<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STAR BANC CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OHIO 6711 31-0838189
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
425 WALNUT STREET
CINCINNATI, OHIO 45202
(513) 632-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JENNIE CARLSON
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
STAR BANC CORPORATION
425 WALNUT STREET
CINCINNATI, OHIO 45202
(513) 632-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
EDWARD D. HERLIHY DONALD COX
WACHTELL, LIPTON, ROSEN & KATZ AND LYNCH, COX, GILMAN & MAHAN
51 WEST 52ND STREET 500 MEIDINGER TOWER
NEW YORK, NEW YORK 10019 LOUISVILLE, KENTUCKY 40202
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective. If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(3) PRICE(3) FEE(2)(3)
<S> <C> <C> <C> <C>
Common Stock..................................... 11,100,000 $47.88 $531,468,000 $36,465.85
</TABLE>
(1) Based upon the maximum number of shares that may be issued upon consummation
of the merger described herein, and upon exercise of securities exercisable
for shares of common stock of Star Banc.
(2) In accordance with Rule 457(b), the filing fee of $124,585.06 paid pursuant
to Section 14(g) of the Securities Exchange Act of 1934, as amended, and
Rule 0-11 thereunder at the time of the filing of the Proxy
Statement-Prospectus contained in this Registration Statement as preliminary
proxy materials of Star Banc Corporation and Great Financial Corporation has
been credited to offset the $161,050.90 registration fee that would
otherwise be payable.
(3) Pursuant to Rule 457(f), and solely for the purpose of calculating the
registration fee, the proposed maximum offering price is based upon the
average of the high and the low sale prices of the common stock, par value
$0.01 per share, of Great Financial Corporation on Nasdaq National Market on
December 9, 1997 and the number of shares of Star Banc Corporation Common
Stock being registered.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
GREAT FINANCIAL CORPORATION
329 W. MAIN STREET
LOUISVILLE, KENTUCKY 40202
December 11, 1997
Dear Stockholder:
On behalf of the Board of Directors and management, I cordially invite you
to attend the Special Meeting of Stockholders of Great Financial Corporation
("Great Financial") to be held at 10:00 a.m., Eastern Time, on January 13, 1998,
at the Commonwealth Convention Center, Room 207, 221 Fourth Avenue, Louisville,
Kentucky (the "Special Meeting").
At this important meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Merger, dated September
15, 1997 (the "Merger Agreement"), providing for the merger (the "Merger") of
Great Financial with and into Star Banc Corporation ("Star"). Upon consummation
of the Merger, each share of Great Financial common stock, other than shares
held by stockholders of Great Financial who exercise their appraisal rights
under the General Corporation Law of the State of Delaware, will be converted at
your election into either (i) 0.949 of a share of Star common stock, or (ii)
$44.00 in cash, PROVIDED that the aggregate number of shares of Great Financial
common stock that will be converted in the Merger into the right to receive Star
common stock will equal 70% of the issued and outstanding shares of Great
Financial common stock immediately prior to the time the Merger becomes
effective.
You will have the opportunity to elect to receive a combination of shares of
Star Common Stock and cash as consideration in the Merger. AN ELECTION FORM WILL
BE SENT ON WHICH GREAT FINANCIAL STOCKHOLDERS CAN ELECT THE COMBINATION OF STAR
COMMON STOCK AND CASH YOU WOULD LIKE. In certain circumstances, as set forth in
the Merger Agreement and more fully described in the accompanying Proxy
Statement/Prospectus, you may receive cash and/or Star Common Stock in different
amounts than elected. A copy of the Merger Agreement is attached as ANNEX A to
the accompanying Proxy Statement/Prospectus and is incorporated by reference
herein.
I have enclosed the following items relating to the Special Meeting and the
Merger:
1. Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to Harris Bank, the Transfer Agent, for
the proxy card
The Proxy Statement/Prospectus and related proxy materials set forth, or
incorporate by reference, financial data and other important information
relating to Great Financial and Star and describe the terms and conditions of
the proposed Merger. The Board of Directors urges you to carefully review these
materials before completing the enclosed proxy card or attending the Special
Meeting.
Sandler O'Neill & Partners, LP, an investment banking firm, has issued its
opinion, dated December 11, 1997, to your Board of Directors regarding the
fairness, from a financial point of view, of the consideration to be paid by
Star pursuant to the Merger Agreement. A copy of the opinion is attached as
Annex D to the accompanying Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS OF
GREAT FINANCIAL AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS OF
GREAT FINANCIAL UNANIMOUSLY RECOMMENDS THAT GREAT FINANCIAL STOCKHOLDERS VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
It is important that your shares be represented at the Special Meeting,
whether or not you plan to attend the Special Meeting in person. Please
complete, sign and date the enclosed proxy card and return it to Harris Bank in
the enclosed pre-addressed envelope which requires no postage if mailed within
the United States. If you later decide to attend the Special Meeting and vote in
person, or if you wish to revoke your proxy for any reason prior to the vote at
the Special Meeting, you may do so and your proxy will have
<PAGE>
no further effect. You may revoke your proxy by delivering to Harris Bank a
written notice of revocation bearing a later date than the proxy, or any later
dated proxy relating to the same shares, or by attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not in itself
constitute the revocation of a proxy.
The Board of Directors and management of Great Financial appreciate your
continued support. If you need assistance in completing your proxy card or if
you have any questions about the accompanying Proxy Statement/Prospectus, please
feel free to contact Kissel-Blake, Inc. at (212) 344-6733.
Sincerely,
/s/ Paul M. Baker
Paul M. Baker
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
GREAT FINANCIAL CORPORATION
329 W. MAIN STREET
LOUISVILLE, KENTUCKY 40202
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
JANUARY 13, 1998
To the Stockholders of Great Financial Corporation:
Notice is hereby given that the Special Meeting of Stockholders of Great
Financial Corporation, a Delaware corporation ("Great Financial"), will be held
at the Commonwealth Convention Center, Room 207, 221 Fourth Avenue, Louisville,
Kentucky, on January 13, 1998, at 10:00 a.m., Eastern Time (the "Special
Meeting"), for the following purposes:
(1) To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated September 15, 1997, by and between Star Banc
Corporation, an Ohio corporation ("Star"), and Great Financial (the "Merger
Agreement"), pursuant to which, among other things, (i) Great Financial will be
merged with and into Star (the "Merger"), with the result that the business and
operations of Great Financial will be continued through Star, and (ii) upon
consummation of the Merger, each outstanding share of Great Financial common
stock, par value $.01 per share ("Great Financial Common Stock"), other than
shares held by stockholders of Great Financial who exercise their appraisal
rights under the General Corporation Law of the State of Delaware (the "Delaware
Law"), will be converted into either (i) 0.949 of a share of Star common stock
("Star Common Stock"), or (ii) $44.00 in cash, PROVIDED that the aggregate
number of shares of Great Financial Common Stock that shall be converted in the
Merger into the right to receive Star Common Stock shall equal 70% of the issued
and outstanding shares of Great Financial Common Stock immediately prior to the
time the Merger becomes effective. Each Great Financial stockholder will have
the opportunity to elect to receive a combination of shares of Star Common Stock
and cash as consideration in the Merger. However, in certain circumstances, as
set forth in the Merger Agreement and more fully described in the accompanying
Proxy Statement/Prospectus, stockholders of Great Financial may receive cash
and/or Star Common Stock in different amounts than elected. The Merger Agreement
is attached as Annex A to the accompanying Proxy Statement/Prospectus and is
incorporated by reference herein.
(2) To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The record date for determining the holders of Great Financial Common Stock
entitled to receive notice of, and to vote at, the Special Meeting or any
adjournment or postponement thereof has been fixed as of the close of business
on November 28, 1997. Approval by the Great Financial stockholders of the Merger
Agreement requires the affirmative vote of the holders of at least a majority of
the outstanding shares of Great Financial Common Stock entitled to vote at the
Special Meeting.
Each holder of Great Financial Common Stock may have the right to dissent
from the Merger and to demand payment of the fair value of such stockholder's
shares in the event the Merger is approved and consummated. Any right of any
such stockholder to receive such payment would be contingent upon strict
compliance with the requirements set forth in Section 262 of the Delaware Law,
the full text of which is attached as Annex C to the accompanying Proxy
Statement/Prospectus. For a summary of these requirements, see "APPRAISAL RIGHTS
OF STOCKHOLDERS OF GREAT FINANCIAL" in the accompanying Proxy
Statement/Prospectus.
Information regarding the Merger and related matters is contained in the
accompanying Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice.
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL
MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING PROXY
STATEMENT/ PROSPECTUS.
THE BOARD OF DIRECTORS OF GREAT FINANCIAL HAS DETERMINED THAT THE TERMS OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF GREAT FINANCIAL AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS OF GREAT FINANCIAL UNANIMOUSLY RECOMMENDS THAT GREAT FINANCIAL
STOCKHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard M. Klapheke
Richard M. Klapheke
SECRETARY
Louisville, Kentucky
December 11, 1997
2
<PAGE>
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
STAR BANC CORPORATION
PROSPECTUS
------------------------
GREAT FINANCIAL CORPORATION
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 13, 1998
------------------------
This Prospectus of Star Banc Corporation, an Ohio corporation ("Star"),
relates to 9,379,985 shares of common stock, par value $5.00 per share, and
attached preferred share purchase rights (the "Rights"), of Star (such common
stock and Rights, collectively, in this Proxy Statement/Prospectus, the "Star
Common Stock") to be issued to the stockholders of Great Financial Corporation,
a Delaware corporation ("Great Financial"), upon consummation of the proposed
merger of Great Financial with and into Star (the "Merger"). The Merger will be
consummated pursuant to the Agreement and Plan of Merger, dated September 15,
1997, by and between Star and Great Financial (the "Merger Agreement"), upon the
terms and subject to the conditions thereof. This Prospectus also serves as the
Proxy Statement of Great Financial for use in connection with the solicitation
of proxies by the Board of Directors of Great Financial (the "Great Financial
Board") to be used at the Special Meeting of Stockholders of Great Financial
(the "Special Meeting") to, among other things, approve and adopt the Merger
Agreement. The Merger Agreement is attached as Annex A to this Proxy
Statement/Prospectus, and is incorporated herein by reference.
Pursuant to the Merger Agreement, Star will issue an aggregate of up to
9,379,985 shares of Star Common Stock. Upon consummation of the Merger, among
other things, each outstanding share of Great Financial common stock, par value
$.01 per share ("Great Financial Common Stock"), other than shares held by
stockholders of Great Financial who exercise their appraisal rights under the
General Corporation Law of the State of Delaware (the "Delaware Law"), will be
converted, at the election of each Great Financial Stockholder, into either (i)
0.949 of a share of Star Common Stock (the "Exchange Ratio"), or (ii) $44.00 in
cash. Each Great Financial stockholder will have the opportunity to elect to
receive a combination of shares of Star Common Stock and cash as consideration
in the Merger. However, in certain circumstances, as set forth in the Merger
Agreement and more fully described below, stockholders of Great Financial may
receive cash and/or Star Common Stock in different amounts than elected. See
"THE MERGER AGREEMENT--Allocation" and "THE MERGER--Appraisal Rights of
Stockholders of Great Financial." Great Financial Stockholders will not know
when they vote on the Merger what form of consideration that each such Great
Financial Stockholder will receive in the Merger. No fractional shares of Star
Common Stock will be issued in the Merger, but cash will be paid in lieu of such
fractional shares. See "THE MERGER AGREEMENT--Fractional Shares."
Star Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "STB." On September 12, 1997, the last full trading day
before public announcement of the Merger, the last sale price of Star Common
Stock as reported on the NYSE Composite Tape was $46.38. On December 9, 1997,
the last sale price of Star Common Stock as reported on the NYSE Composite Tape
was $56.75. Great Financial Common Stock is quoted on The Nasdaq National Market
("NASDAQ") under the symbol "GTFN." On September 12, 1997, the last sale price
of Great Financial Common Stock as reported by NASDAQ was $42.75. On December 9,
1997, the last sale price for Great Financial Common Stock as reported by NASDAQ
was $50.63.
This Proxy Statement/Prospectus, the letter to Great Financial stockholders,
the Notice of Special Meeting of Stockholders, and the form of proxy are first
being mailed to the stockholders of Great Financial on or about December 12,
1997.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF STAR COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENTAL AGENCY.
--------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER 11, 1997.
<PAGE>
AVAILABLE INFORMATION
Each of Star and Great Financial is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information concerning either Star or Great Financial can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices in New York (Suite 1300, Seven World Trade Center,
New York, New York 10048) and Chicago (Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661). Copies of such material can also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet world wide web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of the world wide web site is
http://www.sec.gov. Star Common Stock is listed on the NYSE, and such reports,
proxy statements and other information concerning Star are available for
inspection and copying at the offices of the NYSE, 20 Broad Street, New York,
New York 10005. Great Financial Common Stock is quoted on NASDAQ National Market
System ("NASDAQ NMS"), and such reports, proxy statements and other information
concerning Great Financial are available for inspection and copying at the
Public Reference section of NASDAQ at 1735 K Street, N.W., Washington, D.C.
