207,898
Real estate - construction 21,427 11,983 13,018 28,508 21,083
Real estate - mortgage 136,033 135,007 124,496 114,958 149,617
Installment 59,572 54,240 50,078 44,805 47,753
Industrial revenue 4,257 5,460 9,331 9,996 12,862
Lease financing receivable 1,203 1,697 1,595 277 -
-------- -------- -------- -------- --------
Total loans $525,055 $502,441 $465,879 $423,229 $439,213
======== ======== ======== ======== ========
Percent of total year-end loans
Commercial 57.63% 58.52% 57.40% 53.09% 47.34%
Real estate - construction 4.08 2.38 2.79 6.74 4.80
Real estate - mortgage 25.91 26.87 26.72 27.16 34.06
Installment 11.34 10.80 10.75 10.58 10.87
Industrial revenue .81 1.09 2.00 2.36 2.93
Lease financing receivable .23 .34 .34 .07 .00
-------- -------- -------- -------- --------
100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ========
</TABLE>
The following table shows the amounts of commercial and real estate -
construction loans which, based on remaining scheduled repayments of principal
are due in the period indicated. Also, the amounts are classified according to
sensitivity to changes in interest rates (fixed, variable).
<TABLE>
<CAPTION>
Maturity at December 31, 1995
---------------------------------------------------------------
After One
But Within After
Within Five Years Five Years
(In thousands) One Year Fixed Variable Fixed Variable Total
- -------------- -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial $148,350 $72,035 $66,588 $ 3,692 $11,898 $302,563
Real estate - construction 21,427 - - - - 21,427
Real estate - mortgage 23,009 13,590 8,434 30,913 60,087 136,033
-------- ------- -------- ------- ------- --------
$192,786 $85,625 $75,022 $34,605 $71,985 $460,023
======== ======= ======== ======= ======= ========
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
December 31,
------------
(In thousands) 1995 1994 1993 1992 1991
- -------------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 3,238 $ 1,526 $ 596 $ 773 $ 3,126
Accruing loans which are contractually
past due 90 days or more 864 121 182 307 486
Restructured loans not included above 3,349 2,705 2,344 - -
-------- ------- ------- ------- -------
$ 7,451 $ 4,352 $ 3,122 $ 1,080 $ 3,612
======== ======= ======= ======= =======
Foreclosed assets not included above $ - $ 234 $ 32 $ 2,301 $ 1,526
======== ======= ======= ======= =======
</TABLE>
54
<PAGE>
(In thousands)
--------------
Gross interest income that would have been recorded in 1995 on
nonaccrual loans outstanding at December 31, 1995 if the loans
had been current, in accordance with their original terms and
had been outstanding throughout the period or since origination
if held for part of the period. $ 353
==============
Interest income actually recorded on nonaccrual loans and
included in net income for the period. $ 193
==============
Gross interest income that would have been recorded in 1995 on
troubled debt restructurings outstanding at December 31, 1995
if the loans had paid interest in accordance with their original
terms and had been outstanding throughout the period or since
origination if held for part of the period (excluding loans
reported as nonaccrual above). $ 330
==============
Interest income actually recorded as troubled debt
restructurings and included in net income for the period
(excluding loans reported as nonaccrual above). $ 225
==============
Discussion of the nonaccrual policy
- -----------------------------------
The accrual of interest income on loans is discontinued when the collection of
interest and principal in full is not expected. When interest accruals are
discontinued, interest income accrued in the current period is reversed. Any
loan past due 90 days or more must be well secured and in the process of
collection to continue accruing interest.
Factors affecting management's judgment in determining additions to the
allowance for loan losses charged to operating expenses are outlined under the
subcaption "Allowance and Provision for Loan Losses" in Note A to the Company's
consolidated financial statements.
Potential Problem Loans
- -----------------------
In addition to nonaccrual, past due and restructured loan categories noted
above, management considers certain loans as impaired under the application of
Statement of Financial Accounting Standard No. 114 (see Note E to the Company's
consolidated financial statements). As of December 31, 1995, the balance of
impaired loans was $6,162,000. Of this total, $3,167,000 is reflected in the
table of nonaccrual, past due and restructured loans. The remaining $2,721,000
is comprised of three loans that are presently current in status; however, they
are considered as potential problem loans.
Foreign Outstanding
- -------------------
None
Loan Concentrations
- -------------------
The Company has no concentration of loans exceeding 10% of total loans which is
not otherwise disclosed at December 31, 1995.
55
<PAGE>
ALLOWANCE FOR LOAN AND LEASE LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993 1992 1991
- ---------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average amount of loans and leases outstanding, net of
unearned income $520,487 $477,316 $443,259 $442,664 $402,164
======== ======== ======== ======== ========
Amount of loans and leases outstanding at the end of the
period, net of unearned income 525,055 502,441 465,879 423,229 439,213
======== ======== ======== ======== ========
Allowance for loan and lease losses, beginning of year $ 8,100 $ 7,000 $ 5,900 $ 5,100 $ 4,150
Loans charged-off:
Commercial 1,224 464 1,688 1,110 805
Real estate - construction - - - 13 -
Real estate - mortgage 61 162 75 44 7
Installment 356 279 217 558 482
Industrial revenue 8 8 8 8 -
Lease financing receivable - - - - -
-------- -------- -------- -------- --------
Total charge-offs 1,649 913 1,988 1,733 1,294
Recoveries of loans previously charged-off:
Commercial 164 128 59 140 110
Real estate - construction - - - 11 -
Real estate - mortgage 12 3 6 7 10
Installment 97 139 150 179 199
Industrial revenue - - - - -
Lease financing receivable - - - - -
-------- -------- -------- -------- --------
Total recoveries 273 270 215 337 319
Net charge-offs:
Commercial 1,060 336 1,629 970 695
Real estate - construction - - - 2 -
Real estate - mortgage 49 159 69 37 (3)
Installment 259 140 67 379 283
Industrial revenue 8 8 8 8 -
Lease financing receivable - - - - -
-------- -------- -------- -------- --------
Net charge-offs 1,376 643 1,773 1,396 975
Provisions charged against operations 1,676 1,743 2,873 2,196 1,925
-------- -------- -------- -------- --------
Allowance for loan and lease losses, end of year $ 8,400 $ 8,100 $ 7,000 $ 5,900 $ 5,100
======== ======== ======== ======== ========
Net charge-offs to average loans and leases outstanding
during the year .26% .13% .40% .32% .24%
</TABLE>
The following table provides an allocation of the Company's allowance for loan
and lease losses by category for the periods indicated. The allowance can be
allocated by category only on an approximate basis. The allocation of allowance
to each category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any other category.
<TABLE>
<CAPTION>
(In thousands) 1995 1994 1993 1992 1991
- -------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Allocation of allowance, end of year
Commercial $4,998 $4,515 $2,981 $5,063 $3,540
Real estate - mortgage 20 36 63 50 113
Installment 249 249 265 387 389
Unallocated 3,133 3,300 3,691 400 1,058
------ ------ ------ ------ ------
Total $8,400 $8,100 $7,000 $5,900 $5,100
====== ====== ====== ====== ======
</TABLE>
56
<PAGE>
AVERAGE DEPOSITS AND OTHER BORROWED FUNDS
- -----------------------------------------
The following table presents the average balance of and the average rate paid on
various deposit categories for the years ended:
<TABLE>
<CAPTION>
1995 1994 1993
Average Average Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
- ---------------------- -------- -------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DEPOSITS:
Non-interest bearing deposits $ 97,193 $ 95,769 $ 85,000
Interest bearing demand 51,277 2.31% 54,162 2.16% 51,369 2.68%
Savings 73,274 2.68 84,095 2.45 83,926 2.92
Time 321,084 5.47 292,980 4.47 299,053 4.49
-------- ------- -------- ------- -------- -------
Total deposits $542,828 3.81% $527,006 3.10% $519,348 3.32%
======== ======= ======== ======= ======== =======
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at December 31, 1995
is summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------
<S> <C>
3 months or less $16,098
Over 3 through 6 months 6,758
Over 6 through 12 months 5,707
Over 12 months 10,125
-------
$38,688
=======
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Year Ending December 31, 1995
......... ........
Period Weighted Weighted
End Average Average Average Maximum
Amounts Rate Balance Rate Balance
------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
SHORT TERM BORROWINGS
Securities sold under repurchase agreements $140,384 5.32% $109,515 5.38% $161,445
Other short-term borrowings 6,802 4.59 5,966 4.71 15,253
-------- ------- -------- ------ --------
Total short-term borrowings $147,186 5.29% $115,481 5.35% $176,698
======== ======= ======== ======= ========
Year Ending December 31, 1994
......... .........
Period Weighted Weighted
End Average Average Average Maximum
Amounts Rate Balance Rate Balance
------- --------- -------- -------- --------
Securities sold under repurchase agreements $ 79,523 4.98% $ 87,337 3.72% $132,794
Other short-term borrowings 7,493 5.09 6,028 3.58 14,138
------- -------- ------- -------- --------
Total short-term borrowings $ 87,016 4.99% $ 93,365 3.71% $146,932
======== ======= ======== ======= ========
Year Ending December 31, 1993
......... .........
Period Weighted Weighted
End Average Average Average Maximum
Amounts Rate Balance Rate Balance
------- --------- -------- ------- -------
Securities sold under repurchase agreements $ 93,915 2.56% $ 77,974 2.54% $119,747
Other short-term borrowings 15,260 2.64 7,249 2.26 15,416
------- -------- ------- -------- -------
Total short-term borrowings $109,175 2.57% $ 85,223 2.24% $135,163
======== ======= ======= ======= ========
</TABLE>
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF
VALLEY FINANCIAL SERVICES, INC.
The following discussion provides information about the Company's financial
condition and results of operations which may not otherwise be apparent from the
consolidated financial statements included elsewhere herein. This discussion
should be read in conjunction with the consolidated financial statements and the
related footnotes.
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
Consolidated net income for Valley Financial Services, Inc. (the "Company") for
1995 totaled $6,719,000 ($32.50 per share), a decrease of $969,000 or 12.6% from
the $7,688,000 ($36.77 per share) earned in 1994. The following provides further
information as to the earnings performance of 1995 compared to 1994.
Net interest income on a tax equivalent basis was $30,441,000 in 1995 compared
to $28,419,000 in 1994, resulting in an increase of $2,022,000 or 7.1%. This
increase in net interest income resulted from an increase in interest income of
$10,066,000 offset by an increase in interest expense of $8,044,000. The net
interest margin (on a tax equivalent basis) for 1995 was 4.28% compared to 4.39%
for 1994.
The overall yield on average earning assets in 1995 was 8.42% as compared to
7.69% in 1994. All categories of interest-earning assets had an increased yield
in 1995 compared to 1994. These increased yields on interest-earning assets
accounted for approximately one-half of the increase in interest income of
$10,066,000. The remaining increase is a result of an increase in volume as
average interest-earning assets increased by $63,431,000 in 1995 as compared to
1994. The primary growth categories of interest-earning assets were loans with
a growth in average balances of $43,171,000 and federal funds sold and
securities purchased under agreements to resell with a growth in average
balances of $14,663,000.
The Company's primary earning asset is commercial loans. At December 31, 1995,
commercial loans represent 57.6% of the loan portfolio and 40.2% of earning
assets. Management plans to continue its past growth through its commercial
loan portfolio, but only subject to available funding from core consumer
deposits at a level to alleviate any liquidity concerns. Plans also include
additional branch locations to build on the deposit base and continued efforts
to increase multiple relationships with existing customers.
The overall rate on average interest-bearing liabilities in 1995 was 4.89% as
compared to 3.89% in 1994. All categories of interest-bearing liabilities had
an increased rate in 1995 compared to 1994. These increased rates on interest-
bearing liabilities accounted for approximately two-thirds of the increase in
interest expense of $8,044,000. The remaining increase is a result of an
increase in volume as average interest-bearing liabilities increased by
$52,020,000 in 1995 as compared to 1994. The primary funding sources for this
increase were time deposits with an increase in average balances of $28,104,000,
securities sold under agreements to repurchase with an increase in average
balances of $22,178,000 and advances from Federal Home Loan Bank with an
increase in average balances of $16,817,000.
58
<PAGE>
The provision for loan losses charged to operations is based on an analysis of
the loan portfolio and considers such factors as the current condition and
growth of the loan portfolio, past loss experience and review of specific loans
within the portfolio. The review of specific loans primarily concentrates on
the review of commercial loans due to the greater inherent risk associated with
those loans. Commercial loans specifically reviewed include those loans on
nonaccrual or past due status, on the internal watch loan listing which includes
loans identified by regulatory agencies as classified or substandard and large
dollar loans not otherwise identified as problem loans.
As a result of the analysis of the loan portfolio, the provision for loan losses
was $1,676,000 in 1995 as compared to $1,743,000 in 1994. At December 31, 1995,
the allowance for loan losses was $8,400,000 compared to an amount of $8,100,000
at December 31, 1994. The allowance for loan losses as a percent of total loans
is 1.60% and 1.61% at December 31, 1995 and 1994, respectively.
Net charge-offs in 1995 were $1,376,000 as compared to $643,000 in 1994. Net
charge-offs as a percent of average loans increased to .26% in 1995 from .13% in
1994. However, the .13% in 1994 was lower than the prior three years of .40% in
1993, .32% in 1992 and .24% in 1991. The total amount of nonaccrual, past due
(over 90 days and still accruing) and restructured loans increased from
$4,352,000 in 1994 to $7,451,000 in 1995. The $7,451,000 includes $3,349,000 in
restructured loans which are performing under the terms of their restructured
agreements and are at current market rates. As discussed in Note A of the
Company's consolidated financial statements, Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", was
adopted on January 1, 1995. In addition to the nonaccrual, past due and
restructured loans at December 31, 1995, another $2,721,000 of loans are
considered by management to be impaired.
Accordingly, management believes that the December 31, 1995, allowance for loan
losses is adequate to absorb potential risk applicable to the repayment ability
of material credits and the risk applicable to loans otherwise classified by
regulatory agencies as loss, doubtful, substandard or special mention. The
loans as classified above do not represent or result from trends that will
materially adversely impact future operating results, liquidity or capital
resources.
The process of identifying credit losses that may occur based upon current
circumstances is subjective. Therefore, the Company maintains a general
allowance (or unallocated portion) to cover all credit losses within the entire
loan portfolio. The general allowance for both 1995 and 1994 was $3,133,000 and
$3,300,000, respectively.
Total other income increased $334,000 or 7.1%, from $4,727,000 in 1994 to
$5,061,000 in 1995. The categories with increases in 1995 over 1994 include
trust fees, gains on sale of loans, a reduced loss on sale of securities and
other income. These categories were offset by a slight decrease in service
charges and an increase in loss on sale of other assets, primarily related to
the sale of other real estate.
Total other expenses increased $4,568,000 or 24.6%, from $18,589,000 in 1994 to
$23,157,000 in 1995. All categories of other expenses increased in 1995
compared to 1994 except for the FDIC assessment. The increase in the category
of salaries and employee benefits totaling $3,759,000 accounted for 82.3% of the
total increase in other expenses of $4,569,000. The increase in salary and
employee benefits was primarily related to a special bonus of $2,500,000 paid to
certain officers of the Company and its subsidiary. Exclusive of the special
bonus, salaries and employee benefits increased $1,259,000 or 12.8% as a result
of normal salary increases and an increase in number of full-time equivalent
employees from 328 at December 31, 1994 to 342 at December 31, 1995. During
1995, the FDIC announced that in May the Bank Insurance Fund reached its
capitalization target. As a result, the FDIC refunded excess premiums that banks
paid from June to September and reduced the FDIC premium rates. This refund and
the reduction in FDIC premiums resulted in the $462,000 decrease in the FDIC
assessment for 1995 as compared to 1994. The reduced FDIC premiums should have
a continued positive effect on these costs.
59
<PAGE>
As a result of all these factors, income before income tax expense in 1995
decreased $2,007,000, or 16.7%, to $10,011,000 from $12,018,000 in 1994.
Primarily due to the decrease in pretax income, income tax expense in 1995
decreased $1,038,000 to $3,292,000 from $4,330,000 in 1994.
RESULTS OF OPERATIONS - 1994 COMPARED TO 1993
Consolidated net income for the Company for 1994 totaled $7,688,000 ($36.77 per
share), an increase of $755,000 or 10.9% from the $6,933,000 ($31.36 per share)
earned in 1993. The following provides further information as to the earnings
performance of 1994 compared to 1993.
Net interest income on a tax equivalent basis was $28,419,000 in 1994 compared
to $26,808,000 in 1993, resulting in an increase of $1,611,000 or 6.0%. This
increase in net interest income resulted from an increase in interest income of
$2,328,000 offset by an increase in interest expense of $717,000. The net
interest margin (on a tax equivalent basis) for 1994 was 4.39% compared to 4.31%
for 1993.
The overall yield on average earning assets in 1994 of 7.69% slightly increased
from the 1993 yield of 7.63%. Other than taxable investment securities, all
other categories of interest-earning assets had an increased yield in 1994
compared to 1993. The yield on taxable investment securities decreased from
6.22% in 1993 to 5.66% in 1994. The 1994 over 1993 increase in interest income
is principally due to the volume increase in loans. The average balance for
loans increased $34,057,000 or 7.7%, from the 1993 level of $443,259,000 to the
1994 level of $477,316,000. The increased lending activity accounted for all of
the growth in earning assets for 1994 compared to 1993 as the average balances
for the other categories were lower in 1994 compared to 1993.
The overall rate on average interest-bearing liabilities in 1994 of 3.89%
slightly increased from the 1993 rate of 3.84%. The increase in interest
expense of $717,000 is partially a result of increased volume of average
interest-bearing liabilities (accounting for 53.7%) and partially a result of
overall rate increase (accounting for 46.3%). The increase in the average
balance of interest-bearing liabilities of $11,082,000 is the result of
increases from funding sources other than interest-bearing deposits. The
average balance for interest-bearing deposits decreased by $3,111,000 in 1994
compared to 1993. The growth in average interest-bearing liabilities is
attributable to increases in securities sold under agreements to repurchase
($9,363,000) and advances from the Federal Home Loan Bank ($6,406,000). The
overall rate increase is attributable to increased costs on short-term
borrowings which include the securities sold under agreements to repurchase and
U.S. Treasury demand notes. The rate on securities sold under agreements to
repurchase was 3.72% in 1994 compared to 2.54% in 1993. The rate on U.S.
Treasury demand notes was 3.58% in 1994 compared to 2.26% in 1993. The rates on
interest-bearing deposits and long-term debt decreased in 1994 compared to the
1993 rates.
As a result of the analysis of the loan portfolio, the provision for loan losses
was $1,743,000 in 1994 as compared to $2,873,000 in 1993 or a decrease of
$1,130,000. At December 31, 1994, the allowance for loan losses was $8,100,000
compared to an amount of $7,000,000 at December 31, 1993. The allowance as a
percent of total loans was 1.61% and 1.50% at December 31, 1994 and 1993,
respectively.
Net charge-offs in 1994 were $643,000 or .13% of average loans as compared to
net charge-offs of $1,773,000 or .40% of average loans for 1993. The total
amount of nonaccrual, past due (over 90 days and still accruing) and
restructured loans increased from $3,122,000 in 1993 to $4,352,000 in 1994. The
process of identifying credit losses that may occur based upon current
circumstances is subjective. The general allowance was $3,300,000 and
$3,691,000 for 1994 and 1993, respectively.
60
<PAGE>
Total other income decreased $465,000 or 9.0%, from $5,192,000 in 1993 to
$4,727,000 in 1994. This decrease is primarily related to a reduction in gain
on sales of loans which was $130,000 in 1994 compared to $435,000 in 1993 and a
loss on sales of securities of $154,000 in 1994 compared to a gain on sales of
securities of $435,000 in 1993. These decreases were offset in part by a gain
on sale of other assets which was $14,000 in 1994 compared to a loss on sale of
other assets of $220,000 in 1993. Modest increases occurred in 1994 compared to
1993 for trust fees and other income. A modest decrease occurred in 1994
compared to 1993 for service charges.
Total other expenses increased $1,060,000 or 6.0%, from $17,529,000 in 1993 to
$18,589,000 in 1994. The primary areas attributable to the increase are
salaries and employee benefits and occupancy expense. Salaries and employee
benefits was $9,841,000 and $8,953,000 for 1994 and 1993, respectively. The
increase was $888,000 or 9.9%. This increase was the result of normal salary
increases and an increase in number of full-time equivalent employees from 313
at December 31, 1993 to 328 at December 31, 1994. Occupancy expense was
$1,589,000 and $1,272,000 for 1994 and 1993, respectively. The increase was
$317,000 or 24.9%. A negotiation on one of the Company's leased properties
resulted in a one time reduction in lease expense during 1993.
As a result of all these factors, income before income tax expense increased
$1,350,000 or 12.7%, to $12,018,000 in 1994 from $10,668,000 for 1993.
Primarily due to the increase in pretax income, income tax expense increased
$596,000 to $4,330,000 in 1994 from $3,734,000 in 1993.
CAPITAL RESOURCES
Total stockholders' equity was $44,736,000 as of December 31, 1995, an increase
of $2,099,000 over total stockholders' equity of $42,637,000 as of December 31,
1994. Increases to stockholders' equity during 1995 consisted of net income of
$6,719,000 and the effects of Statement of Financial Accounting Standards (SFAS)
No. 115 totaling $1,982,000. The fair value (based on an independent appraisal)
of the Company's preferred and common stock subject to repurchase in the
Employee Stock Ownership Plan (ESOP) increased $6,533,000 which also had the
impact of reducing the Company's retained earnings for 1995 by an equal amount.
Also, the Company paid its historical 10% dividend on preferred stock totaling
$61,000 and acquired treasury shares at a total cost of $8,000. No dividends
have been paid on common stock for the past five years.
The Company maintains capital levels in excess of "well-capitalized" levels as
defined by the banking regulatory agencies. Bank regulatory agencies exclude
the fair value adjustment created by SFAS No. 115 from capital adequacy
calculations. In addition, the preferred and common stock subject to repurchase
in ESOP are considered equity for regulatory capital purposes. At December 31,
1995, the Company's Tier I leverage capital, Tier I risk-based capital and Tier
II risk-based capital ratios were 7.53%, 10.95% and 12.21%, respectively. All
three ratios are above the "well-capitalized" minimums of 5.0%, 6.0% and 10.0%,
respectively.
The Company's principal source of funds that it uses to pay dividends to
stockholders and to service debt is the dividends it receives from its
subsidiary bank. Various federal and state statutory provisions, as well as
regulatory policies and directives, limit the amount of dividends that the
subsidiary bank can pay to the Company without prior regulatory approval. These
restrictions have had no major impact on the Company's dividend policy or its
ability to service debt, nor is it anticipated that they will have any major
impact in the future.
61
<PAGE>
As of December 31, 1995, Company management is not aware of any current
recommendations by banking regulatory authorities which, if they were to be
implemented, would have, or are reasonably likely to have, a material adverse
effect on the Company's liquidity, capital resources or operations.
INTEREST RATE SENSITIVITY
The matching of earning assets and interest-bearing liabilities may be analyzed
by examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap".
An asset or liability is said to be interest rate sensitive within a specific
time period, if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of earning
assets maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income. During
a period of falling interest rates, a negative gap would tend to result in an
increase in net interest income while a positive gap would tend to adversely
affect net interest income.
The following table illustrates the Company's interest rate sensitivity gap
position for selected time periods as of December 31, 1995:
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Repricing or Maturing Within
0-3 3-12 Total 1-5 Over
Months Months 1 Year Years 5 Years Total
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Interest-earning deposits $ 532 $ - $ 532 $ - $ - $ 532
Federal funds sold and securities
purchased under agreements to resell 90,600 - 90,600 - - 90,600
Securities 14,557 41,808 56,365 81,390 7,659 145,414
Loans 270,179 67,624 337,803 150,082 37,170 525,055
-------- -------- -------- -------- ------- --------
Total earning assets $375,868 $109,432 $485,300 $231,472 $44,829 $761,601
======== ======== ======== ======== ======= ========
Interest-bearing liabilities:
Interest-bearing deposits $227,771 $112,453 $340,224 $103,800 $ 260 $444,284
Securities sold under repurchase
agreements 124,843 15,541 140,384 - - 140,384
Other short-term borrowings 6,802 - 6,802 - - 6,802
Advances from FHLB 15,000 486 15,486 16,512 2,155 34,153
Other long-term debt 176 3,213 3,389 4,375 - 7,764
-------- -------- -------- -------- ------- --------
Total interest-bearing liabilities $374,592 $131,693 $506,285 $124,687 $ 2,415 $633,387
======== ======== ======== ======== ======= ========
Periodic rate sensitivity gap $ 1,276 $(22,261) $(20,985) $106,785 $ 42,414 $128,214
Cumulative rate sensitivity gap $ 1,276 $(20,985) $(20,985) $ 85,800 $128,214
Rate sensitive earning assets
as a percentage of rate sensitive
interest-bearing liabilities 1.00 .83 .96 1.86 18.56
Cumulative rate sensitive earning assets
as a percent of rate sensitive interest-bearing
liabilities 1.00 .96 .96 1.14 1.20
</TABLE>
62
<PAGE>
Savings and interest-bearing demand deposit accounts are subject to immediate
withdrawal and may be repriced on an immediate basis. Therefore, these accounts
are shown in the 0-3 months category. However, based on past experience,
management anticipates the majority of these accounts to remain with the Company
beyond one year. Further, the changes in rates paid on savings and interest-
bearing demand deposit accounts will typically be to a lesser extent than
general interest rate changes.
LIQUIDITY
The purpose of liquidity management is to match the sources and uses of funds to
anticipated customers' deposits and withdrawals, to anticipated customers'
borrowing needs and to provide for the cash flow needs of the Company. The
principal source of liquidity to meet loan demand or deposit run-off is cash and
cash equivalents including $90,600,000 in federal funds sold and securities
purchased under agreements to resell at December 31, 1995. These funds are all
overnight arrangements and therefore are available to the Company on demand.
Another principal source of liquidity is the securities portfolio. At December
31, 1995, the Company has $140,995,000 of securities classified as available-
for-sale. Approximately 90.9% of these securities are U.S. Treasury and
government agency securities which are readily marketable. In addition,
$41,058 available-for-sale securities will mature in one year or less. Other
sources of liquidity include the availability of federal funds purchased from
correspondent banks, advances from the Federal Home Loan Bank, securities sold
under agreements to repurchase and customer loan repayments. Management
believes that the Company has sufficient liquidity to meet all reasonably
anticipated borrower, depositor and creditor needs in the present economic
environment.