20006.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 and exhibits thereto (together
with any amendments thereto, the "Registration Statement") covering the
securities offered hereby which has been filed by Star with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). As permitted by
the rules and regulations of the Commission, this Proxy Statement/Prospectus
omits certain information contained or incorporated by reference in the
Registration Statement. Reference is hereby made to the Registration Statement
for further information with respect to Star and the securities offered hereby.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus provide a fair summary of the contents of any contract or
other document referenced herein or therein but are not necessarily complete,
and, in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
i
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED BY REFERENCE HEREIN OR IN
SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO THE FOLLOWING:
<TABLE>
<CAPTION>
STAR DOCUMENTS GREAT FINANCIAL DOCUMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Nancy Kelly Richard M. Klapheke
425 Walnut Street 329 W. Main Street
Cincinnati, Ohio 45202 Louisville, Kentucky 40202
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN JANUARY 2, 1998.
The following documents filed with the Commission by Star under the Exchange
Act are incorporated herein by reference (Commission File No. 0-7601):
(i) Star's Annual Report on Form 10-K for the year ended December 31,
1996, as amended (the "1996 Star Form 10-K").
(ii) The information contained in Star's Proxy Statement, dated February
28, 1997, for its Annual Meeting of Shareholders held on April 8, 1997 that
has been incorporated by reference in the 1996 Star Form 10-K.
(iii) Star's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997 June 30, 1997, and September 30, 1997.
(iv) The description of Star Common Stock set forth in Item 1 of Star's
Registration Statement on Form 8-A, dated April 15, 1994, and any amendment
or report filed for the purpose of updating such description.
(v) The description of the Rights set forth in Item 1 of Star's
Registration Statement on Form 8-A, dated May 5, 1994, and any amendment or
report filed for the purpose of updating such description.
(vi) Star's Current Reports on Form 8-K filed September 25, 1997 and
March 12, 1997 and on Form 8-K/A filed September 26, 1997.
The following documents filed with the Commission by Great Financial under
the Exchange Act are incorporated herein by reference (Commission File No.
0-23122):
(i) Great Financial's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended (the "1996 Great Financial Form 10-K").
(ii) The information contained in Great Financial's Proxy Statement,
dated March 24, 1997, for its Annual Meeting of Shareholders held on April
23, 1997 that has been incorporated by reference in the 1996 Great Financial
Form 10-K.
(iii) Great Financial's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 June 30, 1997, and September 30, 1997.
All documents filed with the Commission by Star and/or Great Financial
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the Special
Meeting shall be deemed to be incorporated by reference herein and made a part
hereof from the date any such document is filed. The information relating to
Star and Great Financial contained in this Proxy Statement/Prospectus does not
purport to be complete and should be read together with the information in the
documents incorporated by reference herein. Any statement contained herein
ii
<PAGE>
or in a document incorporated or deemed to be incorporated herein by reference
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained herein or in any other subsequently filed document
incorporated or 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 hereof.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY STAR OR GREAT FINANCIAL. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO EXCHANGE OR SELL, OR A SOLICITATION OF AN OFFER TO EXCHANGE OR BUY,
ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR
FROM ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN
OFFER OR PROXY SOLICITATION. THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS SPEAKS AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFICALLY
INDICATED. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH IT RELATES SHALL IMPLY OR CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF STAR OR GREAT
FINANCIAL OR ANY OF THEIR RESPECTIVE SUBSIDIARIES OR IN THE INFORMATION SET
FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
STAR FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS RELATING TO
THE COST SAVINGS, REVENUE ENHANCEMENTS AND FUNDING ADVANTAGES THAT ARE EXPECTED
TO BE REALIZED FROM THE MERGER AND THE EXPECTED IMPACT OF THE MERGER ON STAR'S
FINANCIAL PERFORMANCE AND EARNINGS ESTIMATES FOR THE COMBINED COMPANY. SEE "THE
MERGER--BACKGROUND OF THE MERGER," "--REASONS FOR THE MERGER; GREAT FINANCIAL
BOARD RECOMMENDATION" AND "--OPINION OF GREAT FINANCIAL'S FINANCIAL ADVISOR" AND
"PRO FORMA FINANCIAL INFORMATION." THESE FORWARD-LOOKING STATEMENTS INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM THE
MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE
LOSS FOLLOWING THE MERGER; (3) COMPETITIVE PRESSURE IN THE BANKING INDUSTRY
INCREASES SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF
THE BUSINESSES OF STAR AND GREAT FINANCIAL ARE GREATER THAN EXPECTED; (5)
CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS MORE THAN PLANNED; (6)
GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE
THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS, A DETERIORATION IN CREDIT
QUALITY; (7) THE IMPACT OF REGULATORY CHANGES IS OTHER THAN EXPECTED; (8)
CHANGES IN BUSINESS CONDITIONS AND INFLATION; AND (9) CHANGES IN THE SECURITIES
MARKETS.
THE FORWARD-LOOKING EARNINGS ESTIMATES INCLUDED IN THIS PROXY STATEMENT-
PROSPECTUS HAVE NOT BEEN EXAMINED OR COMPILED BY THE INDEPENDENT PUBLIC
ACCOUNTANTS OF STAR OR GREAT FINANCIAL NOR HAVE SUCH ACCOUNTANTS APPLIED ANY
PROCEDURES THERETO. ACCORDINGLY, SUCH ACCOUNTANTS DO NOT EXPRESS AN OPINION OR
ANY OTHER FORM OF ASSURANCE ON THEM.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................................................... i
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... ii
SUMMARY INFORMATION........................................................................................ 1
Business of Star......................................................................................... 1
Business of Great Financial.............................................................................. 1
Special Meeting of Great Financial Stockholders.......................................................... 2
The Proposed Merger...................................................................................... 2
Fractional Shares........................................................................................ 5
Stock Option Agreement................................................................................... 5
Recommendation of the Great Financial Board.............................................................. 5
Opinion of Great Financial's Financial Advisor........................................................... 6
Interests of Certain Persons in the Merger............................................................... 6
Regulatory Approval...................................................................................... 6
Waiver and Amendment..................................................................................... 6
Accounting Treatment..................................................................................... 7
Great Financial Stock Options............................................................................ 7
Federal Income Tax Consequences in General............................................................... 7
Appraisal Rights......................................................................................... 8
Certain Differences in the Rights of Shareholders........................................................ 8
Markets and Market Prices................................................................................ 8
Comparative Unaudited Per Share Data..................................................................... 9
Summary Financial Data................................................................................... 11
STAR BANC CORPORATION FIVE-YEAR SUMMARY FINANCIAL INFORMATION.............................................. 12
GREAT FINANCIAL CORPORATION FIVE-YEAR SUMMARY FINANCIAL DATA............................................... 13
THE COMPANIES.............................................................................................. 14
Star..................................................................................................... 14
Great Financial.......................................................................................... 14
Operations after the Merger.............................................................................. 15
INFORMATION REGARDING SPECIAL MEETING...................................................................... 16
General.................................................................................................. 16
Date, Time and Place..................................................................................... 16
Great Financial Record Date; Vote Required............................................................... 16
Voting Securities and Certain Holders Thereof............................................................ 16
Voting and Revocation of Proxies......................................................................... 16
Solicitation of Proxies.................................................................................. 17
THE MERGER................................................................................................. 18
Background of the Merger................................................................................. 18
Reasons for the Merger; Great Financial Board Recommendation............................................. 19
Opinion of Great Financial's Financial Advisor........................................................... 19
Interests of Certain Persons in the Merger............................................................... 25
Regulatory Approval...................................................................................... 26
Accounting Treatment..................................................................................... 27
Certain Federal Income Tax Consequences of the Merger.................................................... 27
Appraisal Rights of Stockholders of Great Financial...................................................... 30
</TABLE>
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<TABLE>
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<S> <C>
THE MERGER AGREEMENT....................................................................................... 33
General Description of the Merger........................................................................ 33
Closing and Effective Time............................................................................... 33
Election Procedures...................................................................................... 33
Allocation............................................................................................... 35
Surrender of Great Financial Stock Certificates and Receipt of Star Common Stock and/or Cash............. 36
Fractional Shares........................................................................................ 37
Conditions of the Merger................................................................................. 37
Termination of the Merger Agreement...................................................................... 39
Business Pending the Merger.............................................................................. 39
Waiver and Amendment..................................................................................... 41
Employee Benefits........................................................................................ 41
Stock Option Agreement................................................................................... 43
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION........................................................ 48
COMPARISON OF SHAREHOLDER RIGHTS........................................................................... 56
Description of Star Common Stock and Attached Preferred Share Purchase Rights............................ 56
Restrictions on Resale of Star Capital Stock by Affiliates; Affiliate Agreements......................... 57
Comparison of Rights of Shareholders of Star and Stockholders of Great Financial......................... 58
SUPERVISION AND REGULATION................................................................................. 66
General.................................................................................................. 66
Certain Transactions with Affiliates..................................................................... 66
Payment of Dividends..................................................................................... 66
Capital Adequacy......................................................................................... 67
Support of Subsidiary Bank............................................................................... 67
FIRREA and FDICIA.......................................................................................... 68
Depositor Preference Statute............................................................................. 69
FDIC Insurance Assessments............................................................................... 69
Interstate Banking and Other Recent Legislation.......................................................... 70
LEGAL MATTERS.............................................................................................. 71
EXPERTS.................................................................................................... 71
OTHER MATTERS.............................................................................................. 71
SHAREHOLDER PROPOSALS...................................................................................... 71
ANNEXES
Annex A--Merger Agreement.................................................................................. A-1
Annex B--Stock Option Agreement or Section 262 of the DGCL................................................. B-1
Annex C--Appraisal Rights Provisions under the DGCL........................................................ C-1
Annex D--Fairness Opinion of Sandler O'Neill & Partners, LP................................................ D-1
</TABLE>
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SUMMARY INFORMATION
THE FOLLOWING IS A SUMMARY OF CERTAIN TERMS OF THE MERGER AND RELATED
INFORMATION DISCUSSED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS AND IS NOT
INTENDED TO BE COMPLETE. IT IS QUALIFIED IN ALL RESPECTS BY THE MORE DETAILED
INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS, THE ACCOMPANYING
ANNEXES AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. AS USED IN THIS
PROXY STATEMENT/PROSPECTUS, THE TERMS "STAR" AND "GREAT FINANCIAL" REFER TO SUCH
CORPORATIONS, RESPECTIVELY, AND, WHERE THE CONTEXT REQUIRES, SUCH CORPORATIONS
AND THEIR RESPECTIVE SUBSIDIARIES ON A CONSOLIDATED BASIS. STOCKHOLDERS OF GREAT
FINANCIAL ARE URGED TO READ AND CONSIDER CAREFULLY ALL OF THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS AND
THE ANNEXES TO THIS PROXY STATEMENT/PROSPECTUS. ALL INFORMATION CONCERNING STAR
INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY STAR AND ALL
INFORMATION CONCERNING GREAT FINANCIAL INCLUDED IN THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN FURNISHED BY GREAT FINANCIAL.
BUSINESS OF STAR
Star is a bank holding company as defined by the Bank Holding Company Act of
1956, as amended (the "BHCA"), and is registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). Through its banking
subsidiary, Star Bank, N.A., Star is engaged in the commercial banking and trust
business, providing a full range of consumer, commercial and trust financial
products and investment services throughout Ohio, Kentucky and Indiana. As of
June 30, 1997, Star had assets of $10.8 billion and deposits of $8.3 billion.
Star was organized as a Delaware corporation in 1973 under the name "First
National Cincinnati Corporation." In 1988, it was reincorporated under the laws
of the State of Ohio, and, in 1989, changed its name to "Star Banc Corporation."
The executive offices of Star are maintained in Cincinnati, Ohio.
For additional information, see "--Summary Financial Data," "THE MERGER
AGREEMENT," "COMPARISON OF SHAREHOLDER RIGHTS--DESCRIPTION OF STAR COMMON STOCK
AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS," "SUPERVISION AND REGULATION,"
"UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION" and "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE."
BUSINESS OF GREAT FINANCIAL
Great Financial was incorporated under the laws of Delaware in December 1993
for the purpose of becoming a savings and loan holding company, with Great
Financial Bank, FSB ("GFB"), a federally chartered stock savings bank, as its
sole, first tier subsidiary. In March 1994, Great Financial acquired all of the
capital stock of GFB issued upon GFB's conversion from mutual to stock form. In
July 1995, Great Financial acquired First Federal Savings Bank of Richmond
("FFSB"). FFSB merged with GFB in July 1996. In June 1996 Great Financial
acquired Lexington Federal Savings Bank ("LFSB"). LFSB merged with GFB upon
acquisition. Great Financial currently engages in no significant business
activities other than those conducted through GFB and GFB's subsidiaries.
GFB's principal business is attracting retail deposits from the general
public in the areas surrounding its branch offices and investing those deposits,
together with funds generated from operations, loan and investment principal
repayments, and borrowings, in one-to-four family, owner-occupied, residential
mortgage loans, multi-family, commercial real estate, construction and land
loans, commercial business loans, and consumer loans. As of June 30, 1997, Great
Financial had assets of $3.0 billion and deposits of $1.9 billion.
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For additional information, see "THE MERGER AGREEMENT," "DESCRIPTION OF
GREAT FINANCIAL," "PRO FORMA FINANCIAL INFORMATION" and "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE."
SPECIAL MEETING OF GREAT FINANCIAL STOCKHOLDERS
The Special Meeting will be held at the Commonwealth Convention Center, Room
207, 221 Fourth Avenue, Louisville, Kentucky, on Tuesday, January 13, 1998, at
10:00 a.m., Eastern Standard Time, at which Special Meeting the stockholders of
Great Financial will consider and vote on a proposal to approve and adopt the
Merger Agreement and will transact such other business as may properly come
before the Special Meeting or any adjournment or postponement thereof. Approval
by the Great Financial stockholders of the Merger Agreement requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of Great Financial Common Stock entitled to vote at the Special Meeting
("Stockholder Approval"). Only holders of record of Great Financial Common Stock
at the close of business on November 28, 1997 (the "Record Date") will be
entitled to notice of, and to vote at, the Special Meeting. At such date, there
were 14,120,104 shares of Great Financial Common Stock outstanding held by
approximately 3,239 holders of record. See "INFORMATION REGARDING THE SPECIAL
MEETING."
As of the Record Date, directors and executive officers of Great Financial
and certain of their affiliates owned beneficially an aggregate of 1,093,079
shares of Great Financial Common Stock, or approximately 7.7% of the shares
entitled to vote at the Special Meeting. See "INFORMATION REGARDING THE SPECIAL
MEETING."
Any stockholder of Great Financial giving a proxy may revoke it at any time
prior to the vote at the Special Meeting. Stockholders of Great Financial
wishing to revoke a proxy prior to the vote may do so by delivering to the
Transfer Agent, Harris Bank, at P.O. Box 755, Chicago, Illinois 60690-9312 by
mail, or 311 West Monroe Street, 11th Floor, Chicago, Illinois 60690-3504 by
courier or hand delivery, a written notice of revocation bearing a later date
than the proxy or any later dated proxy relating to the same shares, or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in itself constitute the revocation of a proxy.
THE PROPOSED MERGER
GENERAL. Subject to the satisfaction of the terms and conditions set forth
in the Merger Agreement, which are described below, Great Financial will merge
with and into Star. Upon consummation of the Merger, Great Financial's corporate
existence will terminate, with Star continuing as the surviving corporation.
Simultaneously with the effectiveness of the Merger, and subject to the
election and allocation procedures set forth in the Merger Agreement and
described below, each outstanding share of Great Financial Common Stock, other
than shares held by stockholders of Great Financial who exercise their appraisal
rights under the Delaware Law, will be converted at the election of stockholders
of Great Financial into (i) 0.949 of a share of Star Common Stock (the "Per
Share Stock Consideration"), or (ii) $44.00 in cash (the "Per Share Cash
Consideration") (together, the "Merger Consideration"). See "THE MERGER
AGREEMENT" and "THE MERGER--Appraisal Rights of Stockholders of Great
Financial."
ELECTION AND ALLOCATION PROCEDURES. Each Great Financial stockholder may
elect to receive shares of Star Common Stock with respect to some or all of such
holder's Great Financial Common Stock ("Stock Election Shares"), to elect to
receive cash with respect to some or all of such holder's Great Financial Common
Stock ("Cash Election Shares") or to indicate that such holder makes no election
with respect to such holder's Great Financial Common Stock ("No Election
Shares").
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Star Bank, N.A., which has been appointed the exchange agent (the "Exchange
Agent"), will send to each Great Financial stockholder who is a stockholder of
record, an election form (the "Election Form") to be used by each such
stockholder to indicate Stock Election Shares, Cash Election Shares or No
Election Shares. In order for an Election Form to be deemed to be effective,
such Election Form must be properly completed and duly executed by the Great
Financial stockholder and returned to the Exchange Agent by 5:00 p.m., Eastern
Time, on January 16, 1998 or the date of the Effective Time (or such other time
and date as Star and Great Financial may mutually agree) (the "Election
Deadline"). Star and Great Financial currently anticipate that the Effective
Time will occur on January 16, 1998.
The actual Merger Consideration that will be paid to each Great Financial
stockholder upon consummation of the Merger may differ from the form of Merger
Consideration elected by such stockholder pursuant to his or her Election Form
in the event that the aggregate number of shares of Star Common Stock to be
issued pursuant to the Merger would not equal (i) 70%, times (ii) 0.949 (the
"Exchange Ratio"), times (iii) the number of shares of Great Financial Common
Stock outstanding as of the Effective Time (the "Stock Amount"). In the event
the Stock Amount times the closing price of a share of Star Common Stock on the
NYSE composite tape on the last trading day prior to the Effective Time ("Star
Closing Price") is less than 50% of the number of shares of Great Financial
Common Stock outstanding as of the Effective Time times the closing price of a
share of Great Financial Common Stock on the Nasdaq National Market on the last
trading day prior to the Effective Time, then the Stock Amount will be adjusted
so that the Merger will qualify as a reorganization under Section 368 of the
Internal Revenue Code. In this case, the Stock Amount will be revised to equal
50% of the number of shares of Great Financial Common Stock outstanding as of
the Effective Time times the closing price of a share of Great Financial Common
Stock on the Nasdaq National Market on the last trading day prior to the
Effective Time, divided by the Star Closing Price.
Any shares of Great Financial Common Stock with respect to which an
effective, properly completed Election Form has not been submitted to the
Exchange Agent by the Election Deadline will be deemed to be No Election Shares.
An Election Form will be deemed properly completed only if accompanied by one or
more Certificates (or customary affidavits and indemnification regarding the
loss or destruction of such Certificates or the guaranteed delivery of such
Certificates) representing all shares of Great Financial Common Stock covered by
such Election Form, together with duly executed transmittal materials included
with the Election Form. Any Election Form may be revoked or changed by the
person submitting such Election Form at or prior to the Election Deadline. In
the event an Election Form is revoked, the shares of Great Financial Common
Stock represented by such Election Form shall become No Election Shares and Star
will cause the certificates representing Great Financial Common Stock
("Certificates") to be promptly returned without charge to the person submitting
the Election Form upon written request to that effect from the person who
submitted the Election Form. Such Great Financial stockholder may then submit a
new Election Form.
In the event that the number of shares of Star Common Stock that would be
issued upon conversion in the Merger of the Stock Election Shares is less than
the Stock Amount, (i) all Stock Election Shares will be converted into the right
to receive the Per Share Stock Consideration, (ii) the Exchange Agent will
select first PRO RATA from among the holders of No Election Shares and then (if
necessary) PRO RATA from among the Cash Election Shares (excluding dissenting
shares) a sufficient number of shares ("Stock Designated Shares") such that the
number of shares of Star Common Stock that will be issued in the Merger equals
as nearly as practicable the Stock Amount, and all Stock Designated Shares will
be converted into the right to receive the Per Share Stock Consideration, and
(iii) the remaining Cash Election Shares and the No Election Shares which are
not Stock Designated Shares will be converted into the right to receive the Per
Share Cash Consideration.
In the event that the number of shares of Star Common Stock that would be
issued upon the conversion of the Stock Election Shares is greater than the
Stock Amount, (i) all Cash Election Shares and No Election Shares will be
converted into the right to receive the Per Share Cash Consideration, (ii) the
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Exchange Agent will select PRO RATA from among the Stock Election Shares a
sufficient number of shares ("Cash Designated Shares") such that the number of
shares of Star Common Stock that will be issued in the Merger equals as nearly
as practicable the Stock Amount, and all Cash Designated Shares will be
converted into the right to receive the Per Share Cash Consideration, and (iii)
the Stock Election Shares which are not Cash Designated Shares shall be
converted into the right to receive the Per Share Stock Consideration.
In the event that the number of shares of Star Common Stock that would be
issued upon conversion of the Stock Election Shares is equal or nearly equal (as
determined by the Exchange Agent) to the Stock Amount, then all Stock Election
Shares will be converted into the right to receive the Per Share Stock
Consideration and all Cash Election Shares and No Election Shares will be
converted into the right to receive the Per Share Cash Consideration. In the
event that the number of shares of Star Common Stock that would be issued upon
the conversion of the Stock Election Shares and No Election Shares would equal
or nearly equal (as determined by the Exchange Agent) the Stock Amount, then all
Cash Election Shares will be converted into the right to receive the Per Share
Cash Consideration and all Stock Election Shares and No Election Shares will be
converted into the right to receive the Per Share Stock Consideration.
BECAUSE THE MAXIMUM PERCENTAGE OF SHARES OF STAR COMMON STOCK TO BE ISSUED
IN THE MERGER IS FIXED, NO ASSURANCE CAN BE GIVEN THAT AN ELECTION BY ANY GIVEN
GREAT FINANCIAL STOCKHOLDER WILL BE HONORED. THEREFORE, GREAT FINANCIAL
STOCKHOLDERS MAY NOT RECEIVE PRECISELY THE FORM OF CONSIDERATION REQUESTED. SEE
"THE MERGER AGREEMENT--ELECTION PROCEDURES" AND "--ALLOCATION." IN THE EVENT A
HOLDER OF GREAT FINANCIAL COMMON STOCK RECEIVES BOTH STAR COMMON STOCK AND CASH,
THE RECEIPT OF CASH COULD BE SUBJECT TO TAX. SEE "THE MERGER--CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER."
Great Financial Stockholders should be aware that there are advantages and
disadvantages to receiving Star Common Stock as opposed to cash in the Merger.
Based on the closing price of Star Common Stock on the NYSE on December 9, 1997,
the value of the Star Common Stock to be received in the Merger with respect to
each share of Great Financial Common Stock would be $53.86 which is higher than
the $44.00 of cash to be received in the Merger with respect to each share of
Great Financial Common Stock. The value of Star Common Stock to be received in
the Merger with respect to each share of Great Financial Common Stock is subject
to change due to changes in value of Star Common Stock, while the value of cash
to be received in the Merger with respect to each share of Great Financial
Common Stock is fixed at $44.00. The receipt of Star Common Stock and cash by
Great Financial Stockholders in the Merger will result in different tax
consequences as described in "THE MERGER--Certain Federal Income Tax
Consequences."
CONDITIONS. Consummation of the Merger is subject to certain terms and
conditions, including, among other things, Stockholder Approval and receipt of
all requisite regulatory approvals. See "THE MERGER AGREEMENT--Conditions of the
Merger" and "THE MERGER--Regulatory Approval."
CLOSING AND EFFECTIVE TIME. Unless the parties otherwise agree, the closing
of the Merger (the "Closing") shall take place at 10:00 a.m., local time, on the
date on which the Effective Time of the Merger occurs (the "Closing Date"),
which shall be any such date on or after January 2, 1998 as Star shall notify
Great Financial in writing but (i) not earlier than the receipt of Stockholder
Approval and all requisite regulatory approvals (the "Approval Date"), and (ii)
not later than the first business day of the first full calendar month
commencing at least five business days after the Approval Date. The Merger will
be consummated and become effective on the date and at the time on which
appropriate documents in respect of the Merger are filed with the Secretaries of
State of the States of Delaware and Ohio (the
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"Effective Time"). Star and Great Financial currently anticipate that the
Effective Time will occur on January 16, 1998. See "THE MERGER
AGREEMENT--Closing and Effective Time."
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time by the mutual consent of the parties or by either party upon
the occurrence of certain events or if the Merger is not consummated by
September 15, 1998. See "THE MERGER AGREEMENT--Termination of the Merger
Agreement."
FRACTIONAL SHARES
No fractional shares of Star Common Stock will be issued to Great Financial
stockholders in connection with the Merger. Upon consummation of the Merger,
each former holder of Great Financial Common Stock who otherwise would have been
entitled to receive a fraction of a share of Star Common Stock shall be entitled
to receive in lieu thereof cash, without interest, in an amount equal to the
holder's fractional share interest multiplied by the closing stock price of Star
Common Stock on the last business day preceding the Effective Time. Cash
received by Great Financial stockholders in lieu of fractional shares may give
rise to taxable income. See "THE MERGER--Certain Federal Income Tax Consequences
of The Merger."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, Star and Great
Financial entered into the Stock Option Agreement, dated September 15, 1997 (the
"Stock Option Agreement"), pursuant to which Great Financial has issued Star an
option (the "Option") to purchase up to 2,747,083 shares of Great Financial
Common Stock (or 19.9% of the outstanding shares of Great Financial Common Stock
as of the Record Date, without including any shares subject to or issued
pursuant to the Option) at an exercise price of $36.00 per share. The Option is
exercisable only upon the occurrence of certain events and provides Star the
right, under certain circumstances, to require Great Financial to purchase for
cash the unexercised portion of the Option and all shares of Great Financial
Common Stock purchased by Star pursuant thereto. The Option, which Star required
that Great Financial grant as a condition to Star's entering into the Merger
Agreement, may increase the likelihood of consummation of the Merger by
discouraging competing offers for Great Financial. Certain aspects of the Stock
Option Agreement may have the effect of discouraging persons who may now, or
prior to the Effective Time, be interested in acquiring all of or a significant
interest in Great Financial from considering or proposing such an acquisition,
even if such persons were prepared to offer to pay consideration to stockholders
of Great Financial which had a higher current market price than the Per Share
Stock Consideration or Per Share Cash Consideration to be received for each
share of Great Financial Common Stock pursuant to the Merger Agreement.