The Company continues to supplement its deposit base with wholesale funding
opportunities. These primarily consist of borrowings from the Federal Home Loan
Bank ("FHLB") and securities sold under agreements to repurchase ("agreements
to repurchase").
The Company has taken advantage of competitive rates offered by the FHLB for
both liquidity and asset/liability management purposes. These borrowings are
used primarily to fund long-term fixed rate residential mortgage loans. At
December 31, 1995, the Company has total advances from the FHLB of $34,153,000.
While the Company's Board has authorized management to borrow up to $60,000,000
from the FHLB, at December 31, 1995, the Company had collateral pledged to
support up to $69,211,000 in such advances. Current and future advances are
collateralized by a blanket collateral agreement consisting primarily of 1-4
family residential mortgage loans.
The Company has a repurchase agreement portfolio that provides additional
funding. The portfolio consists of daily agreements to repurchase as well as
term agreements. However, the majority of the agreements to repurchase are daily
agreements. These daily agreements include corporate and public entities and
totaled $122,029,000 at December 31, 1995. A taxing authority and several
related public entities typically carry large balances at year-end from tax
collection activities. Historically, the month following year-end, certain
amounts are withdrawn from their repurchase agreements. At December 31, 1995,
the amount of tax collections held in these daily repurchase agreements was
approximately $72,000,000. In January 1996, approximately $50,000,000 of these
funds were withdrawn. In order to meet these withdrawal requests, the Company
liquidated its positions under two separate agreements to purchase securities
under agreements to resell ("reverse agreements to repurchase"). At December 31,
1995, these reverse agreements to repurchase totaled $40,300,000. The reverse
agreements to repurchase are further discussed in Note B to the consolidated
financial statements.
63
<PAGE>
The Company generally relies upon net cash inflows from financing activities,
supplemented by net cash inflows from operating activities, to provide cash used
in its investing activities. The following is a brief description of the sources
and uses of funds for the indicated periods:
During the year ended December 31, 1995, there was a net increase of $42,166,000
in cash and cash equivalents. The major uses of cash during the period included
the purchase of securities totaling $40,853,000, the payment of $27,521,000 for
maturing borrowings, the funding of a $21,618,000 net increase in loans and a
net decrease in deposits of $13,424,000. Major sources of funds during the
period included a net increase in cash from operating activities of $7,749,000,
a $106,357,000 increase in total borrowings and maturities and sales of
securities totaling $36,408,000.
During the year ended December 31, 1994, there was a net decrease of $25,706,000
in cash and cash equivalents. The major uses of cash during the period included
the purchase of securities totaling $78,584,000, the payment of $70,339,000 for
maturing borrowings and the funding of a $37,119,000 net increase in loans.
Major sources of funds during the period included a net increase in cash from
operating activities of $10,018,000, maturities and sales of securities totaling
$72,876,000, a $46,604,000 increase in total borrowings and a net increase in
deposits of $33,296,000
During the year ended December 31, 1993, there was a net increase of $13,491,000
in cash and cash equivalents. The major uses of cash during the period included
the purchase of securities totaling $54,018,000, the funding of a $44,296,000
net increase in loans and the payment of $32,992,000 for maturing borrowings.
Major sources of funds during the period included a net increase in cash from
operating activities of $11,116,000, a $63,744,000 increase in total borrowings,
sales and maturities of investment securities and interest-bearing balances with
other banks totaling $55,467,000 and a net increase in deposits of $17,377,000.
CHANGES IN ACCOUNTING METHODS
During the first quarter of 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes". The impact of this change was not material to the consolidated
financial statements.
At January 1, 1994, the Company adopted the provisions of SFAS No. 115. This
pronouncement deals with the accounting for certain debt and equity securities.
The Company initially placed a majority of the securities portfolio in the
available-for-sale category and the remainder in the held-to-maturity category.
The effect of adopting this new accounting guidance increased equity by
$1,070,000, net of $702,000 in tax, as of January 1, 1994. On December 1, 1995,
the Company made a one-time reassessment and transferred the entire held-to-
maturity portfolio to available-for-sale. This one-time reassessment was
permitted by the issuance of the Financial Accounting Standards Board Special
Report "A Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities". At the date of transfer, these
securities had an amortized cost of $60,098,000 and increased the unrealized
gain on securities available-for-sale in stockholders' equity by $267,000, net
of tax.
On January 1, 1995, the Company adopted SFAS No. 114 and SFAS No. 118 related to
accounting by creditors for impairment of a loan. The impact of this change was
not material to the consolidated financial statements.
64
<PAGE>
SFAS No. 122, "Accounting for Mortgage Servicing Rights", requires recognition
of an asset when servicing rights are retained on in-house originated mortgage
loans that are sold. Based upon its current volume of mortgage banking activity,
the Company does not expect SFAS No. 122 to have a significant impact on its
consolidated financial condition and operations for 1996. The impact in
subsequent years is difficult to predict.
PROPOSED MERGER
On November 6, 1995, the Company entered into an Agreement and Plan of Merger to
be acquired by Fort Wayne National Corporation ("FWNC"). The transaction is
subject to the approval of the Company's shareholders and various regulatory
agencies. The terms of the Agreement provide that FWNC will exchange
approximately $53 million in cash, $20 million in common stock and $37 million
in preferred stock for all outstanding Company common and preferred stock. See
Note T to the consolidated financial statements for further discussion.
INFLATION
For financial institutions, the effects of price changes and inflation can vary
substantially. Inflation affects the growth of total assets, but it is difficult
to assess its impact since neither the timing nor the magnitude of the changes
in consumer price index ("CPI") coincides with changes in interest rates. The
price of one or more of the important components of the CPI may fluctuate
considerably and thereby influence the overall CPI without having a
corresponding affect on interest rates or upon the cost of those goods and
services normally purchased by the Company. In years of high inflation and high
interest rates, intermediate and long-term interest rates tend to increase,
thereby adversely impacting the market values of investment securities, mortgage
loans and other long-term fixed rate loans. In addition, higher short-term
interest rates caused by inflation tend to increase the cost of funds. In years
of low inflation and low interest rates, the reverse situation may occur.
Management believes the factor with the most significant impact on the financial
results is the Company's ability to react to changes in interest rates, thereby
maintaining an acceptable net interest margin.
65
<PAGE>
OTHER MATTERS
Under the By-Laws of the Company and the BCL, no other matters may be
presented at the Special Meeting other than those referred to in the Notice of
Special Meeting discussed herein.
LEGAL OPINIONS
The validity of FWNC Common Stock and FWNC Preferred Stock offered hereby
will be passed upon for FWNC by Baker & Daniels, Attorneys at Law. Thomas M.
Shoaff, a partner in the law firm of Baker & Daniels, is a member of the Board
of Directors of FWNC.
EXPERTS
The consolidated financial statements of Fort Wayne National Corporation
appearing in Fort Wayne National Corporation's Annual Report (Form 10-K) for the
year ended December 31, 1995, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31,
1995, and 1994, and for each of the years in the three year period ending
December 31, 1995, have been audited by Crowe, Chizek and Company LLP,
independent auditors, as set forth in their report thereon. Such consolidated
financial statements are included herein in reliance upon such report given upon
the authority of said firm as experts in accounting and auditing.
PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed financial statements present unaudited
condensed financial information of FWNC giving effect to the proposed Merger
with the Company. The following unaudited pro forma condensed balance sheet as
of December 31, 1995, combines the historical consolidated balance sheets of
FWNC and the Company as if the Merger had occurred on that date after giving
effect to the pro forma adjustments described in the accompanying notes. The
following unaudited pro forma condensed statement of income is presented as if
the Merger had been in effect as of January 1, 1995.
The transaction will be accounted for by the purchase method of accounting. The
actual purchase accounting adjustments will be made on the basis of facts and
circumstances as of the date of the consummation of the proposed transaction and
therefore may differ from those reflected herein.
66
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED)
FORT WAYNE NATIONAL CORPORATION
December 31, 1995
<TABLE>
<CAPTION>
FWNC The Company Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ----------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................ $ 177,802 $ 40,611 $ 218,413
Short-term investments......................... 27,150 90,600 $ 11,500 (a) 91,000
15,000 (b)
(53,250)(c)
Investment securities.......................... 764,560 145,414 (11,500)(a) 898,474
Loans, net of unearned income.................. 1,273,394 525,055 278 (c) 1,798,727
Less: Allowance for possible loan losses..... (20,047) (8,400) (28,447)
---------- -------- -------- ----------
Net Loans...................................... 1,253,347 516,655 278 1,770,280
Premises and equipment......................... 33,664 13,981 4,600 (c) 52,245
Goodwill and other intangibles................. 2,061 -- 50,529 (c)(d) 52,590
Other assets................................... 37,523 11,357 (1,069)(c) 47,811
---------- -------- -------- ----------
Total Assets................................... $2,296,107 $818,618 $ 16,088 $3,130,813
========== ======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing.......................... $ 284,003 $119,843 $ 403,846
Interest-bearing............................. 1,483,527 444,284 $ 2,050 (c) 1,929,861
---------- -------- -------- ----------
Total Deposits................................. 1,767,530 564,127 2,050 2,333,707
Short-term borrowings.......................... 267,644 147,186 414,830
Dividends payable.............................. 2,743 -- 2,743
Accrued liabilities............................ 16,852 7,236 24,088
Subordinated and other long-term notes......... 6,400 41,917 15,000 (b) 63,507
190 (c)
---------- -------- -------- ----------
Total Liabilities.............................. 2,061,169 760,466 17,240 2,838,875
Deferred gain on sale of premises.............. 1,227 -- 1,227
Preferred and common stock subject
to repurchase in ESOP........................ -- 13,416 (13,416)(c) --
Shareholders' equity:
Preferred stock, without par value:
Class A Voting............................... -- -- --
Class B Nonvoting............................ -- -- --
Cumulative convertible....................... -- -- 37,000 (c) 37,000
Preferred stock, $12 par value................. -- 616 (616)(c) --
Common stock, without par value................ 19,048 206 1,058 (c) 20,106
(206)(c)
Capital surplus................................ 31,502 123 (123)(c) 50,444
18,942 (c)
Retained earnings.............................. 170,990 45,156 (45,156)(c) 170,990
Treasury stock................................. -- (2,494) 2,494 (c) --
Unrealized gain on securities
available-for-sale........................... 12,171 1,129 (1,129)(c) 12,171
---------- -------- -------- ----------
Total Shareholders' Equity..................... 233,711 44,736 12,264 290,711
---------- -------- -------- ----------
Total Liabilities and Shareholders' Equity..... $2,296,107 $818,618 $ 16,088 $3,130,813
========== ======== ======== ==========
</TABLE>
See notes to pro forma condensed financial statements (unaudited).
67
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
FORT WAYNE NATIONAL CORPORATION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
The
FWNC Company Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable................................................ $112,241 $47,601 $ (40)(g) $159,802
Tax-exempt............................................. 1,363 -- 1,363
Interest and dividends on investment
securities:
Taxable................................................ 34,919 8,369 (741)(h) 42,547
Tax-exempt............................................. 10,479 941 11,420
Interest on federal funds sold and
securities purchased under
agreements to resell................................... 1,322 2,251 (1,356)(h) 2,217
Interest on deposits with banks......................... 8 14 22
-------- ------- ------- --------
Total Interest Income................................... 160,332 59,176 (2,137) 217,371
INTEREST EXPENSE
Interest on deposits.................................... 65,414 20,705 (1,025)(g) 85,094
Interest on federal funds purchased
and securities sold agreements to
repurchase............................................. 13,346 6,167 19,513
Interest on notes payable - U.S.
Treasury and other borrowings.......................... 1,348 -- 1,348
Interest on subordinated and other
long-term notes........................................ 868 2,520 1,050 (i) 4,476
38 (g)
-------- ------- ------- --------
Total Interest Expense.................................. 80,976 29,392 63 110,431
-------- ------- ------- --------
Net Interest Income..................................... 79,356 29,784 (2,200) 106,940
Provision for possible loan losses...................... 2,445 1,676 4,121
-------- ------- ------- --------
Net Interest Income After Provision
For Possible Loan Losses.............................. 76,911 28,108 (2,200) 102,819
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION> The
FWNC Company Pro Forma Pro Forma
Historical Historical Adjustments Combined
----------- ----------- ------------ ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
NONINTEREST INCOME
Fiduciary fees........................... 9,749 1,431 11,180
Service charges on deposit accounts...... 4,705 2,060 6,765
Other service charges.................... 2,880 -- 2,880
Net securities gains (losses)............ 87 (22) 65
Other income............................. 2,178 1,592 3,770
------- ------- ------- -------
Total Noninterest Income................. 19,599 5,061 -- 24,660
NONINTEREST EXPENSE
Salaries and employee benefits........... 31,237 13,600 44,837
Expense on premises and equipment,
net of rental income................... 9,245 1,410 153 (g) 10,808
FDIC assessment.......................... 1,939 698 2,637
Other expense............................ 16,656 7,450 3,369 (g) 27,475
------- ------- ------- -------
Total Noninterest Expense................ 59,077 23,158 3,522 85,757
------- ------- ------- -------
Income Before Income Taxes............... 37,433 10,011 (5,722) 41,722
Applicable income taxes.................. 10,726 3,292 (953)(j) 13,065
------- ------- ------- -------
Net Income............................... $26,707 $ 6,719 $(4,769) $28,657
======= ======= ======= =======
Net income per common share.............. $ 2.33 $ 2.19(e)
======= =======
Weighted averages shares of
common stock outstanding............... 11,449,277 12,084,357(f)
========== ==========
</TABLE>
See notes to pro forma condensed financial statements (unaudited).
69
<PAGE>
NOTES TO PROFORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1995
On November 6, 1995, FWNC entered into an Agreement and Plan of Merger with the
Company. Under the terms of the Merger Agreement, FWNC has agreed to pay total
Merger Consideration consisting of $53 million in cash, $20 million in FWNC
Common Stock and $37 million in FWNC Class B Preferred Stock Series 1. All
outstanding shares of Company Common Stock and Company Preferred Stock will be
surrendered in consummation of the Merger.
The transaction will be accounted for by the purchase method of accounting.
Accordingly, book values of the Company will be adjusted to estimated fair
values at the date the transaction is consummated. Loans have been valued by
discounting the expected future cash stream generated by such loans at current
market rates. Premises and equipment have been valued using internal appraisals
of current market values. Interest-bearing deposits have been valued using a
discounted cash flow calculation that applies interest rates currently being
offered on these deposits to a schedule of the aggregate expected monthly
maturities of these deposits. Subordinated and other long-term notes have been
estimated using discounted cash flow analyses, based upon incremental borrowing
rates for similar types of borrowing arrangements. Final purchase accounting
adjustments will be made on the basis of facts and circumstances as of the date
of the consummation of the proposed transaction and therefore may differ from
those reflected herein.
The explanation of the pro forma adjustments in the pro forma condensed
financial statements are as follows:
(a) To reflect the planned special dividend from certain Subsidiary
Banks of $11,500,000. FWNC proposes to cause certain of its
Subsidiary Banks to declare a special cash dividend in the second
quarter of 1996 in the following respective amounts:
<TABLE>
<CAPTION>
<S> <C>
First National Bank of Huntington $7,500,000
First National Bank of Warsaw 2,500,000
Old-First National Bank in Bluffton 500,000
The Auburn State Bank 1,000,000
</TABLE>
These dividends would technically exceed limits under applicable
banking regulations, and prior approval for the payment of these
dividends has been applied for by the Subsidiary Banks. Each of the
Subsidiary Banks will remain well capitalized, with adequate surplus
capital to absorb anticipated future growth in their respective
banking businesses. Additional funds necessary to pay the cash
portion of the Merger Consideration will be generated through the
natural maturity of securities owned by the Subsidiary Banks. It
will not be necessary to sell securities, or to incur a gain or a
loss as a result thereof, in order to complete the Merger.
(b) To reflect the planned borrowing of $15,000,000 by FWNC.
70
<PAGE>
(c) To record the estimated purchase accounting adjustments and the payment of
the cost of acquisition as follows (in thousands):
<TABLE>
<CAPTION>
Cost of acquisition:
<S> <C>
Cash $ 53,000
Preferred stock 37,000
Common stock 20,000
--------
110,000
Estimated acquisition costs 250
--------
$110,250
========
Net assets acquired $ 44,736
Preferred and common stock subject to
repurchase in ESOP reclassified to
shareholders' equity at the Merger Date 13,416
Fair value adjustments to record increases
(decreases) to asset book values and
decreases (increases) to liability book
values:
Loans 278
Premises and equipment 4,600
Deferred taxes (1,069)
Goodwill and other intangibles 50,529
Interest-bearing deposits (2,050)
Subordinated and other long-term notes (190)
--------
$110,250
========
The amortization period for the above-listed
fair value adjustments are as follows:
Loans 3 - 7 years
Premises and equipment 5 - 30 years
Goodwill and other intangibles 15 years
Interest-bearing deposits 1 - 2 years
Subordinated and other long-term notes 2 - 7 years
</TABLE>
(d) Intangibles other than goodwill are not individually or collectively
significant. Therefore, a 15-year amortization period is considered
appropriate.
(e) Calculated using pro forma net income of $28,657,000 less assumed preferred
stock dividends of $2,220,000, the result divided by the assumed weighted
average common shares outstanding as described in Note (f). Average common
shares
71
<PAGE>
outstanding were used for the net income per share amounts, since the
dilutive effect of preferred stock and outstanding stock options would be
less than 3%.
(f) Calculated using the weighted average common shares outstanding of FWNC in
1995 plus the weighted average common shares assumed to be issued in
connection with the Merger as if the Merger had been in effect as of
January 1, 1995. For purposes of this computation, averages shares to be
issued in connection with the Merger was derived by applying the assumed
exchange ratio (based on an assumed FWNC Common Stock Average Value of
$31.50) of 3.1004 shares of FWNC common stock for each share of Company
common stock to the 204,838 average shares of Company common stock
outstanding during 1995 resulting in 635,080 average shares of FWNC common
stock. Any change in the actual exchange ratio from the assumed exchange
ratio, which might result from a different FWNC Common Stock Average Value,
will not materially impact the pro forma net income per common share.
(g) To reflect amortization and accretion of purchase accounting premiums and
discount as if the Merger had been in effect as of January 1, 1995.
(h) To reflect interest income on the net reduction in short-term investments
and investment securities that would have been foregone had the Merger been
in effect as of January 1, 1995 (using an effective rate of 5.07% and
6.44%, respectively.)
(i) To reflect interest expense on the planned $15,000,000 borrowing by FWNC as
if the borrowing had occurred on January 1, 1995 (using an effective rate
of 7.00%).
(j) To reflect the applicable income tax effect of the Pro Forma Adjustments
listed in Notes (g) through (i) above.
72
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
REPORT OF INDEPENDENT AUDITORS............................ F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1995 and 1994.. F-3
CONSOLIDATED STATEMENTS OF INCOME - YEARS ENDED
DECEMBER 31, 1995, 1994 and 1993........................ F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY - YEARS ENDED DECEMBER 31, 1995, 1994 and 1993... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - YEARS ENDED
DECEMBER 31, 1995, 1994 and 1993........................ F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................ F-8
</TABLE>
F-1
<PAGE>
Stockholders and Board of Directors
of Valley Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of Valley Financial
Services, Inc. as of December 31, 1995 and 1994 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
years ended December 31, 1995, 1994 and 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated 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 consolidated financial position of Valley
Financial Services, Inc. as of December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1995, 1994 and 1993, in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for impaired loans effective January 1, 1995,
for securities effective January 1, 1994 and for income taxes effective January
1, 1993.
Crowe, Chizek and
Company LLP
South Bend, Indiana
February 29, 1996
F-2
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 40,079,315 $ 41,613,259
Federal funds sold and securities purchased
under agreements to resell 90,600,000 46,900,000
------------ ------------
Cash and cash equivalents (Note B) 130,679,315 88,513,259
Interest-bearing balances with other banks 531,648 148,647
Securities available-for-sale (Note C) 140,994,628 77,693,588
Securities held-to-maturity (fair value
of $52,722,007 at December 31, 1994) (Note C) - 55,326,174
Federal Home Loan Bank stock 4,419,400 2,187,300
Total loans (Note D) 525,055,443 502,441,240
Allowance for loan losses (Note E) (8,400,000) (8,100,000)
------------ ------------
Net loans 516,655,443 494,341,240
Land, buildings and equipment, net (Notes F and I) 13,980,733 14,198,645
Accrued interest receivable 5,247,141 5,021,272
Other assets 6,109,467 4,897,060
------------ ------------
$818,617,775 $742,327,185
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Interest-bearing (Note G) $444,284,030 $467,640,335
Non-interest-bearing 119,843,417 109,911,280
------------ ------------
Total deposits 564,127,447 577,551,615
Securities sold under agreements to repurchase (Note H) 140,384,061 79,523,367
U.S. Treasury demand notes (Note C) 6,801,526 7,492,560
Long-term debt (Note I) 41,916,809 23,250,093
Accrued interest payable 3,796,063 2,508,003
Other liabilities 3,440,299 2,481,896
------------ ------------
Total liabilities 760,466,205 692,807,534
Commitments and contingencies (Notes M and T)
Preferred and common stock subject to repurchase
in ESOP (Note J) 13,415,569 6,882,448
Stockholders' equity
Preferred stock, voting, $12 par value, 10% cumulative:
Authorized 60,000 shares; issued 58,459 616,452 616,452
Common stock, non-voting, $1 stated value:
authorized 240,000 shares; issued 233,836 205,484 205,484
Additional paid-in capital 123,261 123,261
Retained earnings (Note I) 45,155,695 45,031,724
Treasury stock, at cost (Note L) (2,494,066) (2,486,566)
Net unrealized appreciation/(depreciation) on
securities available-for-sale, net of tax (credit) of
$740,630 and ($559,586) at December 31, 1995 and
1994, respectively 1,129,175 (853,152)
------------ ------------
Total stockholders' equity 44,736,001 42,637,203
------------ ------------
$818,617,775 $742,327,185
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $47,600,788 $39,855,601 $36,734,246
Interest and dividends on securities
Taxable 8,369,554 6,896,895 7,629,850
Non-taxable 941,240 1,043,659 1,223,993
Interest on federal funds sold and securities
purchased under agreements to resell 2,250,927 1,173,592 890,901
Interest on balances with other banks 13,776 2,374 29,975
----------- ----------- -----------
Total interest income 59,176,285 48,972,121 46,508,965
Interest expense
Deposits (Note G) 20,705,342 16,328,543 17,241,954
Short-term borrowings 6,167,138 3,460,933 2,144,645
Long-term debt 2,520,411 1,559,766 1,245,330
----------- ----------- -----------
Total interest expense 29,392,891 21,349,242 20,631,929
----------- ----------- -----------
NET INTEREST INCOME 29,783,394 27,622,879 25,877,036
Provision for loan losses (Note E) 1,676,036 1,742,733 2,872,823
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 28,107,358 25,880,146 23,004,213
Other income (Note O) 5,061,186 4,727,481 5,192,300
Other expenses (Note O) 23,157,529 18,589,383 17,528,651
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 10,011,015 12,018,244 10,667,862
Income tax expense (Note K) 3,292,479 4,329,759 3,734,372
----------- ----------- -----------
NET INCOME $ 6,718,536 $ 7,688,485 $ 6,933,490
=========== =========== ===========
Earnings per common share (Note A) $ 32.50 $ 36.77 $ 31.36
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net Unrealized
Common Appreciation/
Stock (Depreciation)
Preferred $1 Additional on Securities Total
Stock Stated Paid-in Retained Treasury Available- Stockholders'
$12 par Value Capital Earnings Stock For-Sale Equity
--------- -------- ---------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1993 $ 616,452 $205,484 $123,261 $32,571,730 $ (205,646) $ - $33,311,281
Net income - - - 6,933,490 - - 6,933,490
Preferred stock cash dividends
declared $1.20 per share - - - (66,136) - - (66,136)
Change in fair value of preferred
and common stock subject to repurchase
in ESOP (Note J) - - - (1,134,080) - - (1,134,080)
Treasury shares acquired (Note L) - - - - (1,353,000) - (1,353,000)
--------- -------- --------- ----------- -------------- ---------- -----------
Balances, December 31, 1993 616,452 205,484 123,261 38,305,004 (1,558,646) - 37,691,555
Adoption of SFAS No. 115 - - - - - 1,069,744 1,069,744
Net income - - - 7,688,485 - - 7,688,485
Change in net unrealized appreciation
(depreciation) on securities
available-for-sale - - - - - (1,922,896) (1,922,896)
Preferred stock cash dividends
declared, $1.20 per share - - - (61,589) - - (61,589)
Change in fair value of preferred
and common stock subject to repurchase
in ESOP (Note J) - - - (900,176) - - (900,176)
Treasury shares acquired (Note L) - - - - (927,920) - (927,920)
--------- -------- ---------- ----------- -------------- ----------- -----------
Balances, December 31, 1994 616,452 205,484 123,261 45,031,724 (2,486,566) (853,152) 42,637,203
Net income - - - 6,718,536 - - 6,718,536
Transfer of securities from
held-to-maturity
to available-for-sale (Note C) - - - - - 266,709 266,709
Change in net unrealized appreciation
(depreciation) on securities
available-for-sale - - - - - 1,715,618 1,715,618
Preferred stock cash dividends
declared, $1.20 per share - - - (61,444) - - (61,444)
Change in fair value of preferred
and common stock subject to repurchase
in ESOP (Note J) - - - (6,533,121) - - (6,533,121)
Treasury shares acquired (Note L) - - - - (7,500) - (7,500)
--------- -------- ---------- ----------- ----------- ----------- -----------
Balances, December 31, 1995 $616,452 $205,484 $123,261 $45,155,695 $(2,494,066) $ 1,129,175 $44,736,001
========= ======== ========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,718,536 $ 7,688,485 $ 6,933,490
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 1,489,667 1,421,908 1,296,863
Provision for loan losses 1,676,036 1,742,733 2,872,823
Minority interest in bank subsidiary - - 10,830
Net accretion on securities
available-for-sale (299,084) (86,036) -
Net amortization on securities
held-to-maturity 31,837 59,590 114,874
Net gain on sale of loans (394,908) (129,508) (434,681)
Loans originated for sale (10,187,796) (17,524,173) (37,288,791)
Proceeds from sale of loans 8,301,545 17,653,681 37,723,472
Loss on sale of securities available-for-sale 22,008 154,470 -
Gain on sale of investment securities - - (435,313)
(Gain)/loss on sale of assets 193,849 (14,309) 219,996
Change in unearned income (105,506) (69,972) 134,585
Change in deferred loan fees 14,301 (16,056) (261,516)
Change in interest receivable (225,869) (983,952) 255,389
Change in other assets (1,732,021) (760,514) 776,735
Change in interest payable 1,288,060 248,511 (268,658)
Change in other liabilities 958,403 632,880 (534,306)
------------ ------------ ------------
Total adjustments 1,030,522 2,329,253 4,182,302
------------ ------------ ------------
Net cash from operating activities 7,749,058 10,017,738 11,115,792
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing balances with
other banks (383,001) (110,928) -
Proceeds from sales and maturities of securities
available-for-sale 33,653,460 53,795,819 -
Proceeds from maturities of securities
held-to-maturity 2,754,592 19,080,084 -
Proceeds from sales and maturities of
investment securities and interest-bearing
balances with other banks - - 55,466,542
Purchase of securities available-for-sale (34,279,909) (58,781,592) -
Purchase of securities held-to-maturity (6,572,827) (19,802,331) (54,018,451)
Purchase of Federal Home Loan Bank stock (2,232,100) (145,183) (197,017)
Purchase of limited partnership interest in
low income housing project (985,886) - -
Loans made to customers and principal
collections, net (21,617,875) (37,119,085) (44,296,037)
Proceeds from sale of assets 188,656 191,651 268,785
Property and equipment expenditures (1,451,376) (1,402,681) (1,109,033)
Purchase of bank subsidiary common stock - - (449,775)
------------ ------------ ------------
Net cash from investing activities (30,926,266) (44,294,246) (44,334,986)
</TABLE>
(Continued)
F-6
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposit accounts $(13,424,168) $ 33,295,806 $ 17,377,449
Proceeds from short-term borrowings over
90 days 84,452,062 43,626,836 31,286,352
Payments for maturing short-term
borrowings over 90 days (23,591,368) (40,877,633) (26,409,767)
Net increase/(decrease) in short-term
borrowings under 90 days (691,034) (24,908,190) 17,432,816
Borrowings of long-term debt 21,905,000 2,977,000 15,024,925
Payments on long-term debt (3,238,284) (4,553,665) (6,582,073)
Purchase of treasury stock (7,500) (927,920) (1,353,000)
Dividends paid (61,444) (61,589) (66,136)
Dividends paid by bank subsidiary to
minority interests - - (845)
------------ ------------ ------------
Net cash from financing activities 65,343,264 8,570,645 46,709,721
------------ ------------ ------------
Net change in cash and cash equivalents 42,166,056 (25,705,863) 13,490,527
Cash and cash equivalents at beginning of year 88,513,259 114,219,122 100,728,595
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $130,679,315 $ 88,513,259 $114,219,122
============ ============ ============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 28,104,831 $21,100,731 $ 20,900,587
Income taxes (net of refunds) 4,659,589 4,361,000 5,608,609
Transfer of securities from held-
to-maturity to available-for-sale 60,098,458 - -
Transfer of investment securities
to available-for-sale - 76,241,821 -
Transfer of investment securities
to held-to-maturity - 54,663,516 -
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
VALLEY FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE A - ACCOUNTING POLICIES
Basis for Financial Reporting: The consolidated financial statements include
the accounts of Valley Financial Services, Inc. (the "Company") and its wholly-
owned subsidiary, Valley American Bank and Trust Company. All significant
intercompany items and transactions are eliminated in consolidation.