The Stock Option Agreement is attached as Annex B to this Proxy
Statement/Prospectus and is incorporated herein by reference. See "THE MERGER
AGREEMENT--Stock Option Agreement."
RECOMMENDATION OF THE GREAT FINANCIAL BOARD
THE GREAT FINANCIAL BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY. THE GREAT FINANCIAL BOARD BELIEVES THAT
THE MERGER IS IN THE BEST INTERESTS OF GREAT FINANCIAL AND ITS STOCKHOLDERS AND
RECOMMENDS THAT SUCH STOCKHOLDERS VOTE "FOR" THE MATTERS TO BE VOTED UPON BY
SUCH STOCKHOLDERS IN CONNECTION WITH THE MERGER.
For a discussion of the factors considered by the Great Financial Board in
reaching its conclusion, see "THE MERGER--Background of the Merger" and
"--Reasons for the Merger; Great Financial Board Recommendation."
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<PAGE>
OPINION OF GREAT FINANCIAL'S FINANCIAL ADVISOR
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill"), Great Financial's
financial advisor, has delivered to the Great Financial Board a written opinion
dated December 11, 1997, to the effect that, as of such date and based upon the
procedures and subject to the assumptions made, matters considered and
limitations and qualifications described therein, the Merger Consideration is
fair from a financial point of view to the holders of Great Financial Common
Stock. The full text of the written opinion of Sandler O'Neill dated December
11, 1997 is attached as Annex D to this Proxy Statement/Prospectus and holders
of Great Financial Common Stock are urged to read carefully the opinion in its
entirety. See "THE MERGER--Opinion of Great Financial's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Great Financial's management and Board of Directors have
interests in the Merger in addition to their interests as stockholders of Great
Financial. Those interests relate to, among other things, severance
arrangements, equity-based benefit plan arrangements affected by the change-in-
control of Great Financial effected by the Merger, and post-merger insurance
coverage.
Assuming the Effective Time were January 16, 1998, the payments to the GFB
Officers pursuant to certain employment agreements would be as follows: Paul
Baker--$927,903; Jack Shipman--$498,336; Richard Klapheke--$492,213; James
Statler--$492,213; and Arthur Harreld--$603,844. Each GFB Officer and the
members of the Board of Directors (as a whole) will enjoy acceleration of
exercise rights as to the following numbers of options: Paul Baker--132,250;
Jack Shipman--38,000; Richard Klapheke-- 37,470; James Statler--36,859; Arthur
Harreld--77,146; Board of Directors--132,257. The number of shares of Great
Financial Common Stock which will vest in each GFB Officer and the Great
Financial directors (as a whole) due to the accelerated vesting due to the
Merger will be as follows: Paul Baker-- 34,387; Jack Shipman--3,094; Richard
Klapheke--12,894; James Statler--10,580; Arthur Harreld-- 18,517; Board of
Directors--78,674.
The Great Financial Board was aware of these interests and considered them,
among other interests and other matters, in approving the Merger Agreement and
the transactions contemplated thereby. See "THE MERGER--Interests of Certain
Persons in the Merger."
REGULATORY APPROVAL
The Merger is subject to the prior approval of the Federal Reserve Board
under the BHCA. In reviewing the Merger, the Federal Reserve Board will consider
various factors, including possible anticompetitive effects of the Merger, and
will examine the financial and managerial resources and future prospects of the
combined organization. The Merger may not be consummated until expiration of all
applicable waiting periods.
Application for such approvals has been filed. There can be no assurance
that any necessary regulatory approvals or actions will be received or taken or
as to the timing of such approvals or actions.
See "THE MERGER AGREEMENT--Conditions of the Merger" and "THE
MERGER--Regulatory Approval."
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement may be amended by action taken by
or on behalf of the Board of Directors of Star (the "Star Board") and the Great
Financial Board at any time before or after Stockholder Approval, including an
amendment to change one or more of the termination provisions set forth therein,
by an instrument in writing signed on behalf of each party; PROVIDED that, after
Stockholder Approval, no such modification may alter or change
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<PAGE>
the amount or kind of consideration to be received by holders of Great Financial
Common Stock in the Merger.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the purchase
method of accounting. See "THE MERGER--Accounting Treatment."
GREAT FINANCIAL STOCK OPTIONS
At the Effective Time, all rights with respect to Great Financial Common
Stock pursuant to options ("Great Financial Stock Options") which immediately
prior to the Effective Time, constitute incentive stock options ("Great
Financial Incentive Stock Options") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), that are outstanding at
the Effective Time, whether or not then exercisable, will be converted into and
become rights with respect to Star Common Stock, and Star will assume each Great
Financial Incentive Stock Option in accordance with the terms of the Great
Financial Stock Plan under which it was issued and the stock option agreement by
which it is evidenced. From and after the Effective Time, (i) each Great
Financial Incentive Stock Option assumed by Star will be exercisable solely for
shares of Star Common Stock, (ii) the number of shares of Star Common Stock
subject to each Great Financial Incentive Stock Option will be equal to the
number of shares of Great Financial Common Stock subject to such Great Financial
Incentive Stock Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down to the nearest whole share of Star Common Stock and
(iii) the per share exercise price under each Great Financial Incentive Stock
Option shall be adjusted by dividing the per share exercise price under such
Great Financial Incentive Stock Option by the Exchange Ratio and rounding up to
the nearest cent; PROVIDED, HOWEVER, that the terms of each Great Financial
Stock Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time.
The foregoing assumption shall be undertaken by Star in a manner that will
comply with Section 424(a) of the Internal Revenue Code, as to any Great
Financial Stock Option that is an "incentive stock option." The holder of a
Great Financial Incentive Stock Option which is converted into an option with
respect to Star Common Stock will not recognize gain or loss solely as a result
of such conversion. See "THE MERGER--Certain Federal Income Tax Consequences of
The Merger."
Prior to the Effective Time, Great Financial intends to cancel each Great
Financial Stock Option which (i) is not a Great Financial Incentive Stock Option
and (ii) is not exercised prior to the Effective Time by paying to the holder
thereof an amount of cash equal to the product of (a) the amount by which the
Per Share Cash Consideration exceeds the exercise price of the Great Financial
Stock Option and (b) the number of shares of Great Financial Common Stock
subject to the Great Financial Stock Option.
Certain executive officers, including certain executive officers who are
directors, of Great Financial currently hold both Great Financial Incentive
Stock Options, which will be converted into rights with respect to Star Common
Stock as described above, and other Great Financial Stock Options, which will be
canceled and paid cash as described above.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Code. In the opinion of Wachtell, Lipton, Rosen & Katz, special counsel
to Star, assuming that the Merger occurs in accordance with the Merger
Agreement, and that certain representations made by Star, Great Financial and
others are accurate, for United States federal income tax purposes, the Merger
will constitute a "reorganization" within the meaning of Section 368 of the
Code, and no gain or loss will be recognized by the stockholders of Great
Financial to the extent they receive solely Star Common Stock in exchange for
shares of Great Financial Common Stock. Great Financial stockholders who receive
cash in exchange for
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Great Financial Common Stock, including in lieu of fractional shares, may
recognize taxable income, but not in excess of the amount of cash received. EACH
GREAT FINANCIAL STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
STOCKHOLDER. See "THE MERGER-- Certain Federal Income Tax Consequences of the
Merger."
APPRAISAL RIGHTS
Under the Delaware Law, a holder of shares of Great Financial Common Stock
may, in lieu of the consideration such stockholder would otherwise receive in
the Merger, seek payment of the "fair value" of such shares and receive payment
of such fair value in cash if the Merger is consummated by following certain
procedures set forth in Section 262 of the Delaware Law, the text of which is
attached as Annex C to this Proxy Statement/Prospectus. A holder of shares of
Great Financial Common Stock who receives such a payment may recognize taxable
income.
Failure to follow such procedures may result in a loss of such stockholder's
appraisal rights. Any Great Financial stockholder returning a blank executed
proxy card will be deemed to have approved the Merger Agreement, thereby waiving
any such appraisal rights. See "The Merger--Appraisal Rights of Stockholders of
Great Financial."
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of stockholders of Great Financial are currently governed by the
Delaware Law and Great Financial's Certificate of Incorporation and By-Laws.
Upon consummation of the Merger, Great Financial stockholders who receive Star
Common Stock in the Merger will become shareholders of Star, and their rights
will be governed by the Ohio Business Corporation Law (the "Ohio Law") and
Star's Articles of Incorporation and Regulations. See "COMPARISON OF SHAREHOLDER
RIGHTS--Comparison of the Rights of Shareholders of Star and Stockholders of
Great Financial."
MARKETS AND MARKET PRICES
Star Common Stock is currently listed on the NYSE under the symbol "STB." On
September 12, 1997, the last full trading day preceding public announcement of
the Merger, the last sale price of Star Common Stock was $46.38 per share as
reported on the NYSE Composite Tape. The last sale price of Star Common Stock on
December 9, 1997, the most recent practicable date prior to the mailing of this
Proxy Statement/Prospectus, was $56.75 per share as reported on the NYSE
Composite Tape.
Great Financial Common Stock is currently quoted on NASDAQ NMS under the
symbol "GTFN." On September 12, 1997, the last full trading day preceding public
announcement of the Merger, the last sale price of Great Financial Common Stock
was $42.75 per share as reported on NASDAQ. The value of Great Financial Common
Stock at September 12, 1997, on an equivalent per share basis, was $44.00 (based
upon the Exchange Ratio). The last sale price of Great Financial Common Stock on
December 9, 1997, the most recent practicable date prior to the mailing of this
Proxy Statement/Prospectus, was $50.63 per share as reported on NASDAQ.
Stockholders are advised to obtain current market quotations for Star Common
Stock and Great Financial Common Stock. There can be no assurance as to the
market price of Star Common Stock or Great Financial Common Stock before, at,
or, in the case of Star Common Stock, after, the Effective Time. The following
table sets forth for the periods indicated the high and low last sale prices (as
reported on the
8
<PAGE>
NYSE Composite Tape or on NASDAQ, as the case may be) and per share cash
dividend declared with respect to Star Common Stock and Great Financial Common
Stock.
<TABLE>
<CAPTION>
GREAT FINANCIAL
STAR
COMMON STOCK (1) COMMON STOCK
CASH
-------------------- DIVIDEND --------------------
HIGH LOW DECLARED (1) HIGH LOW
--------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995
First Quarter................................................... 14.20 12.08 .1333 17.50 14.88
Second Quarter.................................................. 15.33 13.70 .1333 19.13 16.38
Third Quarter................................................... 18.13 15.25 .1333 24.00 19.00
Fourth Quarter.................................................. 20.75 17.80 .1333 24.13 20.13
1996
First Quarter................................................... 22.20 18.70 .1567 24.75 22.50
Second Quarter.................................................. 23.38 21.08 .1567 27.63 24.50
Third Quarter................................................... 28.80 21.92 .1567 29.25 25.25
Fourth Quarter.................................................. 31.38 27.95 .1567 30.00 28.13
1997
First Quarter................................................... 45.25 29.70 .20 35.00 29.00
Second Quarter.................................................. 45.00 38.50 .20 35.50 29.25
Third Quarter................................................... 47.44 41.88 .20 44.00 32.88
Fourth Quarter (through December 9, 1997)....................... 57.25 46.13 .20 50.81 42.50
<CAPTION>
CASH
DIVIDEND
DECLARED
-------------
<S> <C>
1995
First Quarter................................................... .08
Second Quarter.................................................. .10
Third Quarter................................................... .10
Fourth Quarter.................................................. .10
1996
First Quarter................................................... .10
Second Quarter.................................................. .12
Third Quarter................................................... .12
Fourth Quarter.................................................. .12
1997
First Quarter................................................... .12
Second Quarter.................................................. .15
Third Quarter................................................... .15
Fourth Quarter (through December 9, 1997)....................... .15
</TABLE>
- ------------------------
(1) Reflects a 3-for-1 stock split declared December 10, 1996.
Star will apply for the listing on the NYSE of the shares of Star Common
Stock to be issued in the Merger.
The Star Board intends to maintain its present policy of paying quarterly
cash dividends on the Star Common Stock when justified by the financial
condition of Star and its subsidiaries. The declaration and amount of future
dividends will depend on circumstances existing at the time, including Star's
earnings, financial condition and capital requirements as well as regulatory
limitations, note and indenture provisions and such other factors as the Star
Board may deem relevant. See "COMPARISON OF SHAREHOLDER RIGHTS -- Description of
Star Common Stock and Attached Preferred Share Purchase Rights -- DIVIDENDS."
Pursuant to the Merger Agreement, Great Financial has agreed that, during
the period from the date of the Merger Agreement to the Effective Time, Great
Financial will not declare, set aside or pay any dividends or other
distributions on the Great Financial Common Stock, except that Great Financial
may declare and pay regular quarterly cash dividends of not more than $.15 per
share on the Great Financial Common Stock; PROVIDED that Great Financial may not
declare any dividends during any quarter in which its stockholders will be
entitled to receive any regular quarterly dividend on shares of Star Common
Stock.
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected historical
per share data of Star and Great Financial and the corresponding pro forma and
pro forma equivalent per share amounts giving effect to the Merger. The data
presented is based upon the consolidated financial statements and related notes
of Star and the consolidated financial statements and related notes of Great
Financial included or incorporated by reference in this Proxy
Statement/Prospectus, and the pro forma combined consolidated balance sheet and
income statements, including the notes thereto, appearing elsewhere herein. This
9
<PAGE>
information should be read in conjunction with such historical and pro forma
financial statements and related notes thereto. The assumptions used in the
preparation of this table appear in the notes to the pro forma financial
information appearing elsewhere in this Proxy Statement/Prospectus. See "PRO
FORMA FINANCIAL INFORMATION."
The unaudited pro forma per share data reflect the Merger based upon
preliminary purchase accounting adjustments. Actual adjustments, which may
include adjustments to additional assets, liabilities and other items, will be
made on the basis of appraisals and evaluations as of the Effective Date and,
therefore, are likely to differ from those reflected in the unaudited pro forma
per share data.
Star and Great Financial expect that the combined company will achieve
substantial benefits from the Merger, including operating cost savings and
revenue enhancements. However, the unaudited pro forma comparative per share
data does not reflect any direct costs, potential savings or revenue
enhancements which are expected to result from the consolidation of operations
of Star and Great Financial, and, therefore, does not purport to be indicative
of the results of future operations.
The comparative per share data presented herein is based on and derived
from, and should be read in conjunction with, the historical consolidated
financial statements and the related notes thereto of Great Financial, both of
which are incorporated by reference herein. See "AVAILABLE INFORMATION,"
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA FINANCIAL
INFORMATION--Pro Forma Combined Consolidated Financial Statements (Unaudited)."
Pro forma amounts are not necessarily indicative of results of operations or the
combined financial position that would have resulted had the Merger been
consummated at the beginning of the periods indicated. All adjustments
consisting of only normal recurring adjustments necessary for a fair statement
of results of interim periods have been included.
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, 1997 1996
------------------- ---------------
<S> <C> <C>
Earnings per common share (primary)--
Star:
Historical............................................................... $ 1.66 $ 1.79
Pro forma combined for the Merger........................................ 1.57 1.59
Great Financial:
Historical............................................................... 1.69 1.36
Pro forma equivalent for the Merger(1)................................... 1.49 1.51
Cash dividends declared per common share--
Star:
Historical............................................................... 0.60 0.63
Pro forma combined for the Merger(2)..................................... 0.60 0.63
Great Financial:
Historical............................................................... 0.42 0.46
Pro forma equivalent for the Merger(1)................................... 0.57 0.60
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
1997 1996
------------------- ---------------
<S> <C> <C>
Shareholders' equity per common share (end of period)--
Star:
Historical............................................................... $ 10.36 $ 9.86
Pro forma combined for the Merger........................................ 14.00 13.38
Great Financial:
Historical............................................................... 21.08 19.87
Pro forma equivalent for the Merger(1)................................... 13.29 12.89
</TABLE>
- ------------------------
(1) Pro forma equivalent amounts for the Merger are calculated by multiplying
the pro forma combined amounts by the Exchange Ratio of .949.
(2) Pro forma combined dividends per share represent historical dividends per
share paid by Star.
10
<PAGE>
SUMMARY FINANCIAL DATA
The following tables set forth for the periods indicated certain summary
historical consolidated financial information for Star and Great Financial.
The historical balance sheet data and income statement data included in the
summary financial data for the periods indicated are derived from financial
statements of Star and Great Financial as of and for such periods. These data
include all adjustments which are, in the opinion of the respective managements
of Star and Great Financial, necessary to present a fair statement of the
results of these periods and all such adjustments are of a normal recurring
nature. Results for interim periods are not necessarily indicative of results
for the entire year.
The following information should be read in conjunction with the
consolidated financial statements of Star and Great Financial, and the related
notes thereto, included in documents incorporated herein by reference and in
conjunction with the unaudited pro forma combined consolidated financial
information, including notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
and "PRO FORMA FINANCIAL INFORMATION."
11
<PAGE>
STAR BANC CORPORATION
FIVE-YEAR SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED ENDED -----------------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 1996 1995 1994 1993 1992
------------------ ------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income........ $ 596,075 $ 545,473 $ 735,525 $ 710,404 $ 569,724 $ 518,167 $ 541,421
Interest expense....... 252,904 237,835 317,326 332,196 223,618 194,691 233,038
------------------ ------------------ --------- --------- --------- --------- ---------
Net interest income.... 343,171 307,638 418,199 378,208 346,106 323,476 308,383
Taxable equivalent
adjustment(a)........ 2,551 2,442 3,300 3,356 3,069 3,283 4,479
------------------ ------------------ --------- --------- --------- --------- ---------
Taxable equivalent net
interest income...... 345,722 310,080 421,499 381,564 349,175 326,759 312,862
Noninterest income..... 149,413 126,648 170,522 138,124 117,015 112,890 99,644
------------------ ------------------ --------- --------- --------- --------- ---------
Net revenue............ 495,135 436,728 592,021 519,688 466,190 439,649 412,506
Noninterest expense.... 236,871 228,974 308,211 286,214 260,311 250,849 253,011
Provision for loan
losses............... 41,614 29,623 40,773 25,101 24,372 33,008 40,898
Net income............. 143,031 116,115 158,359 136,603 116,591 100,273 76,119
PER SHARE(B)
Primary earnings....... $ 1.66 $ 1.31 $ 1.79 $ 1.52 $ 1.30 $ 1.13 $ 0.87
Fully diluted
earnings............. 1.66 1.31 1.79 1.51 1.29 1.10 0.84
Common stock cash
dividends declared... 0.60 0.47 0.63 0.53 0.47 0.39 0.35
Period-end book
value................ 10.36 9.62 9.86 9.16 8.01 7.44 6.70
Period-end market
value................ 45.94 28.38 30.63 19.83 12.13 11.67 12.00
AVERAGE BALANCES
Loans, net of unearned
interest............. $ 7,902,509 $7,162,514 $7,255,113 $6,669,806 $5,721,667 $5,146,341 $4,926,900
Investment
securities........... 1,365,758 1,564,683 1,531,349 1,901,722 1,900,290 1,592,210 1,341,917
Money market
instruments.......... 61,333 18,598 31,097 17,059 43,080 264,502 383,255
------------------ ------------------ --------- --------- --------- --------- ---------
Total interest-earning
assets............... 9,329,600 8,745,795 8,817,559 8,588,587 7,665,037 7,003,053 6,652,072
Total assets........... 10,251,727 9,642,508 9,705,620 9,439,626 8,252,244 7,542,798 7,171,898
Noninterest-bearing
deposits............. 1,459,701 1,325,644 1,345,296 1,188,364 1,065,933 1,036,141 925,338
Interest-bearing
deposits............. 6,387,696 6,295,538 6,298,664 6,155,334 5,212,946 5,085,718 4,955,133
------------------ ------------------ --------- --------- --------- --------- ---------
Total deposits......... 7,847,397 7,621,182 7,643,960 7,343,698 6,278,879 6,121,859 5,880,471
Short-term
borrowings........... 1,009,505 885,787 898,025 1,014,552 995,901 621,482 498,014
Long-term debt......... 340,425 158,257 162,840 163,788 155,172 54,308 59,906
Shareholders' equity... 850,166 838,924 835,566 777,674 702,605 640,868 579,486
RATIOS
Return on average
assets............... 1.87% 1.61% 1.63% 1.45% 1.41% 1.33% 1.06%
Return on average
equity............... 22.49 18.71 18.95 17.57 16.59 15.65 13.14
Net interest margin.... 4.95 4.73 4.78 4.44 4.55 4.67 4.70
Noninterest expense to
net revenue.......... 47.84 52.43 52.06 55.07 55.84 57.06 61.34
Dividend payout
ratio................ 35.83 35.59 34.69 35.00 35.89 34.41 40.35
Tier 1 risk-based
capital.............. 8.74 7.66 7.64 7.97 8.66 11.10 10.64
Total risk-based
capital.............. 12.67 10.74 11.88 11.23 12.16 12.41 11.99
Leverage (c)........... 7.90 6.57 6.53 6.23 6.27 8.24 7.51
Average shareholders'
equity to average
total assets......... 8.29 8.60 8.61 8.24 8.51 8.50 8.08
</TABLE>
- ------------------------------
(a) Taxable equivalent adjustment was calculated utilizing a marginal federal
income tax rate of 35 percent for 1993-1997 and 34 percent for 1992.
(b) Share amounts have been restated to reflect a 3-for-1 stock split in
December 1996.
(c) Defined as tier 1 equity as a percent of average assets.
12
<PAGE>
GREAT FINANCIAL CORPORATION
FIVE-YEAR SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS YEAR-ENDED DECEMBER 31,
ENDED ENDED -----------------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 1996 1995 1994 1993 1992
------------------ ------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income........ $ 162,415 $ 145,874 $ 199,255 $ 160,632 $ 119,466 $ 110,912 $ 106,693
Interest expense....... 100,660 89,530 123,417 98,088 61,120 57,927 64,628
------------------ ------------------ --------- --------- --------- --------- ---------
Net interest income.... 61,755 56,344 75,838 62,544 58,346 52,985 42,065
Noninterest income..... 29,120 27,085 35,838 29,433 33,984 3,972 22,098
------------------ ------------------ --------- --------- --------- --------- ---------
Net revenue............ 90,875 83,429 111,676 91,977 92,330 56,957 64,163
Noninterest expense.... 52,545 61,820 78,626 55,793 59,049 56,960 46,402
Provision for loan
losses............... 2,323 1,911 2,586 2,283 1,786 4,659 1,702
Net income (loss)...... 23,522 12,605 19,507 21,690 20,091 (2,922) 10,365
PER SHARE
Primary earnings....... $ 1.69 $ 0.88 $ 1.36 $ 1.46 $ 1.05(a) N/A N/A
Fully diluted
earnings............. 1.67 0.88 1.36 1.44 1.05(a) N/A N/A
Common stock cash
dividends declared... 0.42 0.34 0.46 0.38 0.08 N/A N/A
Period-end book
value................ 21.08 19.27 19.87 19.24 17.22 N/A N/A
Period-end market
value................ 42.63 28.38 29.13 23.50 15.13 N/A N/A
AVERAGE BALANCES
Loans, net of unearned
interest............. $1,979,913 $1,903,579 $1,920,801 $1,662,707 $1,308,704 $1,251,981 $1,061,999
Investment
securities........... 760,832 536,770 565,646 360,838 279,139 176,495 191,786
Money market
instruments.......... 9,740 17,472 20,061 14,882 40,524 18,485 29,509
------------------ ------------------ --------- --------- --------- --------- ---------
Total interest-earning
assets............... 2,750,485 2,457,821 2,506,508 2,038,427 1,628,367 1,446,961 1,283,294
Total assets........... 2,924,464 2,609,265 2,673,142 2,164,270 1,726,789 1,555,885 1,389,475
Noninterest bearing
deposits............. 130,644 134,870 132,209 123,831 100,415 131,463 98,675
Interest-bearing
deposits............. 1,727,857 1,489,224 1,533,566 1,220,370 1,132,065 1,127,140 1,029,514
------------------ ------------------ --------- --------- --------- --------- ---------
Total deposits......... 1,858,501 1,624,094 1,665,775 1,344,201 1,232,480 1,258,603 1,128,189
Short-term
borrowings........... 231,125 201,862 216,783 268,303 123,156 103,708 76,174
Long-term debt......... 499,507 457,316 464,088 244,036 96,030 57,293 37,241
Shareholders' equity... 281,224 278,176 278,595 278,946 233,725 131,773 126,400
RATIOS
Return on average
assets............... 1.08% 0.65% 0.73% 1.00% 1.16% (0.19)% 0.75%
Return on average
equity............... 11.18 6.05 7.00 7.78 8.60 (2.22) 8.20
Net interest margin.... 3.02 3.08 3.03 3.07 3.58 3.66 3.28
Noninterest expense to
net revenue.......... 57.82 74.10 70.41 60.66 63.95 100.01 72.32
Dividend payout
ratio................ 25.15 38.64 33.82 26.39 7.62 N/A N/A
Tier 1 risk-based
capital (b).......... 17.78 17.08 17.57 19.58 20.40 13.78 18.06
Total risk-based
capital (b).......... 18.82 18.06 18.55 20.34 20.98 14.36 18.59
Average shareholders'
equity to average
total assets......... 9.62 10.66 10.42 12.89 13.54 8.47 9.10
</TABLE>
- ------------------------------
(a) Earnings per share since conversion (and initial public offering) on March
30, 1994.
(b) Regulatory capital ratios are presented for Great Financial Bank, FSB only.
13
<PAGE>
THE COMPANIES
STAR
Star is a bank holding company as defined by the BHCA, and is registered
with the Federal Reserve Board. Through Star Bank, N.A., its banking subsidiary,
Star is engaged in the commercial banking and trust business, providing a full
range of consumer, commercial and trust financial products and investment
services throughout Ohio, Kentucky and Indiana. As of June 30, 1997, Star had
assets of $10.8 billion and deposits of $8.3 billion.