Nature of Operations: The Company is engaged in the business of commercial and
retail banking and trust services, with operations conducted through its main
office and 21 branches located in St. Joseph, Elkhart, Marshall and LaPorte
counties in northern Indiana. These counties are the primary source of
Company's deposit, loan and trust activities. The majority of the Company's
income is derived from commercial and retail business lending activities.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Future results could differ
from the current estimates.
Areas where estimates are used in the accompanying financial statements include
the allowance for loan losses, fair values of financial instruments, the
determination and carrying value of impaired loans, the realization of deferred
tax assets, recognition and measurement of loss contingencies, depreciation of
premises and equipment, and the carrying value of other real estate. Estimates
that are more susceptible to change in the near term include the allowance for
loan losses and the fair values of financial instruments.
Securities: On January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The Company now classifies
securities into held-to-maturity and available-for-sale categories. Held-to-
maturity securities are those which the Company has the positive intent and
ability to hold to maturity, and are reported at amortized cost. Available-for-
sale securities are those the Company may decide to sell if needed for
liquidity, asset-liability management or other reasons. Available-for-sale
securities are reported at fair value, with unrealized gains and losses included
as a separate component of equity, net of tax. Prior to January 1, 1994, all
securities were carried at cost adjusted for amortization of premiums and
accretion of discounts. The effect of adopting this new accounting guidance
increased equity by $1,069,744, net of $701,649 in tax, as of January 1, 1994.
Amortization and accretion for securities is recognized on the level yield
method. Gains and losses on the sale of securities are computed on the basis of
specific identification of the security sold.
Allowance and Provision for Loan Losses: Because some loans may not be repaid
in full, an allowance for loan losses is recorded. Increases to the allowance
are recorded by a provision for loan losses charged to expense. Estimating the
risk of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While management
may periodically allocate portions of the allowance for specific problem loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off by management as a loss when deemed uncollectible,
although collection efforts continue and future recoveries may occur.
F-8
<PAGE>
SFAS No. 114 and No. 118, "Accounting by Creditors for Impairment of a Loan",
were adopted on January 1, 1995. Under these standards, loans considered to be
impaired are reduced to the present value of estimated future cash flows or the
fair value of collateral by allocating a portion of the allowance for loan
losses to such loans. If these allocations cause the allowance for loan losses
to increase, such increase is reported as provision for loan losses. As part of
the loan review process, management reviews all loans classified as nonaccrual
for impairment, as well as other loans that might warrant application of SFAS
No. 114. Smaller-balance homogeneous loans are evaluated for impairment in
total. Such loans include residential first mortgage loans secured by one-to-
four family residences, residential construction loans, automobile, home equity
and second mortgage loans. The effect of adopting this accounting standard on
January 1, 1995, was not material.
Interest Income on Loans: Unearned income on certain installment loans is
recognized as income on the level yield method. Interest on other loans is
calculated using the simple interest method on daily balances of the principal
amounts outstanding. When serious doubt exists as to collectibility of a loan,
the accrual of interest is discontinued.
The carrying value of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows, and increases in the present
value of expected future cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reported as provision for loan losses.
Loan Fees and Costs: Loan fees, net of direct origination costs, are deferred
and amortized over the estimated life of the loan as a yield adjustment.
Lease Financing Receivable: Lease financing receivables are stated at the
present value of the minimum lease payments, plus the residual values in the
equipment, less security deposits. Income is recognized on the level yield
method.
Foreclosed Real Estate: Real estate properties acquired through, or in lieu of,
loan foreclosure are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of cost or
fair value minus estimated costs to sell. Revenue and expenses from operations
and additions to the valuation allowance are charged to loss on foreclosed real
estate. Other real estate owned amounted to $234,042 at December 31, 1994 and
is included in other assets in the consolidated balance sheets. There was no
other real estate owned at December 31, 1995.
Depreciation and Amortization: Depreciation on buildings and equipment are
determined by the straight-line method based on the estimated useful lives of
the applicable assets.
Income Tax: The Company and its subsidiary file a consolidated federal income
tax return. Current income taxes payable or receivable by the subsidiary are
paid to or received from the Company.
Beginning in 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes". The Company records income tax expense based on the amount of taxes due
on its tax return plus deferred taxes computed based on the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, using enacted tax rates. Previously the Company
computed deferred taxes for the tax effects of timing differences between
financial reporting and tax return income. The effect of the adoption of SFAS
No. 109 as of January 1, 1993 was not material.
F-9
<PAGE>
Earnings Per Common Share: Earnings per common share are based upon the
weighted average number of shares of common stock outstanding after deducting
preferred dividends. The weighted average number of common shares outstanding
during 1995, 1994 and 1993 were 204,838, 207,432 and 218,996, respectively.
Statement of Cash Flows: For purposes of this statement, cash and cash
equivalents is defined to include the Company's cash on hand, its demand
deposits in other institutions, Federal funds sold, and securities purchased
under agreements to resell with maturities of 90 days or less.
Dividend Restriction: The Company is subject to banking regulations which
require the maintenance of certain capital levels and which may limit the amount
of dividends which may be paid. See Note I for additional restrictions on
dividend payments.
NOTE B - CASH AND CASH EQUIVALENTS
During 1995, the Company entered into two separate agreements to purchase
securities under agreements to resell ("reverse repo agreements"). At December
31, 1995, these reverse repo agreements totaled $21,800,000 with Cantor
Fitzgerald Securities Corp. and $18,500,000 with Merrill Lynch Government
Securities, Inc. and/or Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
The securities purchased under these reverse repo agreements are pledged against
the Company's customer repo accounts as discussed in Note H. Under these
reverse repo agreements, individual transactions are terminable on demand by
either party. Both reverse repo agreements require the fair value of the
securities pledged to be a minimum of 102% of the amounts outstanding under the
contracts. The fair value of the pledged securities as of December 31, 1995 was
approximately $22,354,000 and $18,871,000, respectively. The securities
purchased under these agreements are maintained by third party safekeeping
agents for the benefit of the Company. The average balance of securities
purchased under reverse repo agreements during 1995 was approximately
$10,966,000. The maximum balance outstanding under these agreements at any
month end during 1995 was $45,200,000.
The balances of these two agreements, as well as $26,638,132 on deposit with the
Federal Reserve Bank of Chicago, represent a concentration of funds with a
single issuer.
The Company was required to maintain approximately $5,892,000 and $6,092,000 of
cash on hand or on deposit with the Federal Reserve Bank to meet regulatory
reserve and clearing balance requirements at December 31, 1995 and 1994,
respectively. These balances do not earn interest.
NOTE C - SECURITIES
The amortized cost and fair value of securities as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available-For-Sale: Cost Gains Losses Value
- ------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury and
Government agencies $126,585,899 $1,692,665 $(61,039) $128,217,525
States and political subdivisions 11,514,581 262,362 (18,442) 11,758,501
Mortgage-backed securities 864,343 - (5,109) 859,234
Corporate and other debt securities 160,000 - (632) 159,368
------------ ---------- -------- ------------
$139,124,823 $1,955,027 $(85,222) $140,994,628
============ ========== ======== ============
</TABLE>
F-10
<PAGE>
In November 1995, the Financial Accounting Standards Board issued its Special
Report "A Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities" (Guide). As permitted by the Guide,
on December 1, 1995, the Company made a one-time reassessment and transferred
all securities from the held-to-maturity portfolio to the available-for-sale
portfolio. At the date of the transfer, these securities had an amortized cost
of $60,098,458 and increased the unrealized gain on securities available-for-
sale in stockholders' equity by $266,709, net of tax.
F-11
<PAGE>
The amortized cost and fair value of securities as of December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Available-For-Sale: Cost Gains Losses Value
- ------------------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. Treasury and
Government agencies $77,964,446 $10,013 $(1,389,593) $76,584,866
Mortgage-backed securities 1,141,880 - (33,158) 1,108,722
----------- ------- ----------- -----------
$79,106,326 $10,013 $(1,422,751) $77,693,588
=========== ======= =========== ===========
Gross Gross
Amortized Unrealized Unrealized Fair
Held-to-Maturity: Cost Gains Losses Value
- ---------------- ----------- ---------- ----------- -----------
U.S. Treasury and
Government agencies $32,054,315 $ - $(1,923,693) $30,130,622
States and political subdivisions 13,721,968 48,914 (221,130) 13,549,752
Mortgage-backed securities 9,414,891 - (502,634) 8,912,257
Corporate and other
debt securities 135,000 - (5,624) 129,376
----------- ------- ----------- -----------
$55,326,174 $48,914 $(2,653,081) $52,722,007
=========== ======= =========== ===========
</TABLE>
The amortized cost and fair value of securities available-for-sale at December
31, 1995, 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>
Due in one year or less $ 40,766,835 $ 41,058,450
Due after one year through five years 91,364,287 92,785,333
Due after five years through ten years 5,295,899 5,480,594
Due after ten years 833,459 811,017
Mortgage-backed securities 864,343 859,234
------------ ------------
$139,124,823 $140,994,628
============ ============
</TABLE>
Proceeds from sales of securities available-for-sale during 1995 were $8,517,786
and gross gains of $38,148 and gross losses of $60,156 were realized. Proceeds
from sales of securities available-for-sale during 1994 were $18,816,972 and
gross losses of $154,470 were realized. During 1993, proceeds from sales of
securities were $8,423,203 and gross gains of $435,313 were realized.
Securities with a carrying amount of $115,983,178 are pledged as of December 31,
1995, as collateral for customer repo accounts (Note H) and U.S. Treasury demand
notes.
F-12
<PAGE>
NOTE D - LOANS
Year-end loan balances are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commercial $302,563,585 $294,054,182
Real estate - construction 21,427,000 11,983,000
Real estate - mortgage 136,032,870 135,007,554
Installment 59,572,373 54,240,302
Industrial revenue 4,256,995 5,459,602
Lease financing receivable 1,202,620 1,696,600
------------ ------------
$525,055,443 $502,441,240
============ ============
</TABLE>
NOTE E - ALLOWANCE FOR LOAN LOSSES
The following is an analysis of the allowance for loan losses for the years
ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 8,100,000 $7,000,000 $ 5,900,000
Provision for loan losses 1,676,036 1,742,733 2,872,823
Charge-offs (1,649,809) (913,209) (1,987,933)
Recoveries 273,773 270,476 215,110
----------- ---------- -----------
$ 8,400,000 $8,100,000 $ 7,000,000
=========== ========== ===========
</TABLE>
Information regarding impaired loans is as follows for the year ended
December 31, 1995:
<TABLE>
<S> <C>
Average investment in impaired loans $9,532,922
Interest income recognized on impaired loans
including interest income recognized on a cash basis $ 389,604
Interest income recognized on impaired loans on cash basis $ 389,604
Information regarding impaired loans at December 31, 1995 is as follows:
Balance of impaired loans $6,161,826
Less portion for which no allowance for loan losses is allocated (685,332)
----------
Portion of impaired loans for which an allowance for loan
losses is allocated $5,476,494
==========
Portion of allowance for loan losses allocated to impaired loans $2,490,000
==========
</TABLE>
Nonaccrual loans totaled approximately $3,238,000 (97.8% of which is considered
impaired) and $1,526,000 at December 31, 1995 and 1994, respectively. Interest
income for the years ended December 31, 1995, 1994 and
F-13
<PAGE>
1993 would have increased by approximately $199,000, $134,000 and $51,000,
respectively, if nonaccrual loans outstanding during the year had earned
interest at the full contract rate. Loans past due 90 days or more and still
accruing totaled approximately $864,000 and $121,000 at December 31, 1995 and
1994, respectively.
Loans are considered to be renegotiated when concessions have been granted, such
as reduction of interest rates or principal balances, or deferral of interest or
principal payments, as a result of the borrower's financial condition. At
December 31, 1995 and 1994, the total for loans renegotiated, meeting the
definition of troubled debt restructuring under SFAS No. 15, was $5,363,000
(including four loans totaling $2,287,000 that are included in impaired loans)
and $3,894,000 (including three loans totaling $1,189,000 that are included in
nonaccrual loans), respectively. Interest income of $391,000, $312,000 and
$404,000 was recognized on these loans in 1995, 1994 and 1993, respectively.
Had these loans been performing under the original contract terms, an additional
$105,000, $158,000 and $39,000 would have been reflected in interest income
during 1995, 1994 and 1993, respectively. The Company is not committed to lend
additional funds to debtors whose loans have been modified.
NOTE F - LAND, BUILDINGS AND EQUIPMENT, NET
Land, buildings and equipment, at cost, and accumulated depreciation as of
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 2,710,862 $ 2,710,862
Buildings 15,218,424 14,749,322
Equipment 8,074,439 7,928,236
----------- -----------
26,003,725 25,388,420
Less accumulated depreciation 12,022,992 11,189,775
----------- -----------
$13,980,733 $14,198,645
=========== ===========
</TABLE>
NOTE G - INTEREST-BEARING DEPOSITS
Interest-bearing deposits as of December 31, 1995 and 1994 are summarized as
follows:
1995 1994
------------ ------------
Demand deposit accounts $ 51,655,441 $ 57,258,542
Savings deposit accounts 70,054,075 79,407,576
Time deposits
In excess of $100,000 38,687,571 70,117,470
Other 283,886,943 260,856,747
------------ ------------
$444,284,030 $467,640,335
============ ============
Interest expense on deposits for the years ended December 31, 1995, 1994 and
1993 is summarized as follows:
1995 1994 1993
------ ------ ------
Demand deposit accounts $1,184,244 $1,168,005 $1,376,955
Savings deposit accounts 1,965,061 2,060,808 2,447,522
F-14
<PAGE>
Time deposits
In excess of $100,000 2,555,164 1,741,366 1,629,994
Other 15,000,873 11,358,364 11,787,483
----------- ----------- -----------
$20,705,342 $16,328,543 $17,241,954
=========== =========== ===========
NOTE H - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase ("repo accounts") represent
collateralized borrowings with customers located primarily within the Company's
trade area. Liabilities and the related collateral consisting of U.S. Treasury
securities and mortgage-backed securities as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Collateral Value
----------------
U.S. Treasury
and Government
Weighted Agencies
Average --------
Repurchase Interest Amortized Fair
Term Liability Rate Cost Value
---- ------------ ---- ------------ ------------
<S> <C> <C> <C> <C>
On demand $122,029,468 5.06% $118,812,926 $122,412,486
Less than 90 days 1,415,416 5.09 1,420,466 1,463,639
90 days and over 16,939,177 6.15 17,038,235 17,068,640
------------ ---- ------------ ------------
Total $140,384,061 5.19% $137,271,627 $140,944,765
============ ==== ============ ============
</TABLE>
The Company has pledged investment securities against these repo accounts as
described in Notes B and C. The Company has the right to withdraw all
collateral applicable whenever the collateral values are in excess of the
related repurchase liabilities. The Company maintains control of these
securities through the use of various third party safekeeping arrangements.
The average amount of securities sold under repurchase agreements outstanding
during the years ending December 31, 1995 and 1994 was approximately
$109,515,000 and $87,337,000, respectively. The maximum amount of securities
sold under repurchase agreements at any month-end for 1995 and 1994 was
approximately $161,445,000 and $132,794,000, respectively.
NOTE I - LONG-TERM DEBT
Long-term debt as of December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revolving line of credit $ - $ 550,000
Federal Home Loan Bank borrowings 34,153,230 14,682,315
Indiana Economic Development Revenue
Bonds, 7-1/2% 613,579 789,778
Junior subordinated notes 7,150,000 7,228,000
----------- -----------
$41,916,809 $23,250,093
=========== ===========
</TABLE>
The Company has an amended revolving line of credit agreement, dated October 31,
1991, with Harris Bank. As of December 31, 1995, the amended credit agreement
permits the Company to borrow a maximum of $4,000,000 ($5,000,000 at December
31, 1994), with interest floating at the prime rate of the lender and payable
quarterly. The maximum committed amount automatically reduces in the amount of
$1,000,000 on each October
F-15
<PAGE>
31. Outstanding balances on this revolving line of credit mature on October 31,
1999. The agreement places certain restrictions on incurring additional
indebtedness, selling or pledging assets, merging or consolidating with other
corporations (see Note T) and investing in certain other entities. In addition,
annual cash dividends are limited to $77,000. The common stock of Valley
American Bank and Trust Company ("Valley American Bank") owned by the Company is
pledged as collateral.
The Federal Home Loan Bank borrowings represent seven obligations between the
Federal Home Loan Bank of Indianapolis and Valley American Bank. The first is a
five year loan with a balance of $1,998,417 at 6.19% which matures July 31,
1997. The second is a seven year loan with a balance of $2,996,161 at 6.64%
which matures July 16, 1999. The third is a ten year loan with a balance of
$4,165,527 at 5.79%. This loan requires annual principal payments with final
maturity July 15, 2003. The fourth is a five year loan with a balance of
$4,993,125 at 5.16% which matures September 15, 1998. The fifth is a two year
loan with a balance of $5,000,000 at 6.403% which matures June 5, 1997. The
sixth is a two year loan with a balance of $4,000,000 at a current rate of
5.895% which matures January 14, 1997. The rate is adjustable quarterly to the
three-month LIBOR rate plus two basis points. The seventh is a 30 month loan
with a balance of $11,000,000 at a current rate of 5.895% which matures October
21, 1997. The rate is adjustable quarterly to the three-month LIBOR rate plus
two basis points. All of these loans require monthly interest payments. A
blanket collateral arrangement has been executed with the Federal Home Loan Bank
of Indianapolis. The carrying value of total eligible assets (primarily 1-4
family mortgage loans) available as collateral to secure current and future
advances as of December 31, 1995 is approximately $110,738,000.
The 7-1/2% Indiana Economic Development Revenue Bonds represent an obligation
between the City of Elkhart, Indiana and VBT Realty Corp., a wholly owned
subsidiary of Valley American Bank. The bonds, dated December 29, 1986, require
semiannual installments of $116,094, including interest, and are payable with
final maturity in 1998. The proceeds of the bond issue were used to acquire and
renovate certain real property for a branch location in Elkhart, Indiana. The
bonds are collateralized by a first mortgage on the real property and by a lien
on certain furniture and equipment. These pledged assets have a carrying value
of approximately $1,045,975 at December 31, 1995.
The junior subordinated notes (at rates ranging from 5% to 9% at December 31,
1995) are unsecured, with maturities ranging from 1996 to 2000 and are
subordinated to all other indebtedness of the Company.
The aggregate annual maturity of long-term debt is as follows: 1996 -$3,873,032;
1997 - $23,869,359; 1998 -$8,226,241; 1999 - $3,416,824; 2000 -$376,402 and
later years - $2,154,951.
NOTE J - EMPLOYEE BENEFITS
The Company has an Employee Stock Option Plan (ESOP), with 401(k) provisions,
for the benefit of substantially all of its employees and the employees of its
subsidiary. The trust agreement provides for an annual contribution to the
trust fund as the Board of Directors shall determine by resolution adopted
before the end of the year. The expense for the years 1995, 1994 and 1993 was
$268,854, $508,708 and $313,598, respectively.
Participation in the 401(k) feature of the ESOP is at the discretion of the
employee. The employer matches 50% of employee contributions to a maximum of 4%
of employee qualified earnings. The expense of the 401(k) feature of the ESOP
for the years 1995, 1994 and 1993 was $118,284, $108,292 and $105,827,
respectively.
As of December 31, 1995, 1994 and 1993, the ESOP held the following shares of
Valley Financial Services, Inc.: 7,088 shares of preferred stock and 28,352
shares of common stock. For corporations not listed on NASDAQ, ERISA requires
an employer with an ESOP to provide a put option to participants for the
repurchase
F-16
<PAGE>
of Company stock. ERISA requires this put option to provide a source of funds
to the participant. The estimated fair value of the Company's preferred and
common stock subject to this ESOP put option was $13,415,569, $6,882,448 and
$5,982,272 at December 31, 1995, 1994 and 1993, respectively.
NOTE K - INCOME TAX EXPENSE
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Federal
Current $ 3,640,811 $3,247,036 $3,234,719
Deferred (1,303,175) 62,723 (425,164)
----------- ---------- ----------
2,337,636 3,309,759 2,809,555
State
Current 1,286,010 1,009,619 971,667
Deferred (331,167) 10,381 (46,850)
----------- ---------- ----------
954,843 1,020,000 924,817
----------- ---------- ----------
$ 3,292,479 $4,329,759 $3,734,372
=========== ========== ==========
</TABLE>
Income tax expense (credit) included ($8,717), ($61,186), and $172,427
applicable to security transactions for 1995, 1994 and 1993, respectively.
The differences between financial statement tax expense amounts computed by
applying the statutory federal income tax rate of 34% for all three years to
income before income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes at statutory federal rate $3,403,745 $4,086,203 $3,627,073
Increase (decrease) in taxes resulting from:
Tax exempt income (433,305) (524,826) (614,149)
Nondeductible expense 89,867 86,473 80,137
State income tax, net of federal tax effect 630,196 673,200 610,379
Tax credits (78,800) - -
Other (319,224) 8,709 30,932
---------- ---------- ----------
$3,292,479 $4,329,759 $3,734,372
========== ========== ==========
</TABLE>
F-17
<PAGE>
The components of the net deferred tax asset recorded in the consolidated
balance sheets at December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
Federal State Federal State
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Deferred tax assets
Bad debts $2,502,650 $714,000 $2,306,033 $688,500
Tax-basis mark-to-market
securities 286,570 71,642 - -
Other 431,669 107,917 87,428 21,857
---------- -------- ---------- --------
3,220,889 893,559 2,393,461 710,357
Deferred tax liabilities
Tax-basis mark-to-market
securities - - 506,998 126,750
Depreciation 71,799 17,950 195,102 48,775
State taxes 269,265 - 156,668 -
Leases 101,099 25,275 155,399 38,850
Loan fees 61,286 15,321 66,148 16,537
Other 175,747 43,058 74,628 18,657
---------- -------- ---------- --------
679,196 101,604 1,154,943 249,569
---------- -------- ---------- --------
Valuation allowance - - - -
---------- -------- ---------- --------
Net deferred tax asset $2,541,693 $791,955 $1,238,518 $460,788
========== ======== ========== ========
</TABLE>
In addition to the net deferred tax asset included above, income taxes (credits)
allocated to the unrealized net gain (loss) account included in equity were
$740,630 and ($559,586) for 1995 and 1994, respectively.
NOTE L - TREASURY STOCK
In 1995 and 1994, the Company purchased 25 and 508 shares of preferred stock at
an aggregate cost of $1,500 and $23,600, respectively. Also, the Company
purchased 100 and 5,088 shares of common stock at an aggregate cost of $6,000
and $904,320 in 1995 and 1994, respectively. As of December 31, 1995, 7,262
(7,237 in 1994) shares of preferred stock and 29,048 (28,948 in 1994) shares of
common stock are held as treasury stock.
F-18
<PAGE>
NOTE M - COMMITMENTS AND CONTINGENCIES
The Company is obligated under various long-term operating leases for premises
and equipment, with expiring terms ranging from April 1996 to July 2005.