Star was organized as a Delaware corporation in 1973 under the name "First
National Cincinnati Corporation." In 1988, it was reincorporated under the laws
of the State of Ohio, and, in 1989, changed its name to "Star Banc Corporation."
The executive offices of Star are maintained in Cincinnati, Ohio.
Types of loans offered through its banking subsidiary include commercial
loans, commercial leasing, commercial and residential mortgages, real estate
construction, and a variety of consumer loan products, including installment
loans, credit cards and retail leasing. Star's loan portfolio is well
diversified between wholesale and consumer loans, with none of the
above-mentioned loan types exceeding 30% of the total portfolio. Star invests in
United States Treasury and a variety of mortgage or backed securities in order
to (i) facilitate the management of interest rate risk, (ii) provide liquidity,
(iii) provide a degree of credit diversification and flexibility in the balance
sheet, and (iv) provide collateral as necessary for public deposits.
In the past five years, Star has continued to expand through the acquisition
of branch offices or other smaller banking institutions throughout its market
area of Ohio, Kentucky and Indiana. Most recently Star purchased seven branches
offices in southwestern Ohio from AmeriFirst Bank, N.A. and five offices in
Indiana from National City Bank. This followed the 1995 purchase of 24 Columbus,
Ohio area branch offices from Household Bank, Federal Savings Bank, the 1994
purchase of 47 former TransOhio Federal Savings Bank branch offices in the
Cleveland and Akron, Ohio areas from the Resolution Trust Corporation and the
1992 purchase of 28 branches in the Cleveland area from Ameritrust, N.A. Star
continues to explore other acquisition opportunities in its tri-state market
area.
In 1996, Star merged its Kentucky and Indiana banks into Star Bank, N.A.,
resulting in Star wholly owning one subsidiary bank with over 260 offices in
Ohio, Kentucky and Indiana. This followed a comprehensive restructuring program
in 1993 in which Star merged its six Ohio banks in Columbus, Eaton, Hillsboro,
Ironton, Sidney and Troy with Star Bank, N.A. In addition, Star merged its two
Indiana banks in Lawrenceburg and Richmond to form Star Bank, N.A., Indiana.
Star Bank, N.A. is a national bank. See "SUPERVISION AND REGULATION"
The Miami Valley Insurance Company, a wholly-owned subsidiary of Star, is
incorporated under the laws of the State of Arizona and is engaged solely in the
business of issuing credit life and accident and health insurance in connection
with the lending activities of Star's Ohio and Indiana bank offices. In 1995,
Star formed a wholly-owned consumer finance company, Star Banc Finance, Inc.
Star Banc Finance, Inc. offers consumers a broad mix of credit products and
services, such as indirect and direct auto loans, second mortgages and personal
loans.
Star and its subsidiaries had a total of 3,988 full-time equivalent
employees at December 31, 1996. Star Bank, N.A. operated a total of 263 full
service offices at December 31, 1996.
GREAT FINANCIAL
Great Financial was incorporated under the laws of Delaware in December 1993
for the purpose of becoming a savings and loan holding company, with GFB as its
sole, first tier subsidiary. In March, 1994, Great Financial acquired all of the
capital stock of GFB issued upon GFB's conversion from mutual to stock form. In
July 1995, Great Financial acquired FFSB. FFSB merged with GFB in July 1996. In
June 1996, Great Financial acquired LFSB. LFSB merged with GFB upon acquisition.
Great Financial
14
<PAGE>
currently engages in no significant business activities other than those
conducted through GFB and GFB's subsidiaries.
GFB's principal business is attracting retail deposits from the general
public in the areas surrounding its branch offices and investing those deposits,
together with funds generated from operations, loan and investment principal
repayments, and borrowings, in one-to-four family, owner-occupied, residential
mortgage loans, multi-family, commercial real estate, construction and land
loans, commercial business loans, and consumer loans. As of June 30, 1997, Great
Financial had assets of $3.0 billion and deposits of $1.9 billion.
GFB's deposit gathering, consumer lending, and a major portion of its retail
lending markets are concentrated in the communities surrounding its 45 full
service offices. GFB's retail lending activities primarily are concentrated in
three of the major markets of Kentucky--Louisville metropolitan area, Owensboro
metropolitan area and Central Kentucky. GFB also markets retail lending products
nationwide through telemarketing. GFB conducts retail mortgage lending
activities under the names "Great Financial Mortgage" and "Lincoln Service
Mortgage" through retail production offices located in Louisville, Owensboro,
Paducah and Lexington, Kentucky.
Approximately 67% of GFB's deposits are in branches located in the
Louisville metropolitan area (including a new office in New Albany, Indiana)
while 21% are located in the Owensboro metropolitan area and Western Kentucky
and 12% in Central Kentucky. With the acquisition of LFSB in June 1996, GFB's
presence in Central Kentucky increased to 11 branch locations and approximately
$400 million in deposits.
OPERATIONS AFTER THE MERGER
Following the Merger and subject to regulatory approval and necessary
preparations for systems integration, Star intends to combine the operations,
and, subject to required regulatory approvals, to merge Star Bank, N.A. with GFB
and to consolidate their operations. Receipt of the necessary regulatory
approvals for the merger of GFB and Star Bank, N.A. is not a condition to the
Merger.
While no assurance can be given, Star believes that, approximately $25
million of potential pre-tax cost savings can be achieved on an unaudited basis
by 1999. Cost savings are expected to be realized primarily through the
consolidation of certain offices and branches, staff functions, data processing
and other redundant back-office operations. Star currently estimates that no
branches will be closed in connection with the proposed transaction. The extent
of which cost savings will be achieved is dependent upon various factors beyond
the control of Star and Great Financial, including the regulatory environment,
economic conditions, unanticipated changes in business conditions and inflation.
Therefore, no assurance can be given with respect to the ultimate level or
composition of cost savings to be realized, or that such savings will be
realized in the time frame currently anticipated.
Star also anticipates that, in order to achieve these savings within the
desired time frame, Star and Great Financial will incur one-time Merger expenses
and direct charges in connection with the Merger, estimated to be approximately
$15 million (pre-tax) in the aggregate, principally as a result of expenses to
be incurred in connection with transaction costs and anticipated elimination of
duplicate headquarters and operational facilities. These one-time charges are
expected to be paid in the first quarter of 1998. The exact level of the merger
related charges that will be taken in connection with the Merger has not yet
been determined and could vary, potentially significantly, from the current
estimate based upon a further refinement of anticipated organizational changes
to occur following the Merger.
While no assurances can be given, Star and Great Financial also expect to
achieve revenue opportunities, which they expect will come principally from an
expansion of Great Financial's line of banking products, including growth. The
precise level of revenue opportunities which result from the Merger will be
dependent upon a variety of financial, economic and other factors, many of which
are beyond the ability of Star to control, and no assurance can be provided as
to the level of future revenues or earnings that will be achieved by the
combined company. Although no assurances can be given, based on earnings
estimates as of the date of the Merger Agreement, the Merger is also expected to
be accretive to earnings beginning in 1998.
15
<PAGE>
INFORMATION REGARDING SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Great
Financial Common Stock in connection with the solicitation of proxies by the
Great Financial Board for use at the Special Meeting and any adjournment or
postponement thereof at which the stockholders of Great Financial will consider
and vote on a proposal to approve and adopt the Merger Agreement and will
transact such other business as may properly come before the Special Meeting or
any adjournment or postponement thereof. Each copy of this Proxy
Statement/Prospectus is accompanied by a letter to Great Financial stockholders,
the Notice of Special Meeting of Stockholders, a proxy card and a self-addressed
return envelope to the Transfer Agent for the proxy card.
This Proxy Statement/Prospectus is also furnished by Star to each holder of
Great Financial Common Stock as a Prospectus in connection with the issuance by
Star of shares of Star Common Stock to Great Financial stockholders upon the
consummation of the Merger. This Proxy Statement/Prospectus, the letter to Great
Financial stockholders, the Notice of Special Meeting of Stockholders, and the
form of proxy are first being mailed to stockholders of Great Financial on or
about December 12, 1997.
THE GREAT FINANCIAL BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
DATE, TIME AND PLACE
The Special Meeting will be held at the Commonwealth Convention Center, Room
207, 221 Fourth Avenue, Louisville, Kentucky, on Tuesday, January 13, 1998, at
10:00 a.m., Eastern Time.
GREAT FINANCIAL RECORD DATE; VOTE REQUIRED
The Great Financial Board has fixed November 28, 1997 as the Record Date for
determination of stockholders of Great Financial entitled to notice of and to
vote at the Special Meeting. Accordingly, only holders of record of Great
Financial Common Stock at the close of business on November 28, 1997 will be
entitled to notice of, and to vote at, the Special Meeting. At the Record Date,
there were 14,120,104 shares of Great Financial Common Stock outstanding and
entitled to vote which were held by approximately 3,239 holders of record. Each
such share is entitled to one vote on each matter properly brought before the
Special Meeting. The affirmative vote of the holders of at least a majority of
the outstanding shares of Great Financial Common Stock entitled to vote at the
Special Meeting is required to approve the Merger Agreement.
VOTING SECURITIES AND CERTAIN HOLDERS THEREOF
Stockholders of record as of the close of business on November 28, 1997 will
be entitled to one vote for each share then held on all matters brought before
the Special Meeting. As of November 28, 1997, Great Financial had 14,120,104
shares of Great Financial Common Stock issued and outstanding.
As of the Record Date, directors and executive officers of Great Financial
and certain of their affiliates beneficially owned an aggregate of 1,093,079
shares of Great Financial Common Stock, or approximately 7.7% of the shares
entitled to vote at the Special Meeting.
VOTING AND REVOCATION OF PROXIES
Shares of Great Financial Common Stock entitled to vote and which are
represented at the Special Meeting by a properly executed proxy received prior
to the vote at the Special Meeting will be voted at the Special Meeting in the
manner directed on the proxy card, unless such proxy is revoked in the manner
set
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forth herein in advance of such vote. ANY GREAT FINANCIAL STOCKHOLDER RETURNING
A BLANK EXECUTED PROXY CARD WILL BE DEEMED TO HAVE VOTED "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER. Failure to return a properly
executed proxy card or to vote in person at the Special Meeting will have the
practical effect of a vote against the Merger Agreement.
Shares subject to abstentions will be treated as shares that are present at
the Special Meeting for purposes of determining the presence of a quorum. If a
broker or other nominee holder indicates on the proxy card that it does not have
discretionary authority to vote the shares it holds of record on the proposal,
those shares will be treated as shares that are present at the Special Meeting
for purposes of determining the presence of a quorum but will not be considered
as voted for purposes of determining the approval of shareholders on a
particular proposal. Since the approval of the Merger Agreement requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of Great Financial Common Stock entitled to vote at the Special Meeting,
abstentions and broker non-votes will have the same effect as votes against the
approval of the Merger Agreement.
Any stockholder of Great Financial giving a proxy may revoke it at any time
prior to the vote at the Special Meeting. Stockholders of Great Financial
wishing to revoke a proxy prior to the vote may do so by delivering to Harris
Bank, at P.O. Box 755, Chicago, Illinois 60690-9312 by mail, or 311 West Monroe
Street, 11th Floor, Chicago, Illinois 60690-3504 by courier or hand delivery, a
written notice of revocation bearing a later date than the proxy or any later
dated proxy relating to the same shares, or by attending the Special Meeting and
voting in person. Attendance at the Special Meeting will not in itself
constitute the revocation of a proxy.
The Great Financial Board is not currently aware of any business to be
brought before the Special Meeting other than that described herein. If,
however, other matters are properly brought before such Special Meeting, or any
adjournment or postponement thereof, the persons appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment as to the best interest of
Great Financial.
SOLICITATION OF PROXIES
Great Financial will bear its own costs of soliciting proxies. Proxies will
initially be solicited by mail, but directors, officers and selected other
employees of Great Financial may also solicit proxies in person or by telephone,
telegram or other means of communication. Directors, officers and any other
employees of Great Financial who solicit proxies will not be specially
compensated for such services, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Great Financial has
retained Kissel-Blake Inc. at an estimated cost of $6,500, plus reimbursement of
expenses, to assist in its solicitation of proxies from brokers, nominees,
institutions and individuals. Brokerage houses, nominees, fiduciaries, and other
custodians will be requested to forward proxy materials to beneficial owners and
will be reimbursed for their reasonable expenses incurred in connection
therewith.
HOLDERS OF GREAT FINANCIAL COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
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THE MERGER
BACKGROUND OF THE MERGER
From time to time Great Financial has reviewed various alternatives to
enhance shareholder value, including a strategic combination. In July 1997, the
Executive Committee of the Great Financial Board determined to investigate
whether there was any interest of other financial institutions in a potential
strategic combination. In this regard, Great Financial, through Sandler O'Neill,
contacted several bank holding companies, including Star, to determine their
interest in engaging in a business combination. During late August and early
September Great Financial senior management, with the advice and assistance of
Sandler O'Neill, pursued discussions relating to a possible combination with
certain of these bank holding companies which had expressed interest in such a
combination, including Star.
On Tuesday, September 9, the Star Board and certain members of Star senior
management reviewed the terms of a potential offer by Star to enter into a
business combination with Great Financial. At the meeting, Star senior
management discussed the strategic and business issues in such a potential
combination and the financial aspects of the Star proposal regarding a possible
combination with Great Financial. At the conclusion of the meeting, the Star
Board authorized senior management of Star to make a proposal to Great
Financial, to negotiate with Great Financial in connection with a potential
business combination, and, subject to certain parameters, to execute a
definitive agreement. Star and its representatives also conducted a due
diligence review of Great Financial based on publicly available information.
On Thursday, September 11, 1997, Jerry Grundhofer and David Moffett met with
Paul Baker, Richard Klapheke and Don Cox and together with the respective
financial advisors discussed numerous issues concerning Star, its performance
and the goals for Star, as well as the expression of interest.
After meetings with Star personnel and considering Star's proposed plan for
the future of the combined companies, executive management concluded that
further discussions with Star were appropriate. In deciding to commence
negotiations of definitive agreements with Star on the basis of Star's
expression of interest, Great Financial management considered the issues
referred to in "THE MERGER--Reasons for the Merger; Great Financial Board
Recommendation." In particular, Great Financial management noted that Star's
expression of interest provided protection for the merger price between the date
of the execution of the Merger Agreement and the Effective Time by virtue of the
fact that 30% of the merger consideration was payable in cash and Great
Financial would have the right to terminate the transaction if the market price
of Star Common Stock significantly declined prior to the closing. In addition,
Great Financial management believed that in a combination with Star, a
significant percentage of Great Financial's personnel would be retained. Great
Financial decided not to negotiate definitive agreements with any other party.
Early in the evening of Friday, September 12, 1997, Great Financial informed
Star that its expression of interest would be considered by Great Financial's
Board that weekend. The parties commenced further discussions with respect to
the specifics of the Star expression of interest, due diligence investigations,
and the drafting of documentation for the proposed merger.
On Saturday, September 13, while due diligence continued, senior management
of Star and Great Financial and their legal representatives negotiated the terms
of a proposed merger agreement. Further negotiations continued on Sunday,
September 14.
At a meeting of the Great Financial Board on September 14, senior management
of Great Financial, together with its legal and financial advisors, reviewed for
the Great Financial Board the strategic investigation they had conducted, the
discussions and contacts with Star to date, the historical performance and
strategies of the companies, the financial terms of the Merger with Star and the
other terms of the draft Merger Agreement. Great Financial's financial advisor
reviewed the financial anaylsis set forth in "-- Opinion of Great Financial's
Financial Advisor." Following discussions of and questions by the Great
Financial Board to Great Financial senior management and its financial and legal
representatives, the
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members of the Great Financial Board voted unanimously to approve the Merger
Agreement and the transactions contemplated thereby, including without
limitation the Stock Option Agreement.
REASONS FOR THE MERGER; GREAT FINANCIAL BOARD RECOMMENDATION
In the course of reaching its determination to approve the Merger Agreement
and recommend it to the stockholders of Great Financial, the Great Financial
Board, without assigning any relative or specific weights, considered a number
of factors. The material factors considered were: (i) the fairness opinion
rendered by Sandler O'Neill, (ii) the terms of the Merger Agreement as
negotiated (including the transaction structure, the form and amount of the
Merger Consideration, and the potential impact of the proposed Merger Agreement
and the Stock Option Agreement on other institutions that might have an interest
in a business combination with Great Financial), and the negotiation process,
(iii) the financial condition, operations and prospects of Star and the
anticipated effect thereon of the proposed transaction, (iv) industry and
economic factors, (v) the nature and compatibility of Star's management and
business philosophy, (vi) the benefits available to the combined company's
shareholders resulting from anticipated growth and expanded products and
services, and other anticipated impact on depositors, employees, customers and
communities serviced by Great Financial, (vii) the financial and valuation
analyses prepared by Sandler O'Neill, and (viii) regulatory and other factors.
The Great Financial Board unanimously recommends that the holders of Great
Financial Common Stock vote "FOR" approval of the Merger Agreement and the
Merger.
OPINION OF GREAT FINANCIAL'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of July 21, 1997 (the "Sandler
O'Neill Agreement"), Great Financial retained Sandler O'Neill as an independent
financial advisor in connection with Great Financial's consideration of possible
business combinations with a second party. Sandler O'Neill is a nationally
recognized investment banking firm whose principal business specialty is banks
and savings institutions and is regularly engaged in the valuation of such
businesses and their securities in connection with mergers and acquisitions and
other corporate transactions.
Pursuant to the terms of the Sandler O'Neill Agreement, Sandler O'Neill
acted as financial advisor to Great Financial in connection with the Merger. In
connection therewith, the Board of Directors of Great Financial requested
Sandler O'Neill to render its opinion as to the fairness, from a financial point
of view, of the consideration to be received by the holders of Great Financial
Common Stock in the Merger. At the September 14, 1997 meeting at which Great
Financial's Board approved and adopted the Merger Agreement, Sandler O'Neill
delivered to Great Financial's Board its oral opinion, subsequently confirmed in
writing, that, as of such date, the consideration to be received by the holders
of shares of Great Financial's Common Stock pursuant to the Merger Agreement was
fair, from a financial point of view, to such shareholders. Sandler O'Neill has
also delivered to Great Financial's Board a written opinion dated the date of
this Proxy Statement/Prospectus (the "Fairness Opinion") which is substantially
identical to the September 14, 1997 opinion. THE FULL TEXT OF THE FAIRNESS
OPINION, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH SUCH OPINION, IS ATTACHED AS ANNEX D TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF
THE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX
D. HOLDERS OF SHARES OF GREAT FINANCIAL COMMON STOCK ARE URGED TO READ THE
FAIRNESS OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE
PROPOSED MERGER.
THE FAIRNESS OPINION WAS PROVIDED TO GREAT FINANCIAL'S BOARD FOR ITS
INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE MERGER CONSIDERATION TO HOLDERS OF GREAT FINANCIAL'S COMMON STOCK.
IT DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF GREAT FINANCIAL TO
ENGAGE IN THE MERGER OR ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF SHARES
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OF GREAT FINANCIAL COMMON STOCK AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING WITH RESPECT TO THE MERGER OR ANY OTHER MATTER RELATED THERETO.
In connection with rendering its September 14, 1997 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of all
material analyses, but does not purport to be a complete description of the
analyses underlying Sandler O'Neill's opinion. The preparation of a fairness
opinion is a complex process involving subjective judgements and is not
necessarily susceptible to a partial analysis or summary description. Sandler
O'Neill believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and processes underlying its opinion. In performing its analyses,
Sandler O'Neill made numerous assumptions with respect to industry performance,
business and economic conditions and various other matters, many of which cannot
be predicted and are beyond the control of Great Financial, Star and Sandler
O'Neill. Any estimates contained in Sandler O'Neill's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of the values of companies
do not purport to be appraisals or necessarily reflect the prices at which
companies or their securities may actually be sold. Because such estimates are
inherently subject to uncertainty, neither Great Financial nor Sandler O'Neill
assumes responsibility for their accuracy.
STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the reported
trading prices and volume of the Great Financial Common Stock and the Star
Common Stock, and the relationship between the movements in the prices of Great
Financial Common Stock and Star Common Stock, respectively, to movements in
certain stock indices, including the Standard & Poor's 500 Index, the NASDAQ
Banking Index and composite groups of publicly traded savings institutions (in
the case of Great Financial) and publicly traded commercial banks (in the case
of Star) in geographic proximity and of similar asset size to Great Financial
and Star, respectively.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Sandler O'Neill used
publicly available information to compare selected financial and market trading
information, including balance sheet composition, asset quality ratios, loan
loss reserve levels, profitability, capital adequacy, dividends and trading
multiples for Great Financial and two different groups of savings institutions.
The first group consisted of Great Financial and the following 10
publicly-traded regional savings institutions (the "Regional Group"): Charter
One Financial, Commercial Federal Corp., St. Paul Bancorp Inc., MAF Bancorp
Inc., CitFed Bancorp Inc., Anchor BanCorp Wisconsin, St. Francis Capital Corp.,
D&N Financial Corp., Flagstar Bancorp Inc. and First Federal Capital Corp.
Sandler O'Neill also compared Great Financial to a group of 9 publicly-traded
savings institutions which had a return on average equity (based on last quarter
annualized earnings) of greater than 15.5% and a price to tangible book value of
greater than 205% (the "Highly Valued Group"). The Highly Valued Group included
the following institutions: Charter One Financial, Commercial Federal Corp.,
Washington Federal Inc., Peoples Heritage Financial Group, New York Bancorp
Inc., InterWest Bancorp Inc., WSFS Financial Corporation, Dime Financial Corp.
and North American Savings Bank. The analysis compared publicly available
year-end financial information for Great Financial and each of the groups as of
and for each of the years ended December 31, 1992 through December 31, 1996 and
as of and for the twelve months ended June 30, 1997. The following comparisons
are based upon the June 30, 1997 financial information and the data with respect
to the Regional Group and the Highly Valued Group consists of the median data
for such groups.
The total assets of Great Financial were $3.0 billion, compared to $3.0
billion for the Regional Group and $3.3 billion for the Highly Valued Group. The
annual growth rate of assets for Great Financial was 8.5%, compared to a growth
rate of 7.6% for the Regional Group and 13.3% for the Highly Valued Group. The
total equity of Great Financial was $281 million, compared to $197 million for
the Regional Group and $166 million for the Highly Valued Group. The tangible
equity to total assets ratio was 8.84% for Great Financial, compared to 6.10%
for the Regional Group and 6.51% for the Highly Valued Group. The net loans to
total assets ratio for Great Financial was 66.0%, compared to 72.9% for the
Regional Group
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and 61.9% for the Highly Valued Group. The cash and securities to total assets
ratio was 29.4% for Great Financial, compared to 25.2% for the Regional Group
and 35.8% for the Highly Valued Group. Total deposits were $1.9 billion for
Great Financial, compared to $1.7 billion for the Regional Group and $1.5
billion for the Highly Valued Group. Great Financial had a gross loans to total
deposits ratio of 107.0%, compared to 111.9% for the Regional Group and 119.7%
for the Highly Valued Group. The total borrowings to total assets ratio for
Great Financial was 27.4%, compared to 26.9% for the Regional Group and 29.9%
for the Highly Valued Group. The ratio of non-performing loans to gross loans
was 0.45% for Great Financial, compared to 0.41% for the Regional Group and
0.88% for the Highly Valued Group. The ratio of non-performing loans to total
assets for Great Financial was 0.30%, compared to 0.25% for the Regional Group
and 0.65% for the Highly Valued Group. The ratio of non-performing assets to
total assets for Great Financial was 0.36%, compared to 0.38% for the Regional
Group and 0.83% for the Highly Valued Group. The ratio of loan loss reserves to
non-performing loans was 161.3% for Great Financial, compared to 231.0% for the
Regional Group and 109.7% for the Highly Valued Group. The ratio of loan loss
reserves to gross loans for Great Financial was 0.72%, compared to 0.80% for the
Regional Group and 0.97% for the Highly Valued Group. The net interest margin of
Great Financial was 2.95%, compared to 2.97% for the Regional Group and 3.55%
for the Highly Valued Group. The ratio of non-interest income to average assets
for Great Financial was 1.29%, compared to 0.85% for the Regional Group and
0.83% for the Highly Valued Group. The ratio of non-interest expense to average
assets was 2.46% for Great Financial, compared to 2.16% for the Regional Group
and 2.03% for the Highly Valued Group. The efficiency ratio of Great Financial
was 65.9%, compared to 59.7% for the Regional Group and 49.6% for the Highly
Valued Group. The return on average assets for the quarter ended June 30, 1997
(annualized) was 1.05% for Great Financial, compared to 1.05% for the Regional
Group and 1.30% for the Highly Valued Group. The return on average equity for
the quarter ended June 30, 1997 (annualized) was 11.40% for Great Financial,
compared to 15.83% for the Regional Group and 18.85% for the Highly Valued
Group. Based upon closing stock prices on September 12, 1997, the price to
tangible book value per share for Great Financial was 219%, compared to 215% for
the Regional Group and 253% for the Highly Valued Group. Based upon closing
stock prices on September 12, 1997, the price to earnings per share multiple
based upon the quarter ended June 30, 1997 (annualized) was 18.8x for Great
Financial, compared to 14.4x for the Regional Group and 13.0x for the Highly
Valued Group. The dividend payout ratio was 32.7% for Great Financial (25.5%
based on earnings adjusted for the effect of the one-time SAIF charge), compared
to 22.4% for the Regional Group and 25.5% for the Highly Valued Group.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for Star
and two different groups of commercial banks. The first group consisted of Star
and the following 9 publicly-traded commercial banks (the "Peer Group"):
Marshall & Ilsley Corp., Old Kent Financial Corp., Commerce Bancshares Inc., TCF
Financial Corp., Provident Financial Group Inc., Magna Group Inc., UMB Financial
Corp., Old National Bancorp and FirstMerit Corp. Sandler O'Neill also compared
Star Banc to a group of 9 publicly-traded commercial banks which had a return on
average equity (based on last twelve months' earnings) of greater than 15% and a
price to tangible book value of greater than 280% (the "Commercial Highly Valued
Group"). The Commercial Highly Valued Group institutions were: First Security
Corp., Marshall & Ilsley Corp., First Tennessee National Corp., Old Kent
Financial Corp., First American Corp., First Commerce Corp., Synovus Financial
Corp., Zions Bancorp and TCF Financial Corp. The analysis compared publicly
available year-end financial information for Star and each of the groups as of
and for each of the years ended December 31, 1992 through December 31, 1996 and
as of and for the twelve months ended June 30, 1997. The following comparisons
are based upon the June 30, 1997 financial information and the data with respect
to the Peer Group and the Commercial Highly Valued Group consists of the median
data for such groups.