Minimum commitments under these noncancelable operating leases total $4,635,000,
which are due as follows: 1996 - $933,000; 1997 - $894,000; 1998 - $844,000;
1999 - $801,000; 2000 - $223,000; and later years - $940,000. During the years
1995, 1994 and 1993, the annual rent expense under all operating leases
aggregated $968,341, $866,379 and $550,884, respectively.
The Company is a party to various legal actions arising in the ordinary course
of its business, none of which, in the opinion of management and legal counsel,
is expected to have a material adverse effect on the Company's consolidated
financial position.
The bank subsidiary is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet financing needs of its customers.
These financial instruments include commitments to make loans, revolving lines
of credit and standby letters of credit. The bank subsidiary's exposure to
credit loss in the event of nonperformance by the other party for these
financial instruments is represented by the contractual amount of the
commitments. The bank subsidiary follows the same credit policy to make such
commitments as it uses for on-balance-sheet items (including requiring
collateral, if deemed appropriate).
As of December 31, 1995, the bank subsidiary had loan commitments, unused open-
end revolving lines of credit and standby letters of credit approximating
$208,299,000. Substantially all of these commitments were variable with rates
ranging from 7.25% to 16.65% and were tied to various indices including prime,
LIBOR and U.S. Treasury indices. As of December 31, 1994, there were
$179,601,000 of such commitments. Since many of these commitments expire
without being used, the amount does not necessarily represent future cash
commitments. Management does not anticipate any losses as a result of these
commitments.
In the ordinary course of business, the bank subsidiary commits to sell mortgage
loans in the secondary market. As of December 31, 1995, there were approximately
$2,387,000 in outstanding commitments. No loss is expected as a result of
fulfilling these commitments. As of December 31, 1994, there were no
outstanding commitments.
F-19
<PAGE>
NOTE N - RELATED PARTIES
Certain directors and officers of the Company or its bank subsidiary are loan
customers. A summary of related party loan activity, for loans aggregating
$60,000 or more to any one related party, is as follows:
Balance - December 31, 1994 $ 11,179,364
New loans 21,552,113
Repayments (21,701,451)
------------
Balance - December 31, 1995 $ 11,030,026
============
In addition, certain operating leases are related party leases. The minimum
commitment on those which are long-term are included in Note M. The aggregate
rent expense under these leases was $175,440, $166,560 and $146,000 for 1995,
1994 and 1993, respectively.
NOTE O - OTHER INCOME AND OTHER EXPENSES
Other income and other expenses are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Other income
Service charges $ 2,060,909 $ 2,173,360 $ 2,260,494
Trust fees 1,430,548 1,307,997 1,254,119
Gain on sale of loans 394,908 129,508 434,681
Gain (loss) on sale of securities (22,008) (154,470) 435,313
Gain (loss) on sale of other assets (193,849) 14,309 (219,996)
Other income 1,390,678 1,256,777 1,027,689
----------- ----------- -----------
$ 5,061,186 $ 4,727,481 $ 5,192,300
=========== =========== ===========
Other expenses
Salaries and employee benefits $13,600,219 $ 9,840,618 $ 8,952,853
Occupancy expense 1,671,616 1,588,760 1,271,548
Equipment expense 1,410,477 1,325,411 1,302,840
Computer service expense 1,150,193 972,401 920,629
Advertising and marketing 1,091,267 814,839 737,208
FDIC assessment 697,938 1,159,670 1,165,925
Local taxes 805,202 450,272 449,525
Other operating expense 2,730,617 2,437,412 2,717,293
Minority interest - - 10,830
----------- ----------- -----------
$23,157,529 $18,589,383 $17,528,651
=========== =========== ===========
</TABLE>
F-20
<PAGE>
NOTE P - CONDENSED FINANCIAL INFORMATION OF PARENT
Condensed financial information of Valley Financial Services, Inc. (parent
company only) is as follows:
CONDENSED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 310,450 $ 55,520
Investment in bank subsidiary at cost,
plus equity in undistributed earnings
since acquisition 64,546,547 56,899,827
Other assets 593,042 355,021
----------- -----------
Total assets $65,450,039 $57,310,368
=========== ===========
Long-term debt $ 7,150,000 $ 7,778,000
Other liabilities 148,469 12,717
----------- -----------
Total liabilities 7,298,469 7,790,717
----------- -----------
Preferred and common stock subject
to repurchase in ESOP (Note J) 13,415,569 6,882,448
Preferred stock, voting, $12 par value,
10% cumulative 616,452 616,452
Common stock, non-voting, $1 stated value 205,484 205,484
Additional paid-in capital 123,261 123,261
Retained earnings 45,155,695 45,031,724
Treasury stock (2,494,066) (2,486,566)
Net unrealized appreciation/(depreciation) on
securities available-for-sale, net of tax (credit)
of $740,630 and ($559,586) at December 31, 1995
and 1994, respectively 1,129,175 (853,152)
----------- -----------
Total stockholders' equity 44,736,001 42,637,203
----------- -----------
Total liabilities and stockholders' equity $65,450,039 $57,310,368
=========== ===========
</TABLE>
F-21
<PAGE>
NOTE P - CONDENSED FINANCIAL INFORMATION OF PARENT (Continued)
CONDENSED STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Dividend income from bank subsidiary $ 3,004,989 $2,311,530 $2,932,768
Other income 4,651 1,071 63,896
----------- ---------- ----------
Total income 3,009,640 2,312,601 2,996,664
Interest expense 535,346 612,015 612,512
Other expenses 2,586,408 1,705 1,550
----------- ---------- ----------
Total expenses 3,121,754 613,720 614,062
----------- ---------- ----------
Income (loss) before income tax benefit and equity
in undistributed income of subsidiary (112,114) 1,698,881 2,382,602
Income tax benefit (1,226,257) (247,241) (242,900)
----------- ---------- ----------
Income before equity in undistributed
income of subsidiary 1,114,143 1,946,122 2,625,502
Equity in income of bank subsidiary, less
dividends included above 5,604,393 5,742,363 4,307,988
----------- ---------- ----------
Net income $ 6,718,536 $7,688,485 $6,933,490
=========== ========== ==========
</TABLE>
F-22
<PAGE>
NOTE P - CONDENSED FINANCIAL INFORMATION OF PARENT (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,718,536 $ 7,688,485 $ 6,933,490
Adjustments to reconcile net income
to net cash from operating activities
Equity in undistributed income of
subsidiary (5,604,393) (5,742,363) (4,307,988)
Other changes (162,269) (158,927) 50,307
----------- ----------- -----------
Total adjustments (5,766,662) (5,901,290) (4,257,681)
----------- ----------- -----------
Net cash from operating activities 951,874 1,787,195 2,675,809
CASH FLOWS FROM INVESTING ACTIVITIES - - -
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (61,444) (61,589) (66,136)
Purchase of treasury stock (7,500) (927,920) (1,353,000)
Net change in long-term debt (628,000) (779,000) (1,283,000)
----------- ----------- -----------
Net cash from financing activities (696,944) (1,768,509) (2,702,136)
Net change in cash and cash equivalents 254,930 18,686 (26,327)
Cash and cash equivalents at beginning of year 55,520 36,834 63,161
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 310,450 $ 55,520 $ 36,834
=========== =========== ===========
</TABLE>
F-23
<PAGE>
NOTE Q - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 prescribes that the Company
disclose the estimated fair value of its financial instruments. The following
table shows those values and the related carrying value at December 31, 1995 and
1994. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
1995 1994
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 130,679,315 $ 130,679,315 $ 88,513,259 $ 88,513,259
Interest-bearing balances
with other banks 531,648 531,648 148,647 148,647
Securities available-for-sale 140,994,628 140,994,628 77,693,588 77,693,588
Securities held-to-maturity - - 55,326,174 52,722,007
Federal Home Loan Bank stock 4,419,400 4,419,400 2,187,300 2,187,300
Loans, net of allowance
for loan losses 516,655,443 516,933,561 494,341,240 489,014,059
Accrued interest receivable 5,247,141 5,247,141 5,021,272 5,021,272
Deposits (564,127,447) (566,177,215) (577,551,615) (577,150,651)
Short-term borrowings (147,185,587) (147,268,299) (87,015,927) (87,032,001)
Long-term debt (41,916,809) (42,106,628) (23,250,093) (21,871,003)
Accrued interest payable (3,796,063) (3,796,063) (2,508,003) (2,508,003)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of December 31, 1995 and 1994. The estimated fair
value for cash and cash equivalents, interest-bearing balances with other banks
and Federal Home Loan Bank stock is considered to approximate cost. The
estimated fair value for securities is based on quoted market values for the
individual securities or for equivalent securities. The estimated fair value
for commercial loans is based on estimates of the difference in interest rate
the bank subsidiary would charge the borrowers for similar such loans with
similar maturities made at December 31, 1995 and 1994, applied for an estimated
time period until the loan is assumed to reprice or be paid. The estimated fair
value for other loans is based on estimates of the rate the bank subsidiary
would charge for similar such loans at December 31, 1995 and 1994, applied for
the time period until estimated repayment. The estimated fair value for demand
and savings deposits and accrued interest is based on their carrying value. The
estimated fair value for certificates of deposit, short-term borrowings and
long-term debt is based on estimates of the rate the bank subsidiary would pay
on such liabilities at December 31, 1995 and 1994, applied for the time period
until maturity. The estimated fair value of commitments (primarily comprised of
unfunded loan commitments) is estimated using fees that would be currently
charged to enter similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the counterparties. The fair
value of such commitments is not material.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at December 31, 1995 and 1994, the estimated fair values
would necessarily have been achieved at that date, since market values may
differ depending on various circumstances. The estimated fair values at
December 31, 1995 and 1994 should not necessarily be considered to apply at
subsequent dates.
In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above disclosures. Excluded, among other items, are the estimated earning power
of core deposit accounts, the earning potential of loan servicing rights, the
earning potential of the bank subsidiary's trust department, the trained work
force, customer goodwill and similar items.
F-24
<PAGE>
NOTE R - LOAN SERVICING
Mortgage loans serviced for others, by the bank subsidiary, are not included in
the accompanying consolidated balance sheets. The unpaid principal balances of
these loans at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Mortgage loan portfolio serviced for
FNMA $46,021,185 $44,527,374
FHLMC 3,856,498 2,936,709
Other investor 363,665 407,566
----------- -----------
$50,241,348 $47,871,649
=========== ===========
</TABLE>
Income earned for loan servicing was $182,276, $201,360 and $193,657 for 1995,
1994 and 1993, respectively.
NOTE S - IMPACT OF NEW ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long Lived Assets." SFAS No. 121 requires a review of long-term
assets for impairment of recorded value and resulting write-downs if the value
is impaired. This statement is effective for years beginning after December 15,
1995. SFAS No. 121 is not expected to have a material effect on the Company's
financial position or results of operations.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." The Company will adopt SFAS No. 122 on January 1, 1996, as required.
SFAS No. 122 eliminates the accounting distinction between originated and
purchased mortgage servicing rights. Beginning in 1996, when a loan is
originated with the intent to sell, a separate asset will be recognized for the
mortgage servicing right, which is consistent with the current treatment of
purchased mortgage servicing rights. SFAS No. 122 also changes the manner in
which impairment of capitalized mortgage servicing rights is recognized.
Impairment will be recognized using the fair value of individual stratum of
servicing rights based upon the underlying risk characteristics of the serviced
loan portfolio, compared to an aggregate portfolio approach under existing
accounting guidance.
Based on its current volume of mortgage banking activity, the Company does not
expect SFAS No. 122 to have a significant impact on its financial condition and
operations for 1996. The impact in subsequent years is difficult to predict.
SFAS No. 122 will initially result in the recognition of larger gains on sales
of mortgage loans, because of the initial capitalization of the originated
mortgage servicing right asset. However, the larger gains on sales of loans
will be offset by the future amortization of the mortgage servicing right asset.
In addition, the valuation allowance on impaired mortgage servicing rights may
fluctuate significantly in the future because the impairment evaluation of this
servicing right asset is based on assumed loan prepayment and default rates,
interest rates, and other factors.
NOTE T - PROPOSED MERGER
Pursuant to the Agreement and Plan of Merger dated November 6, 1995, the Company
is to be acquired by Fort Wayne National Corporation, an Indiana Corporation
headquartered in Fort Wayne, IN (FWNC). The Company is to merge with and into
FWNC. The transaction is subject to the approval of the Company's shareholders
and various regulatory agencies.
The terms of the Agreement provide that FWNC will exchange approximately $53
million in cash, $20 million in common stock and $37 million in preferred stock
for all outstanding Valley Financial Services, Inc. common and preferred stock.
At consummation, stock held by the Company in treasury will be canceled. Except
under certain circumstances, the common and preferred shares of FWNC issued to
the common shareholders of the Company may not be sold or transferred for a
period of two years. The Agreement also provides either party can terminate the
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transaction if FWNC's common stock average price per share is less than $26
unadjusted for stock dividends, splits, etc.
The Merger Agreement limits Company dividends to a quarterly dividend on
preferred stock of $.30 per share. The Merger Agreement also limits the Company
from entering into agreements or operating in a manner other than in the
ordinary course of business.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
between
VALLEY FINANCIAL SERVICES, INC.
an Indiana corporation
and
FORT WAYNE NATIONAL CORPORATION
an Indiana corporation
Dated as of November 6, 1995
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AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November 6,
1995, between VALLEY FINANCIAL SERVICES, INC., an Indiana corporation
("Valley"), and FORT WAYNE NATIONAL CORPORATION, an Indiana corporation
("FWNC").
In consideration of the premises and the mutual terms and provisions set forth
in this Agreement, the parties agree as follows.
ARTICLE ONE
TERMS OF MERGER AND CLOSING
---------------------------
Section 1.01. Merger. Pursuant to the terms and provisions of this Agreement
and the Indiana Business Corporation Law (the "Corporate Law"), Valley shall
merge with and into FWNC (the "Merger").
Section 1.02. Merging Corporation. Valley shall be the merging corporation
under the Merger and its corporate identity and existence, separate and apart
from FWNC, shall cease at the Effective Time (as hereinafter defined) of the
Merger.
Section 1.03. Surviving Corporation. FWNC shall be the surviving corporation
in the Merger and shall continue to be governed by the laws of the State of
Indiana, and the separate corporate existence of FWNC with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger. The Amended Articles of Incorporation and the By-Laws of FWNC in effect
at the Effective Time shall be the Amended Articles of Incorporation and the By-
Laws of the surviving corporation, until duly amended in accordance with the
terms thereof and the Corporate Law; and the directors and officers of FWNC at
the Effective Time shall, from and after the Effective Time, be the directors
and officers, respectively, of the surviving corporation until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with FWNC's Amended Articles of
Incorporation and By-Laws.
Section 1.04. Effects of Merger. The Merger shall have all of the effects
provided by this Agreement and the Corporate Law.
Section 1.05. Total Valley Merger Consideration.
(a) The total consideration payable to all of the shareholders of Valley
(other than shareholders validly exercising dissenters' rights pursuant to
Chapter 44 the Corporate Law ("Dissenting Shareholders")) in the Merger (the
"Valley Merger Consideration") shall be (i) an aggregate amount in cash (the
"Cash Component") equal to (A) $53,000,000, minus (B) the Dissenting Shareholder
Reserve (as hereinafter defined), and minus (C) the aggregate amount of cash to
be paid to holders of shares of Valley Common and
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Valley Preferred (each as hereinafter defined) in lieu of fractional shares as
hereinafter provided; (ii) an aggregate number of shares of Common Stock, no par
value per share, of FWNC (the "FWNC Common"), determined by dividing $20,000,000
by the FWNC Average Price (as hereinafter defined) (the "FWNC Common
Component"); and (iii) an aggregate of 740,000 shares of 6% Cumulative
Convertible Class B Preferred Stock, Series 1, of FWNC (the "FWNC Preferred")
(the "FWNC Preferred Component") having a stated value of Fifty Dollars ($50.00)
per share. The Valley Merger Consideration shall be allocated to the holders of
Valley Common and Valley Preferred as provided in Sections 1.06 and 1.07 hereof,
respectively.
(b) As used herein, the term "FWNC Average Price" shall mean the average of
the per share closing prices of a share of FWNC Common as reported on the Nasdaq
Stock Market's National Market ("Nasdaq"), as reported in The Wall Street
Journal (Midwest Edition) during the twenty (20) trading day (as defined below)
period preceding the fifth (5th) calendar day preceding the Closing Date (as
hereinafter defined) (the "Adjustment Period"). As used herein, the term
"trading day" shall mean any day on which Nasdaq is open for regular trading.
If after the day prior to the start of the Adjustment Period there occurs any
Share Adjustment (as hereinafter defined), then the FWNC Average Price shall be
appropriately and proportionately adjusted to reflect such Share Adjustment.
(c) As used herein, the term "Dissenting Shareholder Reserve" shall mean an
amount in cash equal to the sum of (i) the aggregate number of shares of Valley
Common held by Dissenting Shareholders multiplied by the cash equivalent of the
Valley Common Merger Consideration (as hereinafter defined) per share of Valley
Common, calculated assuming that (A) there are no Dissenting Shareholders, (B)
each share of the FWNC Common Component has a cash equivalent value equal to the
FWNC Average Price and (C) each share of the FWNC Preferred Component has a cash
equivalent value of $50 per share, plus (ii) the aggregate number of shares of
Valley Preferred held by Dissenting Shareholders multiplied by the Valley
Preferred Merger Consideration (as hereinafter defined) per share of Valley
Preferred.
Section 1.06. Conversion of Valley Common; Allocation of Valley Common Merger
Consideration.
(a) The portion of the Valley Merger Consideration allocated to the holders of
Common Stock, of Valley (the "Valley Common") is referred to herein as the
"Valley Common Merger Consideration." The Valley Common Merger Consideration
shall equal the aggregate of (i) the difference between the Cash Component and
the Preferred Cash Component (as hereinafter defined) (the "Common Cash
Component"); and (ii) the FWNC Common Component; and (iii) the FWNC Preferred
Component.
(b) At the Effective Time (as hereinafter defined), each share of Valley
Common issued and outstanding immediately prior to the Effective Time (other
than shares held by Dissenting Shareholders)
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shall be converted into the right to receive (i) an amount of cash equal to the
quotient of the Common Cash Component divided by the aggregate number of shares
of Valley Common to be so converted; (ii) the number of shares of FWNC Common
equal to the quotient of the FWNC Common Component divided by the aggregate
number of shares of Valley Common to be so converted; and (iii) the number of
shares of FWNC Preferred equal to the quotient of the FWNC Preferred Component
divided by the aggregate number of shares of Valley Common to be so converted.
The calculations required by clause (i) above shall be made to the nearest cent,
and the calculations required by clauses (ii) and (iii) above shall be made to
the nearest ten-thousandth (.0001) of a share.
(c) At the Effective Time, all of the shares of Valley 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 Time represented outstanding shares of Valley Common (the
"Common Certificates") shall thereafter cease to have any rights with respect to
such shares, except the right of such holders to receive, without interest, the
Valley Common Merger Consideration per share upon the surrender of such Common
Certificate or Common Certificates in accordance with Section 1.12 hereof.
(d) At the Effective Time, each share of Valley Common, if any, held in the
treasury of Valley or by any direct or indirect subsidiary of Valley (other than
shares held in trust accounts for the benefit of others or in other fiduciary,
nominee or similar capacities) immediately prior to the Effective Time shall be
canceled without payment of any consideration therefor.
(e) If any Dissenting Shareholder shall be entitled to be paid the "fair
value" of his or her shares of Valley Common, as provided in Chapter 44 of the
Corporate Law, Valley shall give FWNC notice thereof and FWNC shall have the
right to participate in all negotiations and proceedings with respect to any
such demands. Valley shall not, except with the prior written consent of FWNC,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment. If any Dissenting Shareholder shall fail to perfect or
shall have effectively withdrawn or lost the right to dissent, the shares held
by such Dissenting Shareholder shall thereupon be treated as though such shares
had been converted into the Valley Common Merger Consideration pursuant to this
Section 1.06.
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Section 1.07. Conversion of Valley Preferred; Allocation of Valley Preferred
Merger Consideration.
(a) The portion of the Valley Merger Consideration allocated to the holders of
Preferred Stock, par value $12.00 per share, of Valley (the "Valley Preferred")
is referred to herein as the "Valley Preferred Merger Consideration." The
Valley Preferred Merger Consideration shall equal $767,955 in cash, or such
other amount not exceeding $1,000,000 in cash as shall be determined by the
Board of Directors of Valley as set forth in a notice delivered to FWNC by
Valley not less than ten (10) days prior to the mailing of the Proxy
Statement/Prospectus (as hereinafter defined) (the "Preferred Cash Component").
(b) At the Effective Time, each share of Valley Preferred issued and
outstanding immediately prior to the Effective Time (other than shares held by
Dissenting Shareholders) shall be converted into the right to receive an amount
of cash equal to the quotient of the Preferred Cash Component divided by the
aggregate number of shares of Valley Preferred to be so converted. The
calculations required by subsection (b) shall be made to the nearest cent.
(c) At the Effective Time, all of the shares of Valley Preferred, 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 Time represented outstanding shares of Valley Preferred
(the "Preferred Certificates"; the Common Certificates and the Preferred
Certificates are referred to herein collectively as 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 Valley Preferred Merger
Consideration per share upon the surrender of such Preferred Certificate or
Preferred Certificates in accordance with Section 1.12 hereof.
(d) At the Effective Time, each share of Valley Preferred, if any, held in the
treasury of Valley or by any direct or indirect subsidiary of Valley (other than
shares held in trust accounts for the benefit of others or in other fiduciary,
nominee or similar capacities) immediately prior to the Effective Time shall be
canceled without payment of any consideration therefor.
(e) If any Dissenting Shareholder shall be entitled to be paid the "fair
value" of his or her shares of Valley Preferred, as provided in Chapter 44 of
the Corporate Law, Valley shall give FWNC notice thereof and FWNC shall have the
right to participate in all negotiations and proceedings with respect to any
such demands. Valley shall not, except with the prior written consent of FWNC,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment. If any Dissenting Shareholder shall fail to perfect or
shall have effectively withdrawn or lost the right to dissent, the shares held
by such Dissenting Shareholder shall thereupon be treated as though such shares
had
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been converted into the Valley Preferred Merger Consideration pursuant to this
Section 1.07.
Section 1.07A. FWNC Capital Stock. Each share of capital stock of FWNC
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding, unaffected by the Merger.
Section 1.08. Restrictions on FWNC Preferred.
(a) The shares of FWNC Preferred to be issued to the holders of Valley Common
pursuant to Section 1.06 hereof, and the shares of FWNC Common issuable upon
conversion of the shares of FWNC Preferred, may not be sold, assigned or
otherwise transferred by any holder thereof during the two (2) year period
commencing on the Closing Date, except upon (i) the death of the holder of such
shares; (ii) the occurrence of a Change of Control of FWNC (as hereinafter
defined); or (iii) the retirement (as such term is used in the FWNC Savings and
Profit Sharing Plan (the "SPSP")) of the holder of such shares, provided that
the exception described in this subpart (iii) shall apply only to those shares
allocated to such retiring holder's account under the SPSP, if any. The
certificates evidencing the shares of FWNC Preferred to be issued to
shareholders of Valley as provided in Section 1.12 hereof, and the certificates
evidencing shares of FWNC Common issuable upon the conversion of such shares of
FWNC Preferred, shall include appropriate legends reciting the restrictions
described in this Section 1.08(a).
(b) As used herein, the term "Change of Control of FWNC" shall mean (i) the
acquisition, other than from FWNC, by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either the then outstanding shares of FWNC Common or the combined voting power
of the then outstanding voting securities of FWNC entitled to vote generally in
the election of directors, but excluding, for this purpose, any such acquisition
by FWNC or any of its subsidiaries, or any employee benefit plan (or related
trust) of FWNC or its subsidiaries, or any corporation with respect to which,
following such acquisition, more than 65% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the FWNC Common and voting securities of
FWNC immediately prior to such acquisition in substantially the same proportion
as their ownership, immediately prior to such acquisition, of the then
outstanding shares of FWNC Common of FWNC or the combined voting power of the
then outstanding voting securities of FWNC entitled to vote generally in the
election of directors, as the case may be; or (ii) individuals who, as of the
date hereof, constitute the Board of Directors of FWNC (as of the date hereof
the "Incumbent Board") cease for any reason to constitute at least a majority of
the Board of Directors of
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FWNC, provided that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by FWNC's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of FWNC (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act); or (iii) approval by the shareholders of FWNC of a reorganization, merger
or consolidation of FWNC, in each case, with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the FWNC Common and voting securities of FWNC immediately
prior to such reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, more than 65% of, respectively, the then outstanding shares of FWNC
Common and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such reorganization, merger or consolidation, or
a complete liquidation or dissolution of FWNC or of the sale or other
disposition of all or substantially all of the assets of FWNC.
Section 1.09. Terms of FWNC Preferred. In addition to the restrictions set
forth in Section 1.08 hereof, the shares of FWNC Preferred to be issued to the
holders of Valley Common pursuant to Section 1.06 hereof shall have the
preferences, rights, qualifications and limitations described in Exhibit 1.09
attached hereto.
Section 1.10. Fractional Shares.
(a) No fractional shares of FWNC Common shall be issued and, in lieu thereof,
holders of shares of Valley Common who would otherwise be entitled to a
fractional share interest of FWNC Common after taking into account all shares of
Valley Common held by such holder, shall be paid an amount in cash equal to the
product of such fractional share interest and the FWNC Average Price.
(b) No fractional shares of FWNC Preferred shall be issued and, in lieu
thereof holders of shares of Valley Common who would otherwise be entitled to a
fractional share interest of FWNC Preferred, after taking into account all
shares of Valley Common held by such holder, shall be paid an amount in cash
equal to the product of such fractional share interest and $50.
Section 1.11. Closing. The closing of the Merger (the "Closing") shall take
place at a location mutually agreeable to the parties at 10:00 a.m., Fort Wayne,
Indiana time, on the Closing Date.
Section 1.12. Exchange Procedures; Surrender of Certificates.
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(a) Fort Wayne National Bank shall act as Exchange Agent in the Merger (the
"Exchange Agent").
(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 Valley 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 FWNC may reasonably specify) (each such letter
shall be referred to as the "Merger Letter of Transmittal") and instructions for
use in effecting the surrender of the Certificates in exchange for the Valley
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 Valley Merger Consideration. No interest on the
Valley Merger Consideration issuable upon the surrender of the Certificates
shall be paid or accrued for the benefit of holders of Certificates.
(c) Notwithstanding anything to the contrary contained herein, no Valley
Merger Consideration shall be delivered to a person who is an "affiliate" (as
such term is used in Section 4.04 hereof) of Valley unless such "affiliate"
shall have theretofore executed and delivered to FWNC the agreement referred to
in Section 4.04 hereof.
(d) No dividends that are otherwise payable on shares of FWNC Common or FWNC
Preferred constituting the Valley Merger Consideration shall be paid to persons
entitled to receive such shares of FWNC Common or FWNC Preferred until such
persons validly surrender their Certificates. Upon such surrender, there shall
be paid to the person in whose name the shares of FWNC Common or FWNC Preferred
shall be issued any dividends which shall have become payable with respect to
such shares of FWNC Common or FWNC Preferred (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 FWNC in its
sole discretion, the posting by such person of a bond in such amount as FWNC may
determine is reasonably necessary as indemnity 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 Valley Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
Section 1.13. Closing Date. The Closing shall take place on the third
business day following satisfaction or waiver of each of the conditions in
Sections 6.01 and 6.02 hereof or on such other date after such satisfaction or
waiver as Valley and FWNC may agree (the
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"Closing Date"). The Merger shall be effective upon the filing of Articles of
Merger with the Secretary of State of the State of Indiana (the "Effective
Time"), which the parties shall use their best efforts to cause to occur on the
Closing Date.
Section 1.14. Closing Deliveries.
(a) At the Closing, Valley shall deliver to FWNC :
(i) a certificate signed by an appropriate officer of Valley stating that (A)
each of the representations and warranties contained in Article Two (including
the Disclosure Schedule) is true and correct in all material respects at the
time of the Closing with the same force and effect as if such representations
and warranties (including the Disclosure Schedule) had been made at Closing, and
(B) all of the conditions set forth in Section 6.01(b) and 6.01(h) hereof have
been satisfied or waived as provided therein;
(ii) a certified copy of the resolutions of Valley'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
hereby;
(iii) a certificate of the Indiana Secretary of State, dated a recent date,
stating that Valley is validly existing;
(iv) a certificate from the Federal Deposit Insurance Corporation (the
"FDIC"), evidencing the fact that the deposits of The Valley American Bank and
Trust Company (the "Subsidiary Bank"), as in existence immediately prior to the
Effective Time, are fully insured to the extent permitted by law;
(v) Articles of Merger executed by Valley, reflecting the terms and
provisions of this Agreement and in proper form for filing with the Secretary of
State of the State of Indiana in order to cause the Merger to become effective
pursuant to the Corporate Law; and
(vi) a legal opinion from Barnes & Thornburg, counsel for Valley, in form
reasonably acceptable to FWNC's counsel, opining with respect to the matters
listed on Exhibit 1.14(a) hereto.
(b) At the Closing, FWNC shall deliver to Valley:
(i) a certificate signed by an appropriate officer of FWNC stating that (A)
each of the representations and warranties contained in Article Three is true
and correct in all material respects 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 Valley's shareholders) have been
satisfied;
(ii) a certified copy of the resolutions of FWNC's Board of Directors, as
required for valid approval of the execution of
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this Agreement and the consummation of the transactions contemplated hereby; and
(iii) a legal opinion from Baker & Daniels, counsel for FWNC, in form
reasonably acceptable to Valley's counsel, opining with respect to the matters
listed on Exhibit 1.14(b) hereto.
ARTICLE TWO
REPRESENTATIONS OF VALLEY
-------------------------
Valley hereby makes the following representations and warranties:
Section 2.01. Organization and Capital Stock.
(a) Valley is a corporation duly organized and validly existing under the
laws of the State of Indiana and has the corporate power to own all of its
property and assets and to carry on its business as now being conducted. Valley
does not do business in any jurisdiction other than the State of Indiana in such
a manner that would require qualification, registration or good standing in any
such jurisdiction or where the failure to qualify, register or be in good
standing would have a material adverse effect on Valley. Valley 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 "BHCA"). True and complete copies of the Articles of
Incorporation and By-Laws of Valley as in effect on the date of this Agreement
have been provided to FWNC.
(b) The authorized capital stock of Valley consists of (i) 240,000 shares of
Valley Common, of which, as of the date hereof, 204,788 shares are issued and
outstanding; and (ii) 60,000 shares of Valley Preferred, of which, as of the
date hereof, 51,197 shares are issued and outstanding. All of the issued and
outstanding shares of Valley Common and Valley Preferred are duly and validly
issued and outstanding and are fully paid and non assessable. None of the
outstanding shares of Valley Common or Valley Preferred has been issued in
violation of any preemptive rights of the current or past shareholders of
Valley. The shareholder list of Valley set forth in Section 2.01(b)(1) of that
certain confidential writing delivered by Valley to FWNC and executed by Valley
and FWNC concurrently with the execution and delivery of this Agreement (the
"Disclosure Schedule") is true, complete and accurate as of the date of this
Agreement.
(c) Except as set forth in subsection 2.01(b) above, there are no shares of
capital stock or other equity securities of Valley 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 Valley Common or Valley Preferred or other
capital stock of Valley or contracts, commitments, understandings or
arrangements by which Valley is or may be obligated to issue additional shares
of its capital stock or
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options, warrants or rights to purchase or acquire any additional shares of its
capital stock.
Section 2.02. Authorization; No Defaults. Valley has the corporate power and
authority to enter into this Agreement and, subject to the approval by its
shareholders, to carry out its obligations hereunder. Valley's Board of
Directors has, by all necessary action, approved this Agreement and the Merger
and authorized the execution hereof on its behalf by its duly authorized
officers and the performance by Valley of its obligations hereunder. Nothing in
the Articles of Incorporation or By-Laws of Valley, as amended, or any
agreement, instrument, decree, judgment, 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 any of their properties are subject
would prohibit or inhibit Valley 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 Valley and, subject to approval of this
Agreement and the Merger by the shareholders of Valley, constitutes the legal,
valid and binding obligation of Valley, enforceable against Valley in accordance
with its terms, subject to bankruptcy, insolvency, receivership, moratorium or
other laws relating to or affecting creditors' rights generally and to general
equity principles. Valley and its subsidiaries are neither in default under nor
in violation of any provision of their articles of incorporation or association,
as the case may be, or bylaws, 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. Except for approval of this Agreement and the Merger by the
shareholders of Valley the filing of the Articles of Merger with the Indiana
Secretary of State in the matters described in Section 5.01 and except as may be
set forth on Section 2.02 of the Disclosure Schedule, no notice to, filing with,
exemption or review by, or authorization, consent or approval of, any public
body or authority, or any other party, is necessary for the consummation by
Valley of the transactions contemplated by this Agreement. The shareholder vote
required to approve this Agreement and the Merger is the affirmative vote of the
holders of (a) a majority of the outstanding shares of Valley Common and (b) a
majority of the outstanding shares of Valley Preferred, voting as a separate
group, in each case entitled to vote at a meeting called for such purpose.
Section 2.03. Subsidiaries. The Subsidiary Bank and each of Valley's other
direct or indirect subsidiaries (collectively including the Subsidiary Bank, the
"subsidiaries"), the name and jurisdiction of incorporation of which are
disclosed in Section 2.03 of the Disclosure Schedule, 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 and to carry on its respective business as now being conducted. The
number of issued and outstanding shares of capital stock of each such subsidiary
is set forth in Section 2.03 of the Disclosure Schedule, all of which shares
(except as may be otherwise specified in Section 2.03 of the Disclosure
Schedule) are owned by Valley or Valley's subsidiaries, as the case may be,
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free and clear of all liens, encumbrances, rights of first refusal, options or
other restrictions of any nature whatsoever and are fully paid and non-
assessable. There are no options, warrants or rights outstanding to acquire any
capital stock of any of Valley's subsidiaries and no person or entity has any
other right to purchase or acquire any unissued shares of stock of any of
Valley's subsidiaries, nor does any such subsidiary have any obligation of any
nature with respect to its unissued shares of stock. Except as may be disclosed
in Section 2.03 of the Disclosure Schedule, neither Valley nor any of Valley's
subsidiaries is a party to any partnership or joint venture or owns an equity
interest in any other business or enterprise.
Section 2.04. Financial Information. The consolidated balance sheets of
Valley and its subsidiaries as of December 31, 1992, 1993 and 1994 and related
consolidated income statements and statements of changes in shareholders' equity
and of cash flows for each of the three (3) years ended December 31, 1992, 1993
and 1994, together with the notes thereto, and the report of Crowe, Chizek and
Company thereon, and the unaudited balance sheets of Valley and its subsidiaries
as of March 31, 1995, June 30, 1995 and September 30, 1995 and the related
unaudited income statements for the three (3) months, six (6) months and nine
(9) months, respectively, then ended, copies of each of which are included in
Section 2.04 of the Disclosure Schedule, and the year-end and quarterly Reports
of Condition and Reports of Income of the Subsidiary Bank for December 31, 1994
and June 30, 1995, respectively, as currently on file with the FDIC, copies of
each of which are included in Section 2.04 of the Disclosure Schedule (together,
the "Valley Financial Statements"), have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
(except as may be disclosed therein and except for regulatory reporting
differences required by the Subsidiary Bank's reports) 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 the
respective entity and its respective 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 which will not be material
in amount or effect). As of September 30, 1995, except to the extent reflected,
disclosed or reserved against on the Valley Financial Statements at such date,
and subject to normal recurring year end adjustments, Valley has no material
liabilities, whether absolute, accrued, contingent, or otherwise, or due or to
become due.
Section 2.05. Absence of Changes. Since September 30, 1995, Valley has not
incurred any obligation or liability (absolute or contingent), except normal
trade or business obligations or liabilities incurred in the ordinary course of
business, and there has not been any material adverse change in the financial
condition, the results of operations or the business of Valley and its
subsidiaries taken as a whole, nor have there been any events or transactions
having such a material adverse effect which should be disclosed in order to make
the Valley Financial Statements not misleading. Since the date of its most
recent FDIC examination
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report, there has been no material adverse change in the financial condition,
the results of operations or the business of the Subsidiary Bank.
Section 2.06. Regulatory Enforcement Matters. Except as may be disclosed in
Section 2.06 of the Disclosure Schedule, neither Valley nor the Subsidiary Bank
or any other of Valley's subsidiaries is subject or is party to, or has received
any notice or advice that it may become subject or party 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 since January 1, 1992, a recipient of any supervisory letter
from, or since January 1, 1992, has adopted any board resolutions at the request
of, any Regulatory Agency (as defined below in this Section 2.06) that currently
restricts in any respect the conduct of its business or that in any manner
relates to its capital adequacy, its credit policies, its management or its
business (each, a "Regulatory Agreement"), nor has Valley or any of its
subsidiaries been advised since January 1, 1992, by any Regulatory Agency that
it is considering issuing or requesting any such Regulatory Agreement. As used
in this Agreement, 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
Valley or any of its subsidiaries. The deposits of the Subsidiary Bank are
insured by the BIF or the Savings Association Insurance Fund (SAIF) up to
applicable limits.
Section 2.07. Tax Matters.
(a) Each of Valley and its subsidiaries has filed with the appropriate
governmental agencies all federal, state and local Tax (as defined below in this
Section 2.07) returns and reports required to be filed by it. Neither Valley
nor its subsidiaries are (i) delinquent in the payment of any Taxes shown on
such returns or reports or on any assessments received by it for such Taxes;
(ii) subject to any agreement extending the period for assessment or collection
of any Tax; or (iii) a party to any action or proceeding with, nor has any claim
been asserted or, to the best of Valley's knowledge, threatened against any of
them by, any governmental authority for assessment or collection of Taxes. The
income tax returns of Valley and its subsidiaries have been examined by the
Internal Revenue Service (the "IRS") and any liability with respect thereto has
been satisfied for all years to and including 1991 and either no material
deficiencies were asserted as a result of such examination for which Valley does
not have adequate reserves or all such deficiencies have been satisfied. The
reserve for Taxes in the Valley Financial Statements, is adequate to cover all
of the liabilities for Taxes of Valley and its subsidiaries that may become
payable in future years with respect to any transactions consummated prior to
September 30, 1995. As used in this Agreement, the term "Taxes"
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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 Valley or any of its
affiliates who is a "Disqualified Individual" (as such term is defined in
proposed Treasury Regulation Section 1.28OG-1) under any employment severance or
termination agreement other compensation arrangement or Valley Employee Plan (as
hereinafter defined) would not be characterized as an "excess parachute payment"
(as such term is defined in Section 28OG(b)(1) of the Internal Revenue Code of
1986, as amended (the "Code")).
(c) Valley has not been subject to any disallowance of a deduction under
Section 162(m) of the Code nor does Valley reasonably believe that such a
disallowance is reasonably likely to be applicable for any tax year of the
Valley ended on or before the Closing Date.
Section 2.08. Litigation. Except as may be disclosed in Section 2.08 of the
Disclosure Schedule, there are no actions, suits or proceedings pending or, to
the best knowledge of Valley, threatened against Valley or any of its
subsidiaries, and neither Valley nor any of its subsidiaries is subject to any
order, judgment or decree, that, in the aggregate could reasonably be expected
to have a material adverse effect on the financial condition, properties,
business or results of operations of Valley and its subsidiaries taken as a
whole. Without limiting the generality of the foregoing, there are no actions,
suits or proceedings pending or threatened against Valley, any subsidiary or any
of their officers or directors by any shareholder of Valley or involving claims
under the Community Reinvestment Act of 1977 (the "CRA"), the Real Estate
Settlement Procedures Act of 1974 ("RESPA") or the Home Mortgage Disclosure Act
of 1975 ("HMDA").
Section 2.09. Employment Agreements. Except as may be disclosed in Section
2.09 of the Disclosure Schedule, neither Valley nor any of its subsidiaries 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 terminable by
Valley or such subsidiary on thirty (30) days written notice or less without the
payment of any amount by reason of such termination. A true, accurate and
complete copy of each such agreement and any and all amendments or supplements
thereto
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(or a description thereof if such agreement is not in writing) is included in
Section 2.09 of the Disclosure Schedule.
Section 2.10. Reports. Valley and each of its subsidiaries has filed all
reports and statements, together with any amendments required to be made with
respect thereto, if any, that it was required to file with (i) the Federal
Reserve Board; (ii) the FDIC; (iii) any state banking or securities authorities;
and (iv) any other Regulatory Agency with jurisdiction over Valley or any of its
subsidiaries. As of their respective dates, each of such reports and documents,
including any financial statements, exhibits and schedules thereto, complied in
all material respects with the relevant statutes, rules and regulations enforced
or promulgated by the Regulatory Agency 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.
(a) All loans and discounts shown on the Valley Financial Statements or which
were entered into after the date of the most recent balance sheet included in
the Valley Financial Statements were and will be made in all material respects
for good, valuable and adequate consideration in the ordinary course of the
business of Valley and its subsidiaries, in accordance in all material respects
with sound banking practices.
(b) The allowances for loan or lease losses contained in the Valley Financial
Statements were established in accordance with GAAP and the rules and
regulations of the applicable Regulatory Agency and the past practices of
Valley.
(c) The sum of the aggregate amount of (i) all Nonperforming Assets (as
defined below), (ii) all troubled debt restructurings (as defined under GAAP)
("TDRs"), and (iii) excluding those TDRs that are at current market rates that
meet current underwriting guidelines, that management does not consider to have
significant risk, and that have not been delinquent in the past 12 months, on
the books of Valley does not exceed $3,500,000. "Nonperforming Assets" shall
mean (A) accruing loans and leases delinquent 90 days or more, (B) assets
classified as other real estate owned and other assets acquired through
foreclosure, including in-substance foreclosed real estate, and (C) loans and
leases that are on non-accrual status, in each case under (A), (B) and (C)
above, pursuant to the definitions applied by the Regulatory Agencies.
Section 2.12. Investment Portfolio. All United States Treasury securities,
obligations of other United States Government agencies and corporations,
obligations of States and political subdivisions of the United States and other
investment securities held by Valley or its subsidiaries, as reflected in the
latest consolidated balance sheet of Valley included in the Valley Financial
Statements, are carried in the aggregate at no more than cost adjusted for
amortization of premiums and accretion of discounts in
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accordance with generally accepted accounting principles, specifically including
but not limited to FAS 115.
Section 2.13. Interest Rate Risk Management Instruments. All interest rate
swaps, caps, floors, option agreements and other interest rate risk management
arrangements, whether entered into for the account of Valley or its subsidiaries
or for the account of a customer of Valley or one of its subsidiaries, 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.
Section 2.14. Employee Matters and ERISA.
(a) Neither Valley nor any of its subsidiaries has entered into any collective
bargaining agreement with any labor organization with respect to any group of
employees of Valley or any of its subsidiaries and to the knowledge of Valley
there is no present effort nor existing proposal to attempt to unionize any
group of employees of Valley or any of its subsidiaries.
(b) Except as may be disclosed in Section 2.14(b) of the Disclosure Schedule,
(i) Valley and its subsidiaries 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, and neither Valley nor any of its
subsidiaries is engaged in any unfair labor practice; (ii) there is no material
unfair labor practice complaint against Valley or any subsidiary pending or, to
the knowledge of Valley, threatened before the National Labor Relations Board;
(iii) there is no labor dispute, strike, slowdown or stoppage actually pending
or, to the knowledge of Valley, threatened against or directly affecting Valley
or any subsidiary; and (iv) neither Valley nor any subsidiary has experienced
any material work stoppage or other material labor difficulty during the past
five (5) years.
(c) Except as may be disclosed in Section 2.14(c) of the Disclosure Schedule,
neither Valley nor any subsidiary maintains, contributes to or participates in
or has any liability under any employee benefit plans, as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any nonqualified employee benefit plans or deferred compensation,
bonus, stock or incentive plans, or other employee benefit, fringe, medical or
insurance benefit programs for the benefit of former or current employees or
directors of Valley or any subsidiary (the "Valley Employee Plans"). To the
knowledge of Valley, no present or former employee of Valley or any subsidiary
has been charged with breaching a fiduciary duty under any of the Valley
Employee Plans. Neither Valley nor any of its subsidiaries participates in, nor
has it any present or future obligation or liability under, any multiemployer
plan (as defined at Section 3(37) of ERISA). Except as may be separately
disclosed in Section 2.14(c) of the Disclosure Schedule, neither Valley nor any
subsidiary maintains, contributes to, or participates in, any plan that provides
health, major medical, disability or life insurance benefits to former employees
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of Valley or any subsidiary. True and correct copies of all plans reflected in
Section 2.14(c) will be supplied to FWNC within seven (7) days following date of
execution of this Agreement.
(d) Neither Valley nor any of its subsidiaries maintain, nor have any of them
maintained for the past ten years, any Employee Plans subject to Title IV of
ERISA or Section 412 of the Code. No reportable event (as defined in Section
4043 of ERISA) has occurred with respect to any Employee Plans as to which a
notice would be required to be filed with the Pension Benefit Guaranty
Corporation. No claim is pending, and Valley has not received notice of any
threatened or imminent claim with respect to any Employee Plan (other than a
routine claim for benefits for which plan administrative review procedures have
not been exhausted) for which Valley or any of its subsidiaries would be liable
after December 31, 1994, except as reflected on the Valley Financial Statements.
Valley and its subsidiaries do not have any liabilities for excise taxes under
Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Internal Revenue Code of
1986, as amended (the "Code") or for a fine under Section 502 of ERISA with
respect to any Employee Plan. All Employee Plans have in all material respects
been operated, administered and maintained in accordance with the terms thereof
and in compliance with the requirements of all applicable laws, including,
without limitation, ERISA, COBRA and the Code.
(e) Except as may be disclosed in Section 2.14(e) of the Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby (either alone or upon the occurrence of any
additional acts or events) will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director, officer or employee of Valley or any of its
affiliates from Valley or any of its affiliates under any Valley Employee Plan
or otherwise; (ii) increase any benefits otherwise payable under any Valley
Employee Plan; or (iii) result in any acceleration of the time of payment or
vesting of any such benefits or constitute a payment which fails to be
deductible for federal income tax under 280G.
Section 2.15. Title to Properties; Insurance. Except as may be disclosed in
Section 2.15 of the Disclosure Schedule, (i) Valley and its subsidiaries 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 Valley Financial Statements and
easements, rights-of-way, and other restrictions which are not material and
further excepting in the case of Other Real Estate Owned ("O.R.E.O."), as such
real estate is internally classified on the books of Valley or its subsidiaries,
rights of redemption under applicable law) to all of their real properties; (ii)
all leasehold interests for real property and any material personal property
used by Valley and its subsidiaries in their businesses are held pursuant to
lease agreements which to the best knowledge of Valley are valid and enforceable
in accordance with their terms; (iii) all such properties comply in all material
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respects 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 Valley, threatened with respect to
such properties; (iv) all such properties are free of liens and encumbrances;
and (v) all material insurable properties owned or held by Valley and its
subsidiaries 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.
Section 2.16. Environmental Matters.
(a) As used in this Agreement, "Environmental Laws" means all local, state and
federal environmental, health and safety laws and regulations in all
jurisdictions in which Valley and its subsidiaries 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.
(b) Except as may be disclosed in Section 2.16 of the Disclosure Schedule,
neither the conduct nor operation of Valley or its subsidiaries nor any
condition of any property presently or previously owned, leased or operated by
any of them violates or violated Environmental Laws in any respect material to
the business of Valley and its subsidiaries and no condition has existed or
event has occurred with respect to any of them or any such property that, with
notice or the passage of time, or both, would constitute a violation material to
the business of Valley and its subsidiaries of Environmental Laws or obligate
(or potentially obligate) Valley or its subsidiaries to remedy, stabilize,
neutralize or otherwise alter the environmental condition of any such property
where the aggregate cost of such actions would be material to Valley and its
subsidiaries. Neither Valley nor any of its subsidiaries has received any
notice from any person or entity that Valley or its subsidiaries 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, or hazardous or toxic wastes, substances or
materials at, on or beneath any such property.
Section 2.17. Compliance with Law.
(a) Valley and its subsidiaries have all material permits, licenses,
authorizations, orders and approvals of, and have made all filings, applications
and registrations with, all Regulatory Agencies that are required in order to
permit them to own or lease their properties and assets and to carry on their
businesses as presently conducted; all such permits, licenses, authorizations,
orders and approvals are in full force and effect and no suspension
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or cancellation of any of them is threatened; and all such filings, applications
and registrations are current.
(b) Valley and each of its subsidiaries has complied in all material respects
with all laws, regulations and orders (including without limitation zoning
ordinances, building codes, ERISA, securities, tax, environmental, civil rights
and occupational health and safety laws and regulations, and including, without
limitation, all statutes, rules, regulations and policy statements pertaining to
the conduct of a banking, deposit-taking, lending or related business, or to the
exercise of trust powers) and governing instruments applicable to it and to the
conduct of its business. Without limitation of the foregoing, Valley and the
Subsidiary Bank are in material compliance with the applicable provisions of the
CRA and the regulations promulgated thereunder, and currently have a CRA rating
of satisfactory or better. There is no fact or circumstance or set of facts or
circumstances which would cause Valley and the Subsidiary Bank to fail to comply
with such provisions or cause the CRA rating of Valley and the Subsidiary Bank
to fall below satisfactory.
Section 2.18. Brokerage. Except may be disclosed in Section 2.18 of the
Disclosure Schedule, 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 Valley or its
subsidiaries.
Section 2.19. Interim Events. Except as disclosed in Section 2.19 of the
Disclosure Schedule, since September 30, 1995, neither Valley nor its
subsidiaries has paid or declared any dividend (other than dividends on the
Valley Preferred Stock, payable in the amount of thirty cents ($.30) per quarter
per share) or made any other distribution to shareholders or taken any action
which if taken after the date of this Agreement would require the prior written
consent of FWNC pursuant to Section 4.01(b) hereof.
Section 2.20. Non-Banking Activities. Except as disclosed in Section 2.20 of
the Disclosure Schedule, neither Valley nor any of its subsidiaries engages in
or controls, directly or indirectly, any business or activity which is not
listed at 12 C.F.R. (S)225.25.
Section 2.21. Properties; Contracts and Other Agreements. Section 2.21 of the
Disclosure Schedule lists or describes or attaches the following:
(i) Each parcel of real property owned by Valley or its subsidiaries and the
principal buildings and structures located thereon;
(ii) Each lease of real property to which Valley 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;
(iii) Each loan and credit agreement, conditional sales contract, indenture
or other title retention agreement or security
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agreement relating to money borrowed by Valley or its subsidiaries (excluding
repurchase agreements and Federal Home Loan Bank borrowings in the ordinary
course of business);
(iv) Each guaranty by Valley or any of its subsidiaries 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 the
Subsidiary Bank in the ordinary course of its business) or any warranty or
indemnification agreement;
(v) Each loan or guaranty of a loan in an amount in excess of $50,000 to any
director, executive officer or five percent (5%) shareholder of Valley or any
spouse, parent, grandparent, child, grandchild or sibling of any director,
executive officer or five percent (5%) shareholder of Valley (each, a "Valley
Affiliate"); and
(vi) Each agreement of Valley or its subsidiaries not referred to elsewhere
in this Section 2.21 which involves payment by Valley or its subsidiaries (other
than as disbursement of loan proceeds to customers) of more than $50,000.
Section 2.22. Statements True and Correct. None of the information supplied
by Valley or its subsidiaries about Valley or its subsidiaries herein or in the
Disclosure Statement, or which is supplied for inclusion in (i) the Registration
Statement (as hereinafter defined); (ii) the Proxy Statement/Prospectus; and
(iii) any other documents to be filed with any Regulatory Agency in connection
with the transactions contemplated hereby does now or will, 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 Valley and at the time of the Valley
Shareholder Meeting (as hereinafter defined), 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.
ARTICLE THREE
REPRESENTATIONS OF FWNC
-----------------------
FWNC hereby makes the following representations and warranties to Valley:
Section 3.01. Organization and Capital Stock.
(a) FWNC is a corporation duly incorporated and validly existing under the
laws of the State of Indiana with full corporate power and authority to carry on
its business as it is now being conducted. FWNC is a bank holding company
registered with the Federal Reserve Board under the BHCA.
(b) The authorized capital stock of FWNC consists of (i) 20,000,000 shares of
FWNC Common, of which 11,424,073 shares
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are issued and outstanding; and (ii) 2,000,000 shares of preferred stock
consisting of 1,000,000 shares of Class A Voting Preferred Stock and 1,000,000
shares of Class B Non-voting Preferred Stock, of which none are issued and
outstanding. All of the issued and outstanding shares of FWNC Common are duly
and validly issued and outstanding and are fully paid and non-assessable. The
terms of the FWNC Preferred to be issued in the Merger may be established by the
board of directors of FWNC, without shareholder approval, as contemplated by
Chapter 25, Section 2 of the Corporation Law.
(c) None of the shares referred to in Sections 3.01(b) above has been issued
in violation of any preemptive rights and, except as provided below in this
subsection (c), there are 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, such shares or
contracts, commitments, understandings or arrangements by which FWNC is or may
be obligated to issue additional shares of capital stock or options, warrants or
rights to purchase or acquire any additional shares of capital stock. There are
outstanding options to purchase 503,736 shares of FWNC Common pursuant to the
Fort Wayne National Corporation 1985 Stock Incentive Plan and Fort Wayne
National Corporation 1994 Stock Incentive Plan, of which 161,586 shares are
currently exercisable by the holders.
(d) The shares of FWNC Common and FWNC Preferred to be issued as part of the
Valley Common Merger Consideration shall, when issued and delivered in
accordance with the terms of this Agreement and the Merger Letter of
Transmittal, be duly authorized, validly issued, fully paid and nonassessable
without violation of any preemptive or similar right of any person.
Section 3.02. Authorization. The Board of Directors of FWNC has, by all
necessary action, approved this Agreement and the Merger and authorized the
execution hereof on its behalf by its duly authorized officers and the
performance by FWNC of its obligations hereunder. Subject to the filing of
Articles of Amendment of FWNC's Amended Articles of Incorporation to authorize
the FWNC Preferred (the "Articles of Amendment") and to the receipt of such
approvals of the Regulatory Authorities as may be required by statute or
regulation to consummate the transactions contemplated hereby, nothing in the
Amended Articles of Incorporation or By-Laws of FWNC, as amended, or any
agreement, instrument, decree, proceeding, law or regulation, by or to which
FWNC or any of its subsidiaries are bound or subject will or would prohibit or
inhibit FWNC 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 FWNC and, subject to the filing of the
Articles of Amendment and to the receipt of such approvals of the Regulatory
Agencies as may be required by statute or regulation in order to consummate the
transactions contemplated hereby, this Agreement is a valid and binding
obligation of FWNC, enforceable against FWNC in accordance with its terms,
subject to bankruptcy, insolvency, receivership, moratorium or other laws
relating to or affecting creditors' rights generally and to general equity
principles. Other than the filings of the Articles of Amendment and the Articles
of Merger with the Indiana Secretary of State under the Corporate Law and the
filings, consents, reviews, authorizations, approvals or exemptions required
under the BHCA and the Indiana
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Financial Institutions Act, as amended, or as may be required by the Securities
Act, the Exchange Act and the securities or blue sky laws of the various states,
no notice to, filing with, exemption or review by, or authorization, consent or
approval of, any public body or authority, or any other party, is required for
the consummation by FWNC of the transactions contemplated by this Agreement.
Section 3.03. Subsidiaries. Each of FWNC's significant subsidiaries (as such
term is defined under regulations of the Securities and Exchange Commission (the
"SEC")) is duly organized, validly existing and in good standing (if applicable)
under the laws of the jurisdiction of its incorporation and has the corporate
power to own its respective properties and assets and to carry on its respective
business as now being conducted.
Section 3.04. Financial Information. The consolidated balance sheets of FWNC
and its subsidiaries as of December 31, 1993 and 1994 and related consolidated
statements of income, changes in stockholders' equity and cash flows for the
three (3) years ended December 31, 1994, together with the notes thereto,
included in FWNC's Form 10-K for the year ended December 31, 1994, as currently
on file with the SEC, and the unaudited consolidated balance sheets of FWNC and
its subsidiaries as of March 31, 1995 and June 30, 1995 and the related
unaudited consolidated income statements and statements of changes in
stockholders' equity and cash flows for the three (3) months and six (6) months,
respectively, then ended included in FWNC's Quarterly Reports on Form 10-Q for
the quarters then ended, as currently on file with the SEC (together, the "FWNC
Financial Statements"), have been prepared in accordance with GAAP 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 stockholders' equity and cash flows of FWNC
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 will be material). As of June 30, 1995, except
as reflected or disclosed in the FWNC Financial Statements, FWNC had no
liabilities, whether absolute, accrued, contingent, or otherwise, or due or to
become due.
Section 3.05. Absence of Changes. Since June 30, 1995, FWNC has not incurred
any obligation or liability (absolute or contingent), except normal trade or
business obligations or liabilities incurred in the ordinary course of business,
and there has not been any material adverse change in the financial condition,
the results of operations or the business of FWNC and its subsidiaries taken as
a whole, nor have there been any events or transactions having such a material
adverse effect which should be disclosed in order to make the FWNC Financial
Statements not misleading.
Section 3.06. Litigation. Except as disclosed in the FWNC Financial
Statements, there are no actions, suits or proceedings pending or, to the best
knowledge of FWNC, threatened against FWNC or any of its subsidiaries, and
neither FWNC nor any of its subsidiaries is subject to any order, judgment or
decree, that, in the aggregate could reasonably be expected to have a material
adverse effect on the financial condition, properties, business or
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results of operations of FWNC and its subsidiaries taken as a whole.
Section 3.07. Reports. FWNC 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; (iv) the FDIC; (v) any state securities authorities; (vi) Nasdaq; and
(vii) any other Regulatory Agency with jurisdiction over FWNC or any of its
significant subsidiaries. As of their respective dates, each of such reports
and documents, as amended, including the financial statements, exhibits and
schedules thereto, complied in all material respects with the relevant statutes,
rules and regulations enforced or promulgated by the Regulatory Agency 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 3.08. Compliance With Law. FWNC 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
in all material respects and are in compliance in all material respects with all
applicable laws and regulations.
Section 3.09. Statements True and Correct. None of the information supplied
by FWNC about FWNC or its subsidiaries herein, or to be supplied by FWNC for
inclusion in (i) the Registration Statement (ii) the Proxy Statement/Prospectus
and (iii) any other documents to be filed with any Regulatory Agency in
connection with the transactions contemplated hereby does now or will, 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 Valley and at the
time of the Valley Shareholder 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.
ARTICLE FOUR
AGREEMENTS OF VALLEY
--------------------
Section 4.01. Business in Ordinary Course.
(a) Valley shall not declare or pay any dividend or make any other
distribution to shareholders, whether in cash, stock or other property, after
the date of this Agreement, except for quarterly dividends in amounts that are
not greater than $.30 per share on the Valley Preferred.
(b) Valley shall, and shall cause each of its subsidiaries to, continue to
carry on after the date hereof its respective business only in the usual,
regular and ordinary course of business, as heretofore conducted, and by way of
amplification and not limitation, Valley and each of its subsidiaries will not,
without
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the prior written consent of FWNC (which shall not be unreasonably withheld):
(i) issue or agree to issue any Valley Common or Valley Preferred or other
capital stock or any options, warrants, or other rights to subscribe for or
purchase Valley Common or Valley Preferred or any other capital stock or any
securities convertible into or exchangeable for any capital stock of Valley or
any of its subsidiaries; or
(ii) redeem or commit to redeem, purchase or otherwise acquire any Valley
Common or Valley Preferred or any other capital stock of Valley or its
subsidiaries; 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 certificate or articles of incorporation or association, as
the case may be, or bylaws; or
(v) grant any unusual increase in the compensation payable or to become
payable to officers or salaried employees (other than the year end 1995
bonuses payable to certain officers in the amounts described in Section
4.01(b)(v) of the Disclosure Schedule), grant any stock options or, except as
required by law, adopt or make any change in any bonus, insurance, pension, or
other Valley Employee Plan, agreement or arrangement made to, for or with any
of such officers or employees; or
(vi) borrow or agree to borrow any amount of funds, or directly or
indirectly guarantee or agree to guarantee any obligations of others, except
in the ordinary course of business; 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 in a manner
inconsistent with its written underwriting policies in effect on the date of
this Agreement; or
(viii) enter into any material agreement, contract or commitment out of the
ordinary course of business; or
(ix) except in the ordinary course of business, place on any of its assets
or properties any mortgage, pledge, lien, charge, or other encumbrance; or
(x) 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 Valley
and its subsidiaries; or
(xi) commit any act or fail to do any act which will cause a breach of any
material agreement, contract or commitment and which will have a material
adverse effect on Valley's and its subsidiaries' business, financial
condition, or earnings; or
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(xii) take any action which would adversely effect or delay the ability
of either FWNC or Valley to obtain any necessary approvals of any Regulatory
Agency or other governmental authority required for the transactions
contemplated hereby or to perform its covenants and agreements under this
Agreement.
(c) Valley shall promptly notify FWNC in writing of the occurrence of any
matter or event known to and directly involving Valley, which would not include
any changes in conditions that affect the banking industry generally, that is
materially adverse to the business, operations, properties, assets, or condition
(financial or otherwise) of Valley and its subsidiaries taken as a whole.
(d) Valley shall not, on or before the earlier of the Closing Date or the date
of termination of this Agreement, solicit or encourage, or, subject to the
fiduciary duties of its directors as advised in writing 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 Valley Common or Valley
Preferred or other securities of Valley and its subsidiaries. Valley shall
promptly (which for this purpose shall mean within two (2) business days) advise
FWNC 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. Submission to Shareholders. Valley shall cause to be duly
called and held a special meeting of the holders of Valley Common and Valley
Preferred (the "Valley Shareholders Meeting") for submission of this Agreement
and the Merger for approval of such Valley shareholders as required by the
Corporate Law. In connection with the Valley Shareholders' Meeting, (i) Valley
shall cooperate and assist FWNC in preparing and filing a Registration Statement
on Form S-4 covering the shares of FWNC Common and FWNC Preferred to be issued
in the Merger, and any amendments or supplements thereto (the "Registration
Statement"), including a Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") with the SEC and applicable state securities
authorities, and Valley shall mail the Proxy Statement/Prospectus to its
shareholders; (ii) Valley shall furnish FWNC all information concerning itself
that FWNC may reasonably request in connection with such Proxy
Statement/Prospectus; and (iii) the Board of Directors of Valley (subject to
compliance with its fiduciary duties as advised in writing by counsel) shall
recommend to its shareholders the approval of this Agreement and the Merger
contemplated hereby and use its best efforts to obtain such shareholder
approval.
Section 4.03. Consummation of Agreement. Valley 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 provisions hereof, Valley shall furnish to FWNC in
a timely manner all information, data and documents in the possession of Valley
requested by FWNC as may be required to obtain any necessary regulatory or other
approvals of the Merger or to file the
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Registration Statement, and shall otherwise cooperate fully with FWNC to carry
out the purpose and intent of this Agreement.
Section 4.04. Restriction on Resales. Valley shall obtain and deliver to
FWNC, at least thirty-one (31) days prior to the Closing Date, the signed
agreement, in the form of Exhibit 4.04 hereto, of each person who may reasonably
be deemed an "affiliate" of Valley within the meaning of such term as used in
Rule 145 under the Securities Act of 1933, as amended (the "Securities Act"),
regarding compliance with the provisions of such Rule 145.
Section 4.05. Access to Information. Valley shall permit FWNC reasonable
access in a manner which will avoid undue disruption or interference with
Valley's normal operations to its properties and staff and shall permit FWNC to
consult and confer with Valley's independent accountants and shall disclose and
make available to FWNC 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 FWNC may have a reasonable and legitimate interest in
furtherance of the transactions contemplated by this Agreement. Valley shall
make available for review to FWNC copies of all regulatory reports of the nature
described in Section 2.10 above, as and when they are filed, as well as all
financial and other information furnished to its Board of Directors, executive
committee, loan committee (provided, that a summary may be supplied in lieu of a
loan file) or trust committee of Valley or the Subsidiary Bank, or to
shareholders of Valley, as and when they are so furnished. FWNC will hold any
such information which is nonpublic in confidence in accordance with the
provisions of Section 8.01 hereof.
ARTICLE FIVE
AGREEMENTS OF FWNC
------------------
Section 5.01. Regulatory Approvals and Registration Statement.
(a) FWNC will cause the Articles of Amendment to be properly approved, filed
and effective on or prior to the Closing Date.
(b) FWNC 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 Indiana Department
of Financial Institutions. FWNC shall keep Valley reasonably informed as to the
status of such applications and make available to Valley, upon reasonable
request by Valley from time to time, copies of such applications and any
supplementally filed materials.
(c) FWNC shall file with the SEC the Registration Statement relating to the
shares of FWNC Common and FWNC Preferred to be
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issued to the shareholders of Valley pursuant to this Agreement, 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
Valley, at the time of the Valley 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. FWNC shall timely file
all documents required to obtain all necessary Blue Sky permits and approvals
required to carry out the transactions contemplated by this Agreement, shall
pay, all expenses incident thereto and shall use its reasonable efforts to
obtain such permits and approvals on a timely basis; provided, however, that
FWNC shall not be required to obtain any such permit or approval in any
jurisdiction in which holders of less than 5% of the Valley Common and Valley
Preferred reside if, in FWNC's judgment, obtaining such permit or approval would
involve unreasonable expense or delay in consummation of the Merger.
Section 5.02. Consummation of Agreement. FWNC 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 5.03. Directors' and Officers' Liability Insurance and
Indemnification.
(a) Following the Effective Time, FWNC will provide the directors and officers
of Valley and its subsidiaries with the same directors' and officers' liability
insurance coverage that FWNC provides to directors and officers of its other
banking subsidiaries generally. FWNC shall use its best efforts (which shall
not be deemed to require, however, the payment of any special premium or other
charge or expense) to obtain an endorsement to its directors' and officers'
liability insurance policy to cover acts and omissions of the directors and
officers of Valley and its subsidiaries occurring or failing to occur prior to
the Closing Date; provided, however, that if FWNC is unable to obtain such
endorsement, then Valley may purchase tail coverage under its existing
directors' and officers' liability insurance on such terms and provisions as
Valley deems appropriate provided that the total cost thereof shall not exceed
$100,000.
(b) For six (6) years after the Effective Time, FWNC shall indemnify, defend
and hold harmless the present and former officers, directors, employees and
agents of Valley and its subsidiaries and the trustees of the Employee Stock
Ownership Plan sponsored by Valley ("KSOP") (each, an "Indemnified Party")
against all losses, expenses, claims, damages, or liabilities arising out of
actions or omissions in such capacities or in any other "official capacity" (as
such term is defined in Section 9.05F.(3)
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of Valley's Articles of Incorporation as in effect on the date hereof) 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 Corporate Law and by Valley's Articles of Incorporation as in effect
on the date hereof, including provisions relating to advances of expenses
incurred in the defense of any action or suit.
(c) If, after the Effective Time, FWNC or any of its successors or assigns (i)
shall consolidate with or merge into any other corporation or entity and shall
not be the continuing or surviving corporation or entity of such consolidation
or merger; or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each such
case, proper provision shall be made so that the successors and assigns of FWNC
shall assume any remaining obligations set forth in this Section 5.03.
Section 5.04. Employee Benefits.
(a) FWNC shall, with respect to each employee of Valley or its subsidiaries
who becomes an employee of FWNC or its subsidiaries upon the Merger (each a
"Continued Employee"), provide the benefits described in this Section 5.04.
Subject to the right of subsequent amendment, modification or termination in
FWNC's sole discretion, each Continued Employee shall be entitled, as a new
employee of FWNC or its subsidiaries, 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 FWNC and its subsidiaries (the "FWNC Plans"), and as
a Continued Employee shall be eligible and, if required, selected for
participation therein under the terms thereof. Continued Employees shall be
eligible to participate on the same basis as similarly situated employees of
FWNC and its subsidiaries. All such participation shall be subject to such
terms of such plans as may be in effect from time to time and this Section 5.04
is not intended to give Continued Employees any rights or privileges superior to
those of other employees of FWNC or its subsidiaries. FWNC may terminate or
modify all Valley Employee Plans except insofar as benefits thereunder shall
have vested one hundred percent (100%) and regardless of years of service on the
Closing Date and cannot be modified and FWNC's obligation under this Section
5.04 shall not be deemed or construed so as to provide duplication of similar
benefits but, subject to that qualification, FWNC shall, for purposes of vesting
and any age or period of service requirements for commencement of participation
with respect to any FWNC Plans in which Continued Employees may participate,
credit each Continued Employee with his or her term of service and any other
eligibility requirement with Valley and its subsidiaries.
(b) Between the date of this Agreement and the Closing Date, FWNC shall make
every effort to merge one hundred percent (100%) of Valley's Plan into FWNC
Plans and fully cooperate with Valley to determine the actions to be taken with
respect to the Employee Stock Ownership Plan ("KSOP") sponsored by Valley in a
manner that is mutually satisfactory to FWNC and Valley and that will provide
(i) one hundred percent (100%) full vesting and nonforfeitability of
participants' interest in their accounts transferred from the
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KSOP, regardless of years of service, and (ii) continued administration of
existing KSOP participant loans within the limitations of 26 USC Section 72(p).
Section 5.05. Board Composition. FWNC's Board of Directors shall take all
requisite action to elect Dennis J. Schwartz as a director of FWNC effective as
of the first meeting of FWNC's Board of Directors following the Effective Time.
Section 5.06. Access to Information. FWNC shall permit Valley reasonable
access in a manner which will avoid undue disruption or interference with FWNC's
normal operations to its properties and shall disclose and make available to
Valley 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
Valley may have a reasonable and legitimate interest in furtherance of the
transactions contemplated by this Agreement. Valley will hold any such
information which is nonpublic in confidence in accordance with the provisions
of Section 8.01 hereof.
Section 5.07. No Name Change. FWNC will not allow the name of the Subsidiary
Bank, "Valley American Bank and Trust Company," to be changed for two (2) years
after the Effective Time without the written consent of Darwin L. Wiekamp or
Dennis J. Schwartz.
Section 5.08. Value of FWNC Preferred Stock. FWNC agrees that it will
record on its financial records that the value of the FWNC Preferred Stock at
the Effective Time is $50.00 per share.
ARTICLE SIX
CONDITIONS PRECEDENT TO MERGER
------------------------------
Section 6.01. Conditions to FWNC's Obligations. FWNC's obligation to effect
the Merger shall be subject to the satisfaction (or waiver by FWNC) prior to or
on the Closing Date of the following conditions:
(a) The representations and warranties made by Valley in this Agreement and in
the Disclosure Schedule shall be true in all material respects 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;
(b) Valley 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;
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent
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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 bank regulatory authority or other person seeking any of the
foregoing be pending; and 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 or which, in the
reasonable opinion of counsel for FWNC, after an independent review of readily
available facts and applicable law, poses a risk of resulting in the divestiture
of Valley or the Subsidiary Bank, or any portion of FWNC's or Valley's
consolidated assets, or the assessment of material damages against FWNC or its
subsidiaries if the Merger is consummated;
(d) All necessary regulatory approvals, consents, authorizations and other
approvals, including the requisite approval of this Agreement and the Merger by
the shareholders of Valley, required by law for consummation of the Merger shall
have been obtained and all waiting periods required by law shall have expired;
(e) FWNC shall have received all certificates, opinions and other documents
required by this Agreement to be received from Valley on or prior to the Closing
Date, all in form and substance reasonably satisfactory to FWNC;
(f) The Registration Statement shall be effective under the Securities Act and
no stop order 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;
(g) That certain Agreement (the "Designated Valley Shareholders Agreement"),
of even date herewith, among FWNC, Dennis J. Schwartz, James T. Schwartz, Mary
Lou Schwartz, Darwin L. Wiekamp, Dorothy J. Wiekamp, Donald L Zimmerman, Mary E.
Zimmerman and MARDOT, Ltd. (the "Designated Valley Shareholders"), shall not
have been breached by any Designated Valley Shareholder (or by the estate of any
Designated Valley Shareholder who shall have died between the date hereof and
the Closing Date) and shall remain in full force and effect as of the Closing
Date enforceable by the parties thereto in accordance with its terms; and
(h) Since September 30, 1995, there shall have been no material adverse change
in the business, results of operations, assets, liabilities, contingent
liabilities, obligations, working capital, reserves or financial condition of
Valley and its subsidiaries taken as a whole, whether or not in the ordinary
course of business. Neither Valley nor any of its subsidiaries, nor any of
their respective properties or assets shall be (i) a party to or subject to any
pending or threatened claim, action, suit, investigation or proceeding, or
subject to any order, judgment or decree or (ii) subject to any notice of
violation or have violated or be in violation of any law, statute, regulation,
rule, license, judgment, decree, order, agreement or other instrument, which in
case of any matter described in a(i) or (ii) would individually or in the
aggregate, have or could reasonably be expected to have a material adverse
effect on the business, results of operations, assets, liabilities, contingent
liabilities, obligations, working capital, prospects, reserves or financial
condition of Valley and its subsidiaries taken as a whole; and
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(i) The FWNC Average Price shall not be less than $26.00, provided, if,
between the date hereof and the Effective Time, a share of FWNC Common shall be
changed into a different number of shares of FWNC Common or a different class of
shares by reason of reclassification, recapitalization, splitup, exchange of
shares or readjustment or if a stock dividend thereon shall be declared after
the date hereof (a "Share Adjustment"), then the $26.00 amount used in this
Section 6.01(i), shall be appropriately and proportionately adjusted to reflect
such Share Adjustment.
Section 6.02. Conditions to Valley's Obligations. Valley's obligation to
effect the Merger shall be subject to the satisfaction (or waiver by Valley)
prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by FWNC in this Agreement shall be
true in all material respects on and as of the Closing Date with the same effect
as though such representations and warranties had been made or given on the
Closing Date;
(b) FWNC 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;
(c) No Injunction preventing the consummation of the Merger shall be in
effect, nor shall any proceeding by any bank regulatory authority or other
governmental 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;
(d) All necessary regulatory approvals, consents, authorizations and other
approvals, including the requisite approval of this Agreement and the Merger by
the shareholders of Valley, required by law for consummation of the Merger shall
have been obtained and all waiting periods required by law shall have expired;
(e) Valley shall have received all certificates, opinions and other documents
required by this Agreement to be received from FWNC on or prior to the Closing
Date, all in form and substance reasonably satisfactory to Valley;
(f) The Registration Statement shall be effective under the Securities Act and
no stop order 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;
(g) Valley shall have received an opinion of its counsel, Barnes & Thornburg,
to the effect that, if the Merger is consummated in accordance with the terms
set forth in this Agreement, the Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code; and that opinion will further
conclude that the Cash Component received by Valley Shareholders will not, under
Section 356 of the Code, have the effect of a distribution of a dividend, that
the FWNC Preferred will not be 306 stock under Section 306 of the Code, and that
Valley Shareholders shall not be
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deemed to have received a distribution under Section 305 of the Code; and
(h) The FWNC Average Price shall not be less than $26.00, provided, if,
between the date hereof and the Effective Time, a share of FWNC Common shall be
changed into a different number of shares of FWNC Common or a different class of
shares by reason of reclassification, recapitalization, splitup, exchange of
shares or readjustment or a stock dividend thereon shall be declared after the
date hereof (a "Share Adjustment"), then the $26.00 amount used in this Section
6.02(h), shall be appropriately and proportionately adjusted to reflect such
Share Adjustment; and
(i) The Trustees of Valley's KSOP shall have received the opinion of Southard
Financial, dated as of the date of the Proxy Statement, to the effect that the
consideration to be received in the Merger by the KSOP is fair from a financial
point of view, and such opinion shall not have been withdrawn at the time of the
Closing Date.
(j) The directors of Valley shall have received the opinion of Keefe Bruyette
& Woods that the fair market value of the FWNC preferred at the Effective Time
is not less than $45.00 per share.
ARTICLE SEVEN
TERMINATION OR ABANDONMENT
--------------------------
Section 7.01. Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of FWNC and Valley at any time prior to the Closing
Date, regardless of whether approval of this Agreement and the Merger by the
shareholders of Valley shall have been previously obtained.
Section 7.02. Breach of Agreements. In the event that there is a material
breach in any of the representations and warranties or agreements of FWNC or
Valley, which breach is not cured within thirty (30) days after 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 Valley shall have 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. 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 FWNC, as a condition for approval, shall not be
deemed to be a denial or disapproval so long as FWNC
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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 FWNC (hereinafter referred to as the "appeal") then the
application will be deemed denied unless FWNC prepares and timely files such
appeal and continues the appellate process for purposes of obtaining the
necessary approval.
Section 7.05. Shareholder Approval Denial. If this Agreement or the relevant
transactions contemplated hereby are not approved by the requisite vote of the
shareholders of Valley at the Valley Shareholders Meeting, then either party may
terminate this Agreement.
Section 7.06. Termination Date. If the Closing Date does not occur on or
prior to September 1, 1996, then this Agreement may be terminated by either
party by giving written notice thereof to the other, provided that the party
seeking to terminate has not breached any of its representations, warranties,
covenants or agreements contained herein.
Section 7.07. Termination Fee.
(a) Upon the occurrence of one or more Triggering Events (as defined in
Section 7.07(b) hereof, Valley shall pay to FWNC the sum of $2,000,000:
(b) As used herein, the term "Triggering Event" shall mean the occurrence of
the following after the date hereof:
(i)(A) termination of this Agreement by either party due to the failure of
Valley's shareholders to approve this Agreement and the transactions
contemplated hereby at a meeting called for such purpose(provided FWNC is not
then in material breach of this Agreement), (B) a majority of the board of
directors of Valley shall have determined to recommend a Competing Transaction
to Valley's shareholders, (C) Valley shall enter into a definitive agreement
with respect to a Competing Transaction, or (D) the board of directors of Valley
shall have withdrawn or modified in any manner adverse to FWNC its approval or
recommendation of the Merger or this Agreement, and (ii) within twelve (12)
months thereafter, a Competing Transaction shall occur, which in the case of (B)
and (C) of clause (i) involves a party to whom the event described in (B) or (C)
relates.
For purposes of this Section 7.07, the term "Competing Transaction" means any
of the following, other than the transactions contemplated by the Agreement: (i)
any person or group of persons (other than FWNC) shall acquire after the date
hereof beneficial ownership of twenty-five percent (25%) or more of the Valley
Common or Valley Preferred, exclusive of shares of Valley Common or Valley
Preferred sold directly or indirectly to such person or group of persons by
FWNC; or (ii) a merger, consolidation, share exchange, business combination, or
similar transaction involving Valley or Valley's banking subsidiary shall occur;
or (iii) a sale, lease, exchange, transfer or other disposition of twenty-five
percent (25%) or more of the assets of Valley or its banking subsidiary shall
occur.
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(c) As used in this Agreement, the terms "person" and "group of persons" shall
have the meanings conferred thereon by Sections 3(a)(9) and 13(d)(3) of the
Exchange Act and the regulations promulgated thereunder and the term "beneficial
ownership" shall have the meaning conferred thereon by Section 13(d) of the
Exchange Act and the regulations promulgated thereunder.
ARTICLE EIGHT
GENERAL
-------
Section 8.01. Confidential Information. The parties acknowledge the
confidential and proprietary nature of the "Information" (as herein described)
which has heretofore been exchanged and which will be received from each other
hereunder and agree to hold and keep the same confidential. Such Information
will 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 will be used solely
for the purposes contemplated by this Agreement and that such Information will
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. FWNC and Valley 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 transaction contemplated hereby, 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)
will not retain any copies, extracts or other reproductions in whole or in part
of such Information; and (iii) will destroy all memoranda, notes and other
writings prepared by any party based on the Information.
Section 8.04. Notices. Any notice or other communication shall be in writing
and shall be deemed to have been given or made on the date of delivery, in the
case of hand delivery, or three (3) business days after deposit in the United
States Registered Mail, postage prepaid, or upon receipt if transmitted by
facsimile telecopy or any other means, addressed (in any case) as follows:
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(a) if to FWNC :
Fort Wayne National Corporation
110 West Berry Street
Fort Wayne, Indiana 46802
Attention: Jackson R. Lehman, Chairman
with a copy to:
Baker & Daniels
111 East Wayne Street, Suite 800
Fort Wayne, Indiana 46802
Attention: Steven H. Hazelrigg, Esq.
and
(b) if to Valley:
Valley Financial Services, Inc.
P.O. Box 328
South Bend, Indiana 46624-0328
Attention: Darwin L. Wiekamp
Chairman of the Board
Facsimile: 219-256-6014
with a copy to:
Barnes & Thornburg
600 1st Source Bank Center
100 North Michigan
South Bend, Indiana 46601-1632
Attention: John A. Burgess, Esq.
Facsimile: (219) 237-1125
or to such other address as any party may from time to time designate by notice
to the others.
Section 8.05. Liabilities. Except as provided in Section 7.07 hereof, in the
event that this Agreement is terminated pursuant to the provision 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
Section 7.02 hereof on account of a willful breach of any of the representations
and warranties set forth herein or any 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.
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 in this Agreement shall survive the Effective Time or the
earlier termination of this Agreement; provided, however, that no such
representation, warranty or covenant shall be deemed to be terminated or
extinguished so as to deprive FWNC or Valley (or any director, officer or
controlling person thereof) of any defense in law or equity which otherwise
would be available against the claims of any person (including, without
limitation, any shareholder or former shareholder of either FWNC or Valley), the
aforesaid representations, warranties and
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covenants being material inducements to the consummation by FWNC and Valley of
the transactions contemplated herein. The agreements set forth in Sections
1.08, 5.03, 5.04, 5.05 and 5.07 hereof shall survive the Effective Time and the
agreements set forth in Sections 7.07, 8.01, 8.02, 8.03 and 8.05 hereof shall
survive the Effective Time or the earlier termination of this Agreement.
Section 8.07. Entire Agreement. This Agreement (including the Disclosure
Schedule and the exhibits hereto) 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 Valley Merger
Consideration contemplated by this Agreement to be received by shareholders of
Valley. This Agreement may not be amended or modified except by a written
document duly executed by the parties hereto.
Section 8.10. Rules of Constructions. 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 GAAP; and (iii) 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 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
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their respective successors and assigns. There shall be no third party
beneficiaries hereof, except for and to the extent of persons with a
demonstrable interest in the provisions of Sections 5.03 and 5.04 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 State of Indiana and applicable federal laws and regulations.
This Agreement may not be assigned by either of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
VALLEY FINANCIAL SERVICES, INC.
By: /s/ Darwin L. Wiekamp
----------------------------------
Darwin L. Wiekamp
Chairman of the Board
FORT WAYNE NATIONAL CORPORATION
By: /s/ Jackson R. Lehman
-----------------------------------
Jackson R. Lehman, Chairman of the
Board of Directors and Chief
Executive Officer
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EXHIBIT 1.09
Subdivision C. Class B Preferred Stock, Series 1.
- ------------- ---------------------------------
Subsection 5.03.7. Designation and Other Terms of 6% Cumulative Convertible
Class B Preferred Stock, Series 1.
(a) Designation and Rank.
(i) The designation of this series of Class B Preferred Stock is the
6% Cumulative Convertible Class B Preferred Stock, Series 1 (hereinafter
referred to as the "Series 1 Stock"), and the number of shares constituting such
series shall be 740,000. Series I stock shall be without value but shall have a
stated value of fifty dollars per share ($50.00).
(ii) The Series 1 Stock shall, with respect to dividend rights,
rights upon liquidation, winding up or dissolution, and redemption rights, rank
(A) junior to any other class or series of Class A Preferred Stock or Class B
Preferred Stock hereafter duly established by the Board of Directors of the
Corporation, the terms of which shall specifically provide that such series
shall rank prior to the Series 1 Stock as to the payment of dividends and
distribution of assets upon liquidation (the "Senior Preferred Stock") (B) pari
passu with any other class of series of Class A Preferred Stock or Class B
Preferred Stock hereafter duly established by the Board of Directors of the
Corporation, the terms of which shall specifically provide that such class or
series shall rank pari passu with the Series 1 Stock as to the payment of
dividends and distribution of assets upon liquidation (the "Parity Preferred
Stock") and (C) prior to any other class or series of capital stock of or other
equity interests in the Corporation, including, without limitation, the Common
Stock of the Corporation, whether now existing or hereafter created (all of such
classes or series of capital stock and other equity interests of the
Corporation, including, without limitation, the Common Stock of the Corporation
are collectively referred to herein as the "Junior Securities").
(b) Dividend Rights.
(i) The holders of shares of Series 1 Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available therefor, cash dividends, accruing from the date of initial issuance
(the "Issue Date"), at the annual rate of 6.00% per annum, and no more, computed
on the stated value of $50.00 for each share. Dividends shall be payable, when
and as declared by the Board of Directors, quarterly on April 1, July 1, October
1, and January 1 of each year (each quarterly period ending on any such date
being hereinafter referred to as a "dividend period"), commencing July 11, 1996.
Each dividend will be payable to holders of record as they appear on the stock
books of the Corporation on such record
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dates as shall be fixed by the Board of Directors of the Corporation. Dividends
payable on the Series 1 Stock (A) for any period other than a full dividend
period shall be computed based upon the actual number of days elapsed up to but
not including the dividend payment date divided by 365, and (B) for each full
dividend period shall be computed by dividing the annual dividend rate by four.
(ii) Holders of shares of the Series 1 Stock shall not be entitled to
any dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends on such shares. No interest or sum of money in lieu of
interest shall be payable in respect of any dividend payment or payments which
may be in arrears.
(iii) Unless full cumulative dividends on all outstanding shares of
the Series 1 Stock shall have been paid or declared and set aside for payment
for all past dividend periods, no dividend (other than a dividend in Common
Stock or in any Junior Securities) shall be declared upon the Junior Securities,
nor shall any Junior Securities be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such Junior Securities) by the
Corporation except for any redemption, purchase or acquisition relating to a
conversion of or exchange for such Junior Securities.
(c) Liquidation Preferences.
(i) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
Series 1 Stock shall be entitled to receive out of the assets of the Corporation
available for distribution to shareholders an amount equal to $50.00 per share
plus an amount equal to any accrued and unpaid dividends thereon to and
including the date of such distribution, and no more, before any distribution
shall be made to the holders of any Junior Securities. After payment of such
liquidating distributions, the holders of shares of Series 1 Stock shall not be
entitled to any further participation in any distribution of assets by the
Corporation.
(ii) In the event the assets of the Corporation available for
distribution to shareholders upon any liquidation, dissolution or winding up of
the affairs of the Corporation, whether voluntary or involuntary, shall be
insufficient to pay in full the amounts payable with respect to the Series 1
Stock and any other Parity Preferred Stock, the holders of Series 1 Stock and
the holders of such Parity Preferred Stock shall share ratably in any
distribution of assets of the Corporation in proportion to the full respective
amounts to which they are entitled.
(iii) The merger or consolidation of the Corporation into or with any
other corporation, the merger or consolidation of any other corporation into or
with the Corporation or the sale of the assets of the Corporation
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substantially as an entirety shall not be deemed a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this
subsection (c).
(d) Redemption.
(i) Subject to obtaining the prior approval of the Board of Governors
of the Federal Reserve System, if necessary, the Corporation, at its option, may
redeem any or all shares of Series 1 Stock, at any time or from time to time, on
or after April 1, 2002 at a redemption price of $50.00 per share, plus an amount
equal to accrued and unpaid dividends thereon to but not including the date of
redemption (the "Redemption Price").
(ii) If less than all the outstanding shares of Series 1 Stock are to
be redeemed, the shares to be redeemed shall be selected pro rata as nearly as
practicable.
(iii) Notice of any redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the date
fixed for redemption to the holders of record of the shares of Series 1 Stock to
be redeemed, at their respective addresses appearing on the books of the
Corporation. Notice so mailed shall be conclusively presumed to have been duly
given whether or not actually received. Such notice shall state (A) the date
fixed for redemption; (B) the Redemption Price; (C) that the holder has the
right to convert such shares into Common Stock until the close of business on
the tenth day preceding the redemption date; (D) the then effective Conversion
Ratio (as defined in section (e) below) and the place where certificates for
such shares may be surrendered for conversion; (E) the number of shares of
Series 1 Stock to be redeemed and if less than all the shares held by such
holder are to be redeemed, the number of such shares to be so redeemed from such
holder; (F) the place where certificates for such shares are to be surrendered
for payment of the Redemption Price; and (G) that after such date fixed for
redemption the shares to be redeemed shall not accrue dividends. If such notice
is mailed as aforesaid, and if on or before the date fixed for redemption funds
sufficient to redeem the shares called for redemption are set aside by the
Corporation in trust for the account of the holders of the shares to be
redeemed, notwithstanding the fact that any certificate for shares called for
redemption shall not have been surrendered for cancellation, on and after the
redemption date the shares represented thereby so called for redemption shall be
deemed to be no longer outstanding, dividends thereon shall cease to accrue and
all rights of the holders of such shares as shareholders of the Corporation
shall cease (except the right to receive the Redemption Price, without interest,
upon surrender of the certificate representing such shares). Upon surrender in
accordance with the aforesaid notice of the certificate for any shares so
redeemed (duly endorsed or accompanied by appropriate instruments of transfer,
if so required by the Corporation in such notice), the holders of record of such
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shares shall be entitled to receive the Redemption Price, without interest.
Notwithstanding the foregoing, however, as and to the extent that the
Corporation is required or permitted under the abandoned property laws of any
jurisdiction to escheat any redemption funds held in trust for the benefit of
any holder, the Corporation shall be absolved of any further obligation or
liability to such holder to the full extent provided by any such law. In case
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without cost
to the holder thereof.
(iv) At the option of the Corporation, if notice of redemption is
mailed as aforesaid, and if prior to the date fixed for redemption funds
sufficient to pay in full the Redemption Price are deposited in trust, for the
account of the holders of the shares to be redeemed, with a bank or trust
company named in such notice doing business in the State of Indiana or the
Borough of Manhattan, The City of New York, State of New York, and having
capital and surplus of at least $50 million (which bank or trust company also
may be the transfer agent and/or paying agent for the Series 1 Stock)
notwithstanding the fact that any certificate(s) for shares called for
redemption shall not have been surrendered for cancellation, on and after such
date of deposit the shares represented thereby so called for redemption shall be
deemed to be no longer outstanding, and all rights of the holders of such shares
as shareholders of the Corporation shall cease, except the right of the holders
thereof to convert such shares in accordance with the provisions of section (e)
below at any time prior to the close of business on the tenth day preceding the
redemption date and the right of the holders thereof to receive out of the funds
so deposited in trust the Redemption Price, without interest, upon surrender of
the certificate(s) representing such shares. Any funds so deposited with such
bank or trust company in respect of shares of Series 1 Stock converted before
the close of business on the tenth day preceding the redemption date shall be
returned to the Corporation upon such conversion. Unless otherwise required by
law, any funds so deposited with such bank or trust company which shall remain
unclaimed by the holders of shares called for redemption at the end of two years
after the redemption date shall be repaid to the Corporation, on demand, and
thereafter the holder of any such shares shall look only to the Corporation for
the payment, without interest, of the Redemption Price. Notwithstanding the
foregoing, however, as and to the extent that the Corporation is required or
permitted under the abandoned property laws of any jurisdiction to escheat any
redemption funds held in trust for the benefit of any holder, the Corporation
shall be absolved of any further obligation or liability to such holder to the
full extent provided by any such laws.
(v) Any provision of this section (d) to the contrary
notwithstanding, in the event that any dividends payable on the Series 1 Stock
shall be in arrears and until all such dividends in arrears shall have been paid
or declared and
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set apart for payment the Corporation shall not redeem any shares of Series 1
Stock unless all outstanding shares of Series 1 Stock are simultaneously
redeemed and shall not purchase or otherwise acquire any shares of Series 1
Stock except in accordance with a purchase or exchange offer made on the same
terms to all holders of record of Series 1 Stock for the purchase of all
outstanding shares thereof.
(e) Conversion Rights. The holders of shares of Series 1 Stock shall have the
right, at their option, to convert such shares into shares of Common Stock on
the following terms and conditions:
(i) Each Share of Series 1 Stock shall be convertible at any time
into fully paid and nonassessable shares of Common Stock at a conversion ratio
(the "Conversion Ratio") equal to $50 divided by 120% of the average of the per
share closing prices of a share of Common Stock as reported on the Nasdaq Stock
Market's National Market as reported in the Wall Street Journal (Midwest
Edition) during the twenty (20) trading day period preceding the fifth (5th)
calendar day preceding the Issue Date. The Conversion Ratio shall be subject to
adjustment from time to time as hereinafter provided. No payment or adjustment
shall be made on account of any accrued and unpaid dividends on shares of Series
1 Stock surrendered for conversion prior to the record date for the
determination of shareholders entitled to such dividends or on account of any
dividends on the shares of Common Stock issued upon such conversion subsequent
to the record date for the determination of shareholders entitled to such
dividends. If any shares of Series 1 Stock shall be called for redemption, the
right to convert the shares designated for redemption shall terminate at the
close of business on the tenth day preceding the date fixed for redemption
unless default is made in the payment of the Redemption Price. In the event of
default in the payment of the Redemption Price, the right to convert the shares
designated for redemption shall terminate at the close of business on the
business day immediately preceding the date that such default is cured.
(ii) In order to convert shares of Series 1 Stock into Common Stock,
the holder thereof shall surrender the certificates therefor, duly endorsed if
the Corporation shall so require, or accompanied by appropriate instruments of
transfer satisfactory to the Corporation, at the office of the transfer agent
for the Series 1 Stock, or at such other office as may be designated by the
Corporation, together with written notice that such holder irrevocably elects to
convert such shares. Such notice shall also state the name and address in which
such holder wishes the certificate for the shares of Common Stock issuable upon
conversion to be issued. As soon as practicable after receipt of the
certificates representing the shares of Series 1 Stock to be converted and the
notice of election to convert the same, the Corporation shall issue and deliver
at said office a certificate for the number of whole shares of Common Stock
issuable upon conversion of the shares of Series 1 Stock surrendered for
conversion, together with a cash payment in lieu of any fraction of a
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share, as hereinafter provided, to the person entitled to receive the same. If
more than one stock certificate for Series 1 Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares represented by all the certificates so surrendered.
Shares of Series 1 Stock shall be deemed to have been converted immediately
prior to the close of business on the date such shares are surrendered for
conversion and notice of election to convert the same is received by the
Corporation in accordance with the foregoing provision, and the person entitled
to receive the Common Stock issuable upon such conversion shall be deemed for
all purposes as the record holder of such Common Stock as of such date.
(iii) In the case of any share of Series 1 Stock which is converted
after any record date with respect to the payment of a dividend on the Series 1
Stock and on or prior to the date on which such dividend is payable by the
Corporation (the "Dividend Due Date"), the dividend due on such Dividend Due
Date shall be payable on such Dividend Due Date to the holder of record of such
shares as of such preceding record date notwithstanding such conversion. Shares
of Series 1 Stock surrendered for conversion during the period from the close of
business on any record date with respect to the payment of a dividend on the
Series 1 Stock next preceding any Dividend Due Date to the opening of business
on such Dividend Due Date shall (except in the case of shares of Series 1 Stock
which have been called for redemption on a redemption date within such period)
be accompanied by payment of an amount equal to the dividend payable on such
Dividend Due Date on the shares of Series 1 Stock being surrendered for
conversion. The dividend with respect to a share of Series 1 Stock called for
redemption on a redemption date during the period from the close of business on
any record date with respect to the payment of a dividend on the Series 1 Stock
next preceding any Dividend Due Date to the opening of business on such Dividend
Due Date shall be payable on such Dividend Due Date to the holder of record of
such share on such dividend record date, notwithstanding the conversion of such
share of Series 1 Stock after such record date and prior to such Dividend Due
Date, and the holder converting such share of Series 1 Stock called for
redemption need not include a payment of such dividend amount upon surrender of
such share of Series 1 Stock for conversion. Except as provided in this
subsection (iii), no payment or adjustment shall be made upon any conversion on
account of any dividends accrued on shares of Series 1 Stock surrendered for
conversion or on account of any dividends on the shares of Common Stock issued
upon conversion.
(iv) No fractional shares of Common Stock shall be issued upon
conversion of any shares of Series 1 Stock. If the conversion of any shares of
Series 1 Stock results in a fractional share of Common Stock, the Corporation
shall pay cash in lieu thereof in an amount equal to such fraction multiplied by
the Current Market Price of the Common Stock (as defined below), on the date on
which the
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shares of Series 1 Stock were duly surrendered for conversion, or if such date
is not a trading date, on the next succeeding trading date.
(v) The Conversion Ratio shall be adjusted from time to time after
the Issue Date, as follows:
(A) In case the Corporation shall pay or make a dividend or other
distribution on shares of Common Stock in Common Stock, the Conversion Ratio in
effect at the opening of business on the date following the date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution shall be increased by dividing such Conversion Ratio by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination.
(B) In case the Corporation shall issue additional rights or warrants
to all holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Current Market Price
of the Common Stock on the date fixed for the determination of shareholders
entitled to receive such rights or warrants (other than pursuant to a dividend
reinvestment plan), the Conversion Ratio in effect at the opening of business on
the day following the date fixed for such determination shall be increased by
dividing such Conversion Ratio by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at the
Current Market Price of the Common Stock and the denominator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock so offered for
subscription or purchase, such increase to become effective immediately after
the opening of business on the day following the date fixed for such
determination.
(C) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Ratio in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Ratio in effect at the
opening of business
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on the day following the day upon which such combination becomes effective shall
be proportionately reduced, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(D) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its indebtedness or
assets (including securities, but excluding (1) any rights or warrants referred
to in clause (B) above, (2) any dividend or distribution paid in cash out of the
retained earnings of the Corporation, and (3) any dividend or distribution
referred to in clause (A) above), the Conversion Ratio shall be adjusted so that
the same shall equal the ratio determined by multiplying the Conversion Ratio in
effect immediately prior to the close of business on the date fixed for the
determination of shareholders entitled to receive such distribution by a
fraction of which the numerator shall be the Current Market Price of the Common
Stock on the date fixed for such determination less the then fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and shall be described in a statement filed with the transfer agent
for the Series 1 Stock) of the portion of the evidences of indebtedness or
assets so distributed applicable to one share of Common Stock and the
denominator shall be the Current Market Price of the Common Stock, such
adjustment to become effective immediately prior to the opening of business on
the day following the date fixed for the determination of shareholders entitled
to receive such distribution.
(E) For the purposes of this section (e), the reclassification of
Common Stock into securities including securities other than Common Stock (other
than any reclassification upon a consolidation or merger to which subsection
(vi) below applies) shall be deemed to involve (1) a distribution of such
securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of shareholders entitled to receive such distribution" and
the "date fixed for such determination" within the meaning of clause (D) above),
and (2) a subdivision or combination, as the case may be, of the number of
shares of Common Stock outstanding immediately prior to such reclassification
into the number of shares of Common Stock outstanding immediately thereafter
(and the effective date of such reclassification shall be deemed to be "the day
upon which such subdivision became effective" or "the day upon which such
combination becomes effective" as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of clause (C)
above).
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(F) For purposes of this section (e), (other than subsection e(i)) the
Current Market Price of the Common Stock on any day shall be deemed to be the
average of the daily closing prices for the 30 consecutive trading days
commencing 45 trading days before the day in question. The closing price for
each day shall be the reported last sale price or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asking
prices, in either case on the Nasdaq Stock Market's National Market ("Nasdaq")
or, if the Common Stock is no longer quoted for trading on such system, on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading or, if the Common Stock is not quoted on Nasdaq or listed
or admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market as furnished by any
New York Stock Exchange member firm selected from time to time by the Board of
Directors for that purpose.
(G) Notwithstanding the foregoing, no adjustment in the Conversion
Ratio for the Series 1 Stock shall be required unless such adjustment would
require an increase or decrease of at least 1% in such ratio; provided, however,
that any adjustments which are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this section (e) shall be made to the nearest cent or to the nearest one-ten
thousandth of a share (0.0001), as the case may be.
(vi) Whenever the Conversion Ratio shall be adjusted as herein
provided (A) the Corporation shall forthwith make available at the office of the
transfer agent for the Series 1 Stock a statement describing in reasonable
detail the adjustment, the facts requiring such adjustment and the method of
calculation used; and (B) the Corporation shall cause to be mailed by first
class mail, postage prepaid, as soon as practicable to each holder of record of
shares of Series 1 Stock a notice stating that the Conversion Ratio has been
adjusted and setting forth the adjusted Conversion Ratio.
(vii) In the event of any consolidation of the Corporation with or
merger of the Corporation into any other corporation (other than a merger in
which the Corporation is the surviving corporation) or a sale, lease or
conveyance of the assets of the Corporation as an entirety or substantially as
an entirety, or any statutory exchange of securities with another corporation,
the holder of each share of Series 1 Stock shall have the right, after such
consolidation, merger, sale or exchange to convert such share into the number
and kind of shares of stock or other securities and the amount and kind of
property which such holder would have been entitled to receive upon such
consolidation, merger, sale or exchange of the number of shares of Common Stock
that would have been issued to such holder had such shares of Series 1 Stock
been converted
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immediately prior to such consolidation, merger or sale. The provisions of this
subsection (vii) shall similarly apply to successive consolidations, mergers,
sales or exchanges.
(viii) The Corporation shall pay any taxes that may be payable in
respect of the issuance of shares of Common Stock upon conversion of shares of
Series 1 Stock, but the Corporation shall not be required to pay any taxes which
may be payable in respect of any transfer involved in the issuance of shares of
Common Stock in the name other than that in which the shares of Series 1 Stock
so converted are registered, and the Corporation shall not be required to issue
or deliver any such shares unless and until the person requesting such issuance
shall have paid to the Corporation the amount of any such taxes, or shall have
established to the satisfaction of the Corporation that such taxes have been
paid.
(ix) The Corporation may (but shall not be required to) make such
increases and reductions in the Conversion Ratio, in addition to those required
by clauses (A) through (D) of subsection (v) above, as it considers to be
advisable in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the recipients.
(x) The Corporation shall at all times reserve and keep available out
of its authorized but unissued Common Stock the full number of shares of Common
Stock issuable upon the conversion of all shares of Series 1 Stock then
outstanding.
(xi) In the event that:
(A) the Corporation shall declare a dividend or any other
distribution on its Common Stock, payable otherwise than in cash out of retained
earnings; or
(B) the Corporation shall authorize the granting to the holders of
its Common Stock of rights to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(C) any capital reorganization of the Corporation, reclassification
of the capital stock of the Corporation, consolidation or merger of the
Corporation with or into another corporation (other than a merger in which the
Corporation is the surviving corporation), or sale, lease or conveyance of the
assets of the Corporation as an entirety or substantially as an entirety to
another corporation occurs; or
(D) the voluntary or involuntary dissolution, liquidation or winding
up of the Corporation occurs, the Corporation shall cause to be mailed to the
holders of record of Series 1 Stock at least 15 days prior to the applicable
date hereinafter specified a notice stating (x) the date on which a record is to
be
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taken for the purpose of such dividend, distribution of rights or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution or rights are to be determined, or
(y) the date on which such reorganization, reclassification, consolidation,
merger, sale, lease, conveyance, dissolution, liquidation or winding up is
expected to take place, and the date, ff any is to be fixed, as of which holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, lease, conveyance, dissolution,
liquidation or winding up. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend, distribution,
reorganization, reclassification, consolidation, merger, sale, lease,
conveyance, dissolution, liquidation or winding up.
(f) Voting Rights. Other than as required by applicable law or as
expressly provided in subsection 5.03.3 of the Corporation's Amended Articles of
Incorporation, the holders of Series 1 Stock shall not have any voting rights.
(g) Reacquired Shares. Shares of Series 1 Stock converted, redeemed,
or otherwise purchased or acquired by the Corporation shall be restored to the
status of authorized but unissued shares of Class B Preferred Stock without
designation as to series and may thereafter be issued, but not as Series 1
Stock.
(h) No Sinking Fund. Shares of Series 1 Stock are not subject to the
operation of a sinking fund or other obligation of the Corporation to redeem or
retire the Series 1 Stock.
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11/06/95
All matters listed, disclosed or attached to any Section of this Disclosure
Schedule shall be deemed to be disclosed in any Section of this Disclosure
Schedule where it could be interpreted that disclosure of said matter in that
Section was also required. Stated otherwise, disclosure of a matter in one
Section of this Disclosure Schedule is Disclosure in each Section of this
Disclosure Schedule where such disclosure may be required.
IN WITNESS WHEREOF, the parties hereto have duly executed this Disclosure
Schedule as of the 6th day of November, 1995.
VALLEY FINANCIAL SERVICES, INC.
By: /s/ Darwin L. Wiekamp
----------------------------------------------
Darwin L. Wiekamp
Chairman of the Board
FORT WAYNE NATIONAL CORPORATION
By: /s/ Jackson R. Lehman
----------------------------------------------
Jackson R. Lehman
Chairman and Chief Executive Officer
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EXHIBIT 1.14(a)
---------------
OPINION OF COUNSEL FOR VALLEY
Capitalized terms used herein have the meanings assigned to them in the
Agreement:
1. Valley is a corporation duly organized and validly existing under the
laws of the State of Indiana and has the corporate power to own all of its
property and assets and to carry on its business as now being conducted. Valley
does not do business in any jurisdiction other than the State of Indiana in such
a manner that would require qualification, registration or good standing in any
such jurisdiction.
2. The authorized capital stock of Valley consists of (i) 240,000 shares of
Valley Common, of which, as of the date hereof, 204,788 shares are issued and
outstanding; and (ii) 60,000 shares of Valley Preferred, of which, as of the
date hereof, 51,197 shares are issued and outstanding. To the best of such
counsel's knowledge, there are no other shares of capital stock or other equity
securities of Valley 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 Valley
Common or Valley Preferred or other capital stock of Valley or contracts,
commitments, understandings or arrangements by which Valley 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.
All of the issued and outstanding shares of Valley Common and Valley Preferred
are duly and validly issued and outstanding and are fully paid and non-
assessable. None of the outstanding shares of Valley Common or Valley Preferred
has been issued in violation of any preemptive rights of the current or past
shareholders of Valley.
3. Valley has the corporate power and authority to enter into the Agreement
and to carry out its obligations thereunder. The Board of Directors of Valley
has, by all necessary action, approved the Agreement and the Merger and
authorized the execution of the Agreement on behalf of Valley by its duly
authorized officers and the performance by Valley of its obligations hereunder.
The holders of Valley Common and Valley Preferred have duly approved the
Agreement and the Merger in accordance with the Corporate Law and Valley's
Articles of Incorporation and By-Laws. No other corporate proceedings on the
part of Valley are required in order for Valley to enter into and perform its
obligations under the Agreement. The Agreement has been duly executed and
delivered by Valley and is a valid and binding obligation of Valley, enforceable
against Valley in accordance with its terms, subject to bankruptcy, insolvency,
receivership, moratorium or other laws relating to or affecting creditors'
rights generally and to general equity principles.
4. Nothing in the Articles of Incorporation or By-Laws of Valley, as
amended, or any agreement, instrument, decree or proceeding known to such
counsel, or any law or regulation of the State of Indiana or the United States,
by or to which Valley or any of its
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subsidiaries are bound or subject, prohibits Valley from entering into and
consummating the Agreement and the Merger on the terms and conditions contained
in the Agreement.
5. Other than the filing of the Articles of Merger with the Indiana
Secretary of State under the Corporate Law, no notice to, filing with, exemption
or review by, or authorization, consent or approval of, any Regulatory Agency is
required under the laws of the United States or the State of Indiana for the
consummation by Valley of the transactions contemplated by the Agreement.
6. To the best knowledge of such counsel, except as disclosed in Section
2.08 of the Disclosure Schedule, there are no actions, suits or proceedings
pending or threatened against Valley or any of its subsidiaries, and neither
Valley nor any of its subsidiaries is subject to any order, judgment or decree,
that, in the aggregate could reasonably be expected to have a material adverse
effect on the financial condition, properties, business or results of operations
of Valley and its subsidiaries taken as a whole.
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EXHIBIT 1.14(b)
---------------
OPINION OF COUNSEL FOR FWNC
Capitalized terms used herein have the meanings assigned to them in the
Agreement:
1. FWNC is a corporation duly incorporated and validly existing under the
laws of the State of Indiana with full corporate power and authority to carry on
its business as it is now being conducted.
2. The Board of Directors of FWNC has, by all necessary action, approved the
Agreement and the Merger and authorized the execution of the Agreement on behalf
of FWNC by its duly authorized officers and the performance by FWNC of its
obligations hereunder. The Agreement has been duly executed and delivered by
FWNC and is a valid and binding obligation of FWNC, enforceable against FWNC in
accordance with its terms, subject to bankruptcy, insolvency, receivership,
moratorium or other laws relating to or affecting creditors' rights generally
and to general equity principles.
3. Nothing in the Amended Articles of Incorporation or By-Laws of FWNC, as
amended, or any agreement, instrument, decree or proceeding known to such
counsel, or any law or regulation of the State of Indiana or the United States,
by or to which FWNC or any of its subsidiaries are bound or subject, prohibits
FWNC or any of its subsidiaries are bound or subject, prohibits FWNC from
entering into and consummating the Agreement and the Merger on the terms and
conditions contained in the Agreement.
4. The Registration Statement has become effective under the Securities Act
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened.
5. Other than the filings and approvals required under the BHCA and the
Indiana Financial Institutions Act, as amended, all of which have been made or
obtained, or as may be required by the securities or blue sky laws of the
various states (as to which such counsel shall express no opinion), and other
than the filing of the Articles of Merger with the Indiana Secretary of State
under the Corporate Law, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any Regulatory Agency is required under
the laws of the United States or the State of Indiana for the consummation by
FWNC of the transactions contemplated by the Agreement.
6. The shares of FWNC Common and FWNC Preferred to be issued as part of the
Valley Common Merger Consideration shall, when issued and delivered in
accordance with the terms of the Agreement and the Merger Letter of Transmittal,
be duly authorized, validly issued, fully paid and nonassessable.
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APPENDIX B
INDIANA STATUTES GOVERNING DISSENTERS' RIGHTS
OF VALLEY FINANCIAL SERVICES, INC. SHAREHOLDERS
23-1-44.1. "CORPORATION" DEFINED. As used in this chapter, "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.
23-1-44-2. "DISSENTER" DEFINED. As used in this chapter, "dissenter"
means a shareholder who is entitled to dissent from corporate action under
section 8 of this chapter and who exercises that right when and in the manner
required by sections 10 through 18 of this chapter.
23-1-44-3. "FAIR VALUE" DEFINED. As used in this chapter, "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.
23-1-44.4. "INTEREST" DEFINED. As used in this chapter, "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.
23-1-44.5. "RECORD SHAREHOLDER" DEFINED. As used in this chapter,
"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 that
treatment as a record shareholder is provided under a recognition procedure or a
disclosure procedure established under IC 23-1-30-4.
23-1-44-6. "BENEFICIAL SHAREHOLDER" DEFINED. As used in this chapter,
"beneficial shareholder" means the person who is a beneficial owner of shares
held by a nominee as the record shareholder.
23-1-44-7. "SHAREHOLDER" DEFINED. As used in this chapter, "shareholder"
means the record shareholder or the beneficial shareholder.
23-1-44-8. SHAREHOLDER DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of the following
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party if:
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(A) Shareholder approval is required for the merger IC 23-1-40-3 or the
articles of incorporation; and
(B) The shareholder is entitled to vote on the merger
(2) 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.
(3) 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 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.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) 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.
(b) This section does not apply to the holder of shares of any class or series
if, on the date fixed to determine the shareholders entitled to receive notice
of and vote at the meeting of shareholders at which the merger, plan of share
exchange, or sale or exchange of property is to be acted on, the shares of that
class or series were:
(1) Registered on a United States securities exchange registered under the
Exchange Act (as defined in IC 23-1-43-9); or
(2) Traded on the National Association of Securities Dealers, Inc. Automated
Quotations System Over-the-Counter Markets -- National Market Issues or a
similar market.
(c) A shareholder:
(1) who is entitled to dissent and obtain payment for the shareholder's shares
under this chapter; or
(2) who would be so entitled to dissent and obtain payment but for the
provisions of subsection (b);
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may not challenge the corporate action creating (or that, but for the provisions
of subsection (b), would have created) the shareholder's entitlement.
23-1-44-9. BENEFICIAL SHAREHOLDER DISSENT.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one (1) person and notifies
the corporation in writing of the name and address of each person on whose
behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on the shareholder's behalf only if:
(1) The beneficial shareholder 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
(2) The beneficial shareholder does so with respect to all the beneficial
shareholder's shares or those shares over which the beneficial shareholder has
power to direct the vote.
23-1-44-10. NOTICE OF DISSENTERS' RIGHTS PRECEDING SHAREHOLDER VOTE.
(a) If proposed corporate action creating dissenters' rights under section 8
of this chapter 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 chapter.
(b) If corporate action creating dissenters' rights under section 8 of this
chapter 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 section 12 of this
chapter.
23-1-44-11. NOTICE OF INTENT TO DISSENT.
(a) If proposed corporate action creating dissenters' rights under section 8
of this chapter is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written notice of
the shareholders' intent to demand payment for the shareholder's shares if the
proposed action is effectuated; and
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(2) Must not vote the shareholder's shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for the shareholder's shares under this chapter.
23-1-44-12. NOTICE OF DISSENTERS' RIGHTS FOLLOWING ACTION CREATING RIGHTS.
(a) If proposed corporate action creating dissenters' rights under section 8
of this chapter is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 11 of this chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand 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 dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(4) 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 subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter.
23-1-44-13. DEMAND FOR PAYMENT BY DISSENTER.
(a) A shareholder sent a dissenters' notice described in IC 23-1-42-11 or in
section 12 of this chapter must demand payment, certify whether the shareholder
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenter's notice under section 12(b)(3) of this chapter, and
deposit the shareholder's certificates in accordance with the terms of the
notice.
(b) The shareholder who demands payment and deposits the shareholder's shares
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
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(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action.
23-1-44-14. TRANSFER OF SHARES RESTRICTED AFTER DEMAND FOR PAYMENT.
(a) 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 section 16 of this chapter.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
23-1-44-15. PAYMENT TO DISSENTER.
(a) Except as provided in section 17 of this chapter, as soon as the proposed
corporate action is taken, or, if the transaction did not need shareholder
approval and has been completed, upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with section 13 of this
chapter the amount the corporate estimates to be the fair value of the
dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending not
more than sixteen (16) months before the date of payment, an income statement
for that year, a statement of changes in shareholders' equity for that year, and
the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the shares;
and
(3) A statement of the dissenter's right to demand payment under section 18 of
this chapter.
23-1-44-16. RETURN OF SHARES AND RELEASE OF RESTRICTIONS.
(a) 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.
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(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 of this chapter and repeat the payment
demand procedure.
23-1-44-17. OFFER OF FAIR VALUE FOR SHARES OBTAINED AFTER FIRST
ANNOUNCEMENT.
(a) A corporation may elect to withhold payment required by section 15 of this
chapter from a dissenter unless the dissenter 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.
(b) To the extent the corporation elects to withhold payment under subsection
(a), after taking the proposed corporate action, it shall estimate the fair
value of the shares and shall pay this amount to each dissenter who agrees to
accept it in full satisfaction of the dissenter's demand. The corporation shall
send with its offer a statement of its estimate of the fair value of the shares
and a statement of the dissenter's right to demand payment under section 18 of
this chapter.
23-1-44-18. DISSENTER DEMAND FOR FAIR VALUE UNDER CERTAIN CONDITIONS.
(a) A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and demand payment of the
dissenter's estimate (less any payment under section 15 of this chapter), or
reject the corporation's offer under section 17 of this chapter and demand
payment of the fair value of the dissenter's shares, if:
(1) The dissenter believes that the amount paid under section 15 of this
chapter or offered under section 17 of this chapter is less than the fair value
of the dissenter's shares;
(2) The corporation fails to make payment under section 15 of this chapter
within sixty (60) days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed o
uncertificated shares within sixty (60) days after the date set for demanding
payment.
(b) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (a) within thirty (30) days after the corporation made or
offered payment for the dissenter's shares.
23-1-44-19. EFFECT OF FAILURE TO PAY DEMAND - COMMENCEMENT OF JUDICIAL
APPRAISAL PROCEEDING.
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(a) If a demand for payment under IC 23-1-42-11 or under section 18 of this
chapter 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. 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.
(b) The corporation shall commence the proceeding in the circuit or superior
court of the county where a corporation's principal office (or, if none in
Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is 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 are entitled to the same
discovery rights as parties in other civil proceedings.
(e) Each dissenter made a part to the proceeding is entitled to judgment:
(1) For the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation;
or
(2) For the fair value, plus accrued interest, of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
section 17 of this chapter.
23-1-44-20. JUDICIAL DETERMINATION OF FAIR VALUE.
(a) The court in an appraisal proceeding commenced under section 19 of this
chapter 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 such parties and in such amounts as the court finds
equitable.
(b) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
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(1) 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
sections 10 through 18 of this chapter; or
(2) 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 chapter.
(c) 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.
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APPENDIX C
AGREEMENT
---------
THIS AGREEMENT (this "Agreement") is made this 6th day of November, 1995
by the undersigned persons ("Designated Valley Shareholders") in favor of FORT
WAYNE NATIONAL CORPORATION, an Indiana corporation ("FWNC").
RECITALS
A. Valley Financial Services, Inc., an Indiana corporation ("Valley") and
FWNC are parties to an Agreement and Plan of Merger, dated November 6, 1995 (the
"Merger Agreement"). The Merger Agreement generally provides for the
acquisition by merger (the "Acquisition") of all of the outstanding stock of
Valley by FWNC.
B. The Acquisition is subject to, among other things, the FWNC's receipt of,
and the continued force and effect without breach of, this Agreement.
C. Each Designated Valley Shareholder is a shareholder of Valley and,
consequently, would derive direct financial benefit, as well as other direct and
indirect benefits, from consummation of the Acquisition.
D. Designated Valley Shareholders desire to enter into this Agreement in
order to induce FWNC to consummate the Merger Agreement.
E. All terms used in this Agreement with initial capital letters that are
not otherwise defined herein shall have the meaning ascribed thereto in the
Merger Agreement.
In consideration of the foregoing and other good and valuable consideration
(the receipt, adequacy and sufficiency of which are hereby acknowledged and
accepted by the parties by his or her execution hereof, Designated Valley
Shareholders agree as follows:
AGREEMENT
Section 1. Restrictions on Disposition of Valley Common and Valley
Preferred. Each Designated Valley Shareholder hereby unconditionally,
irrevocably and absolutely agrees that, prior to the Closing Date of the Merger,
such Designated Valley Shareholder will not, without the prior written consent
of FWNC, sell, assign, transfer or otherwise dispose of any shares of Valley
Common or Valley Preferred owned by such Designated Valley Shareholder as of the
date hereof.
Section 2. Ownership and Voting. Each Designated Valley Shareholder
hereby warrants that he or she is the beneficial owner of the number of shares
of Valley Common
C-1
<PAGE>
and/or Valley Preferred set opposite his or her name on the attached Exhibit A.
Each Designated Valley Shareholder agrees to vote all of such shares in favor of
the transaction described in the Merger Agreement at any meeting (or any
adjournment or postponement thereof) of the shareholders of Valley at which such
transaction is submitted to a vote. Each Designated Valley Shareholder agrees
that any shares of capital stock of Valley acquired by a Designated Valley
Shareholder between the date hereof and the Closing of the Merger under the
Merger Agreement shall be subject to this Agreement.
Section 3. Restrictions on Disposition of FWNC Common. Each Designated
Valley Shareholder hereby unconditionally, irrevocably and absolutely agrees
that such Designated Valley Shareholder will not sell, assign, transfer or
otherwise dispose of any shares of FWNC Common received by such Designated
Valley Shareholder pursuant to the Merger during the two (2) year period
commencing on the Closing Date, except upon (i) the death of such Designated
Valley Shareholder; or (ii) the occurrence of a Change of Control of FWNC (as
defined in Section 1.08(b) of the Merger Agreement). Each Designated Valley
Shareholder acknowledges and agrees that the certificates evidencing the shares
of FWNC Common to be issued to such Designated Valley Shareholder as provided in
Section 1.12 of the Merger Agreement shall include appropriate legends reciting
the restrictions described in this Section 3.
Section 4. Amendment and Modification. No amendment, modification,
supplement, termination, consent or waiver of any provision of this Agreement,
nor consent to any department herefrom, will in any event be effective unless
the same is in writing and is signed by the party against whom enforcement of
the same is sought. Any waiver of any provision of this Agreement and any
consent to any departure from the terms of any provision of this Agreement is to
be effective only in the specific instance and for the specific purpose for
which given.
Section 5. Headings and Captions. The captions of 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 6. 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 and other
agreements between the parties relating to the subject matter hereof.
Section 7. Further Assurances. The parties will execute and deliver such
further instruments and do such further acts and things as may be required to
carry out the intent and purpose of this Agreement.
Section 8. Governing Law. This Agreement shall be governed by the laws
--------- -------------
of the State of Indiana.
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<PAGE>
Section 9. Enforcement. The parties agree that the payment of damages
for breach of this Agreement would not adequately compensate FWNC for the
damages suffered by such breach and that FWNC will be irreparably damaged in the
event that this Agreement is not specifically enforced. Accordingly, FWNC shall
have the right to a temporary restraining order, injunction, or to specific
performance of this Agreement in order to protect its rights and privileges
hereunder. Such remedies shall be cumulative and not exclusive and shall be in
addition to all rights of action and remedies which FWNC may have pursuant to
this Agreement or at law or in equity.
Section 10. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns, legal representatives, legatees and heirs.
Section 11. Survival of Agreement. The obligations of Designated Valley
Shareholders under Section 3 of this Agreement shall survive the Closing of the
Merger under the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands all on
the day and year first above written.
/s/Dennis J. Schwartz
---------------------------------
Dennis J. Schwartz
/s/James T. Schwartz
---------------------------------
James T. Schwartz
/s/Mary Lou Schwartz
---------------------------------
Mary Lou Schwartz
/s/Darwin L. Wiekamp
---------------------------------
Darwin L. Wiekamp
/s/Dorothy J. Wiekamp
---------------------------------
Dorothy J. Wiekamp
/s/Mary E. Zimmerman
---------------------------------
Mary E. Zimmerman
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<PAGE>
/s/Donald L. Zimmerman
---------------------------------
Donald L. Zimmerman
MARDOT, LTD.
By /s/Dennis J. Schwartz
------------------------------
General Partner
"DESIGNATED VALLEY SHAREHOLDERS"
FORT WAYNE NATIONAL CORPORATION
By /s/Jackson R. Lehman
------------------------------
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<PAGE>
EXHIBIT A
Number of Shares
Beneficially
Owned
------------------
<TABLE>
<CAPTION>
Name of Shareholder Common Preferred
- --------------------- ------- ---------
<S> <C> <C>
Dennis J. Schwartz 0 5,087
James T. Schwartz 0 1,698
Mary Lou Schwartz 0 5,012
Darwin L. Wiekamp 0 10,375
Dorothy J. Wiekamp 0 15,586
Donald L. Zimmerman 4,620 1,155
Mary E. Zimmerman 4,624 1,156
MARDOT, LTD. 151,392 0
</TABLE>
C-5
<PAGE>
II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Indiana Code Section 23-1-37-1, et
seq., grants to each corporation organized under the laws of the State of
Indiana, the right, privilege and power to indemnify any directors, officer,
employee or agent of such corporation, or such party who is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against liability incurred by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal, if his conduct was in good faith
and he reasonably believed that, in the case of conduct in his capacity with the
corporation, that his conduct was in the corporation's best interests, and in
other cases, that his conduct was at least not opposed to its best interests.
In the case of a criminal proceeding, however, the corporation may indemnify
such an individual if he either had reasonable cause to believe his conduct was
lawful, or have no reasonable cause to believe his conduct was unlawful.
Additionally, unless limited by its Articles of Incorporation, an Indiana
corporation must indemnify officers and directors who are wholly successful, on
the merits or otherwise, in the defense of any proceeding to which such director
or officer was a party because that director or officer is or was a director or
officer of the corporation, against reasonable expenses incurred by that
director or officer in connection with the proceeding. This statutory provision
for indemnification does not exclude any of the rights to indemnification or
advances for expenses which such a person may have under the corporation's
Articles of Incorporation or By-Laws, or resolution of the Board of Directors or
of the stockholders, or any other authorization, whenever adopted, after notice,
by a majority vote of all of the voting shares then issued and outstanding.
The By-Laws of FWNC provide that each director and officer shall be
indemnified against any and all liability, as well as reasonable expenses, may
be incurred in connection with or resulting from any claim, action, suit or
other proceeding in which he may become involved by reason of his being or
having been a director or officer of FWNC.
In addition, FWNC has in effect a policy of insurance indemnifying it against
certain liabilities to its directors and officers, and indemnifying its
directors and officers against certain liabilities incurred by them, all within
specified limits. FWNC pays all premiums in respect of such insurance policy.
II-1
<PAGE>
ITEM 21
EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
2(A) Agreement and Plan of Merger between Valley Financial Services,
Inc., and Fort Wayne National Corporation dated November 6, 1995
(included as Appendix A to the Prospectus/Proxy Statement)
2(B) Agreement between Designated Valley Shareholders and FWNC
dated November 6, 1995 (included as Appendix C to the
Prospectus/Proxy Statement)
Amended Articles of Incorporation of Fort Wayne National
3(A) Corporation (incorporated by reference to Exhibit 3a to Fort Wayne
National Corporation's Annual Report on Form 10-K for the year
ended December 31, 1994)
3(B) Amended and Restated By-Laws of Fort Wayne National
Corporation (incorporated by reference to Exhibit 3b to Fort Wayne
National Corporation's Annual Report on Form 10-Q for the year
ended December 31, 1991)
5 Opinion of Baker & Daniels re: the legality of Common Stock and
Preferred Stock issuable in connection with the Merger
8 Form of Opinion of Barnes & Thornburg re: tax matters in
connection with the Merger
11 Statement re: computation of earnings per share (incorporated by
reference to Exhibit 11 to the Fort Wayne National Corporation's
Annual Report on Form 10-K for the year ended December 31,
1995)
12 Statement re: Computation of Consolidated Ratios of Earnings to
Fixed Charges and Preferred Stock Dividends
13 Fort Wayne National Corporation's Annual Report to Shareholders
(incorporated by reference to Fort Wayne National Corporation's
Annual Report on Form 10-K for the year ended December 31,
1995)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to Fort Wayne National Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995)
23(A) Consent of Baker & Daniels (contained in the opinion filed as
Exhibit 5 hereto)
23(B) Consent of Barnes & Thornburg
23(C)* Consent of Ernst & Young LLP (included at page II-8 of this
Registration Statement)
23(D)* Consent of Crowe, Chizek and Company LLP (included at page II-9
of this Registration Statement)
23(E) Consent of Southard Financial
24 Power of Attorney (included in the signature page of this
Registration Statement)
27 Financial Data Schedule (incorporated by reference to Exhibit 27 to
Fort Wayne National Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995)
99(A) Consent of Person About to Become a Director (Dennis J.
Schwartz)
99(B) Fairness Opinion of Southard Financial given to Trustees of the
Company's Employee Stock Ownership Plan with 401(k) Provisions
*Filed herewith
</TABLE>
ITEM 22
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-3
<PAGE>
(ii) To reflect in the prospectus in 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 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 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;
(c) 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 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.
(iii) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or
13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by means of
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; and
(iv) 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Wayne, Indiana, on
April 22, 1996.
FORT WAYNE NATIONAL CORPORATION
By: /s/ Jackson R. Lehman
-------------------------------------------
Jackson R. Lehman, Chairman of the Board of
Directors and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
all on April 22, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Jackson R. Lehman Director, Chairman of the Board of
- ----------------------------- Directors and Chief Executive Officer
Jackson R. Lehman
/s/ M. James Johnston Director, President and Chief
- ----------------------------- Administrative Officer
M. James Johnston
/s/ Stephen R. Gillig Executive Vice President and Chief
- ----------------------------- Financial Officer
Stephen R. Gillig
/s/ Walter S. Ainsworth* Director
- -----------------------------
Walter S. Ainsworth
/s/ Willis E. Alt, Jr.* Director
- -----------------------------
Willis E. Alt, Jr.
Director
- -----------------------------
Robert A. Anker
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
/s/ Stanley C. Craft* Director
- ----------------------------
Stanley C. Craft
/s/ Richard B. Doner* Director
- ----------------------------
Richard B. Doner
/s/ Jon F. Fuller* Director
- ----------------------------
Jon F. Fuller
/s/ Thomas C. Griffith* Director
- ----------------------------
Thomas C. Griffith
/s/ Michael C. Haggarty* Director
- ----------------------------
Michael C. Haggarty
/s/ Joanne B. Lantz* Director
- ----------------------------
Joanne B. Lantz
/s/ Michael J. McClelland* Director
- ----------------------------
Michael J. McClelland
/s/ Richard C. Menge* Director
- ----------------------------
Richard C. Menge
/s/ Patrick G. Michaels* Director
- ----------------------------
Patrick G. Michaels
/s/ Patricia R. Miller* Director
- ----------------------------
Patricia R. Miller
Director
- ----------------------------
James W. Rogers
/s/ Paul E. Shaffer* Director
- ----------------------------
Paul E. Shaffer
/s/ Thomas M. Shoaff* Director
- ----------------------------
Thomas M. Shoaff
/s/ Jeff H. Towles* Director
- ----------------------------
Jeff H. Towles
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
/s/ Don A. Wolf* Director
- ----------------------------------
Don A. Wolf
*/s/ Jackson R. Lehman
- ----------------------------------
By: Jackson R. Lehman,
Attorney-in-fact pursuant to
a Power of Attorney appearing
in the original Registration
Statement
</TABLE>
II-7
<PAGE>
EXHIBIT 23(C)
CONSENT OF ERNST & YOUNG LLP
----------------------------
INDEPENDENT AUDITORS
--------------------
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 1 to the Registration Statement (Form S-4, No. 33-01439) and
related Prospectus of Fort Wayne National Corporation for the registration of
shares of its common and preferred stock to be issued in connection with the
acquisition of all of the outstanding common and preferred shares of Valley
Financial Services, Inc., and to the incorporation by reference therein of our
report dated January 16, 1996, with respect to the Consolidated Financial
Statements of Fort Wayne National Corporation included in its Annual Report
(Form 10-K) for the year ended December 31, 1995, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Fort Wayne, Indiana
April 19, 1996
II-8
<PAGE>
EXHIBIT 23(D)
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We hereby consent to the use of our report, dated February 29, 1996 on the
consolidated financial statements of Valley Financial Services, Inc. as of
December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and
1993 in Amendment No. 1 of this Registration Statement on Form S-4 (No. 33-
01439) and the Prospectus of Fort Wayne National Corporation. We also consent
to the use of our name and the statements with respect to us appearing under the
heading "Experts" in the Prospectus.
Crowe, Chizek and Company LLP
South Bend, Indiana
April 22, 1996
II-9