The total assets of Star were $10.8 billion, compared to $7.1 billion for
the Peer Group and $10.5 billion for the Commercial Highly Valued Group. The
annual growth rate of assets for Star was 11.9%, compared to a growth rate of
8.2% for the Peer Group and 10.3% for the Commercial Highly Valued
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Group. The total equity of Star was $848 million, compared to $654 million for
the Peer Group and $860 million for the Commercial Highly Valued Group. The
tangible equity to total assets ratio was 5.87% for Star, compared to 8.16% for
the Peer Group and 7.18% for the Commercial Highly Valued Group. The intangible
assets to total equity ratio for Star was 25.49%, compared to 8.93% for the Peer
Group and 12.50% for the Commercial Highly Valued Group. The net loans to total
assets ratio for Star was 73.3%, compared to 64.6% for the Peer Group and 65.0%
for the Commercial Highly Valued Group. The cash and securities to total assets
ratio for Star was 20.4%, compared to 29.1% for the Peer Group and 27.0% for the
Commercial Highly Valued Group. Total deposits were $8.3 billion for Star,
compared to $5.2 billion for the Peer Group and $8.0 billion for the Commercial
Highly Valued Group. Star had a gross loans to total deposits ratio of 97.0%,
compared to 87.3% for the Peer Group and 88.5% for the Commercial Highly Valued
Group. The total borrowings to total assets ratio for Star was 12.0%, compared
to 13.8% for the Peer Group and 15.6% for the Commercial Highly Valued Group.
The ratio of non-performing loans to gross loans was 0.41% for Star, compared to
0.44% for the Peer Group and 0.44% for the Commercial Highly Valued Group. The
total non-performing loans to total assets ratio for Star was 0.31%, compared to
0.33% for the Peer Group and 0.29% for the Commercial Highly Valued Group. The
non-performing assets to total assets ratio for Star was 0.32%, compared to
0.39% for the Peer Group and 0.39% for the Commercial Highly Valued Group. The
ratio of loan loss reserves to non-performing loans was 379.2% for Star,
compared to 336.2% for the Peer Group and 368.5% for the Commercial Highly
Valued Group. The ratio of loan loss reserves to gross loans for Star was 1.57%,
compared to 1.43% for the Peer Group and 1.57% for the Commercial Highly Valued
Group. The net interest margin of Star was 4.93%, compared to 4.46% for the Peer
Group and 4.44% for the Commercial Highly Valued Group. The ratio of
non-interest income to average assets for Star was 1.89%, compared to 1.86% for
the Peer Group and 2.31% for the Commercial Highly Valued Group. The ratio of
non-interest expense to average assets was 3.13% for Star, compared to 3.52% for
the Peer Group and 3.79% for the Commercial Highly Valued Group. The efficiency
ratio of Star was 46.87%, compared to 58.03% for the Peer Group and 59.97% for
the Commercial Highly Valued Group. The return on average assets for the twelve
months ended June 30, 1997 was 1.74% for Star, compared to 1.39% for the Peer
Group and 1.44% for the Commercial Highly Valued Group. The return on average
equity for the twelve months ended June 30, 1997 was 20.53% for Star, compared
to 15.55% for the Peer Group and 17.55% for the Commercial Highly Valued Group.
The price to tangible book value per share for Star was 609%, compared to 328%
for the Peer Group and 362% for the Commercial Highly Valued Group. Based upon
closing stock prices on September 12, 1997, the price to earnings per share
multiple for the last twelve months period ended June 30, 1997 was 22.8x for
Star, compared to 20.2x for the Peer Group and 20.4x for the Commercial Highly
Valued Group. The dividend payout ratio for Star was 36.0%, compared to 34.6%
for the Peer Group and 35.5% for the Commercial Highly Valued Group.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed 37
transactions announced from January 1, 1997 to September 12, 1997 involving
public savings institutions nationwide as targets with transaction values over
$15 million ("Nationwide Transactions"), 10 transactions announced from January
1, 1997 to September 12, 1997 involving public savings institutions in the
Midwest (Iowa, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota,
Missouri, North Dakota, Nebraska, Ohio, South Dakota and Wisconsin) as targets
with transaction values over $15 million ("Midwest Transactions"), 22 large
transactions announced from January 1, 1996 to September 12, 1997 involving
public savings institutions as targets with transaction values greater than $200
million ("Large Nationwide Deals") and 5 large transactions announced from
January 1, 1996 to September 12, 1997 involving public savings institutions in
the Midwest as targets with transaction values greater than $200 million ("Large
Midwestern Deals"). Sandler O'Neill reviewed the ratios of price to last twelve
months' earnings, price to book value, price to tangible book value, price to
deposits, price to assets and deposit premium paid in each such transaction and
computed high, low, mean, and median ratios and premiums for the respective
groups of transactions. These multiples were applied to Great Financial's
financial information as of and for the twelve months ended June 30, 1997
(adjusted for the effect of the one-time SAIF charge). Based upon the median
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multiples for Nationwide Transactions , Sandler O'Neill derived an imputed range
of values per share of Great Financial's Common Stock of $32.91 to $38.08. Based
upon the median multiples for Midwest Transactions, Sandler O'Neill derived an
imputed range of values per share of Great Financial's Common Stock of $30.96 to
$41.74. Based upon the median multiples for Large Nationwide Transactions,
Sandler O'Neill derived an imputed range of values per share of Great
Financial's Common Stock of $27.95 to $33.81. Based upon the median multiples
for Large Midwestern Transactions, Sandler O'Neill derived an imputed range of
values per share of Great Financial's Common Stock of $30.96 to $42.82.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Great Financial through 2001 under various circumstances,
assuming Great Financial performed in accordance with information regarding
potential future earnings provided by its management and certain variations
thereof (including variations with respect to the levels of assets, net interest
spread, non-interest income, non-interest expense and dividend payout ratio). To
approximate the terminal value of Great Financial's Common Stock at the end of
the five-year period, Sandler O'Neill applied price to earnings multiples
ranging from 6x to 30x and applied multiples of tangible book value ranging from
75% to 325%. The dividend income streams and terminal values were then
discounted to present values using different discount rates (ranging from 6% to
22%) chosen to reflect different assumptions regarding required rates of return
of holders or prospective buyers of Great Financial's Common Stock. This
analysis, assuming the current dividend payout ratio, indicated an imputed range
of values per share of Great Financial's Common Stock of between $10.55 and
$81.35 when applying the price to earnings multiples, and an imputed range of
values per share of Great Financial's Common Stock of between $11.18 and $76.11
when applying multiples of tangible book value. In connection with its analysis,
Sandler O'Neill extensively used sensitivity analyses to illustrate the effects
changes in the underlying assumptions would have on the resulting present value,
and discussed these changes with Great Financial's Board.
PRO FORMA MERGER ANALYSIS. Sandler O'Neill analyzed certain potential pro
forma effects of the Merger on Star, assuming (i) the operations of the combined
company attributable to Great Financial performed in accordance with the
earnings forecasts of Great Financial's management and certain variations
thereof, as described in the previous paragraph; (ii) the operations of the
combined company attributable to Star performed in accordance with the earnings
forecasts of Star's management and certain variations thereof (including
variations with respect to the growth rate of assets, net interest spread, non-
interest income, non-interest expense and dividend payout ratio); and (iii) the
combined company realized cost savings equal to approximately 34.10% of Great
Financial's projected non-interest expenses, other than the expense of deposit
insurance. This analysis indicated that the Merger would be neutral to projected
GAAP earnings per share, accretive to cash earnings per share, and accretive to
tangible book value per share of Star Common Stock for all periods analyzed. The
actual results achieved by Star may vary from projected results and the
variations may be material.
In connection with rendering its September 14, 1997 opinion, Sandler O'Neill
reviewed, among other things: (i) the Merger Agreement and exhibits thereto;
(ii) the Stock Option Agreement; (iii) the audited consolidated financial
statements and management's discussion and analysis of the financial condition
and results of operations of Star contained in its annual report to shareholders
for the year ended December 31, 1996, and the unaudited consolidated financial
statements and management's discussion and analysis of the financial condition
and results of operations of Star for the quarters ended March 31 and June 30,
1997; (iv) the audited consolidated financial statements and management's
discussion and analysis of the financial condition and results of operations of
Great Financial contained in its annual report to shareholders for the year
ended December 31, 1996 and the unaudited consolidated financial statements and
management's discussion and analysis of the financial condition and results of
operations of Great Financial for the quarters ended March 31 and June 30, 1997;
(v) certain financial analyses and other information regarding Great Financial
provided by management of Great Financial and comments of senior management of
Great Financial regarding Great Financial's past and current business
operations,
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results thereof, financial condition and future prospects, including the
potential future limitations on growth and profitability of Great Financial;
(vi) the views of senior management of Star regarding Star's past and current
business operations, results thereof, financial condition and future prospects;
(vii) the pro forma impact of the Merger on Star; (viii) the historical reported
price and trading activity for Star's and Great Financial's common stock,
including a comparison of certain financial and stock market information for
Star and Great Financial with similar information for certain other companies
the securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the savings institution industry; (x) the current
market environment generally and the banking environment in particular; and (xi)
such other information, financial studies, analyses and investigations and
financial, economic and market criteria as Sandler O'Neill considered relevant.
In connection with rendering the Fairness Opinion, Sandler O'Neill confirmed
the appropriateness of its reliance on the analyses used to render its September
14, 1997 opinion by performing procedures to update certain of such analyses and
by reviewing the assumptions upon which such analyses were based and the factors
considered in connection therewith.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon, without independent verification, the accuracy and completeness of all the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
Sandler O'Neill does not assume any responsibility or liability therefor.
Sandler O'Neill did not make an independent evaluation or appraisal of the
specific assets, the collateral securing assets or the liabilities of Great
Financial or Star or any of their subsidiaries, or the collectibility of any
such assets, nor was it furnished with any such evaluations or appraisals
(relying, where relevant, on the analyses and estimates of Great Financial and
Star). With respect to the information regarding potential future financial
performance provided by each company's management, Sandler O'Neill assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of the
respective future financial performances of Great Financial and Star and that
such performances will be achieved. Sandler O'Neill also assumed that there has
been no material change in Great Financial's or Star's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements noted above, that Great Financial and Star will remain
as going concerns for all periods relevant to its analyses and that the
conditions precedent in the Agreement are not waived.
Under the Sandler O'Neill Agreement, Great Financial has agreed to pay
Sandler O'Neill a transaction fee in connection with the Merger, a substantial
portion of which is contingent upon the consummation of the Merger. Under the
terms of the Sandler O'Neill Agreement, Great Financial has agreed to pay
Sandler O'Neill a transaction fee equal to 0.5% of the aggregate transaction
price, of which $200,000 has been paid and the remainder is payable upon closing
of the transaction. Sandler O'Neill has also received a fee of $125,000 for
rendering its fairness opinion. Based on the Closing Price of Star Common Stock
on December 9, 1998, the aggregate fee payable to Sandler O'Neill would be
approximately $3,400,000. Great Financial has also agreed to reimburse Sandler
O'Neill for its reasonable out-of-pocket expenses incurred in connection with
its engagement and to indemnify Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents, and controlling
persons against certain expenses and liabilities, including liabilities under
securities laws.
Sandler O'Neill has in the past provided other financial advisory services
to Great Financial and has received its customary compensation for such
services. In the ordinary course of its business, Sandler O'Neill may actively
trade the debt and/or equity securities of Great Financial and Star and their
respective affiliates for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Great Financial's executive officers and members of its Board of Directors
have interests in the Merger in addition to their interests as stockholders of
Great Financial. Those interests relate to, among other things, severance
arrangements, equity-based benefit plan arrangements affected by a change-in-
control of Great Financial, and post-merger insurance coverage.
GFB is party to employment agreements (the "Employment Agreements") with
five executive officers (the "GFB Officers"). Pursuant to the Employment
Agreements, each GFB Officer is entitled to receive certain payments in the
event of termination of his employment in connection with a "change-in-control"
of GFB and a continuation of fringe benefits for a period of two years. Great
Financial and Star have agreed in the Merger Agreement that on the day prior to
the Effective Time the Employment Agreements will be terminated and the
termination payments made. Assuming the Effective Time were January 16, 1998,
the payments to the GFB Officers would be as follows: Paul Baker--$927,903; Jack
Shipman-- $498,336; Richard Klapheke--$492,213; James Statler--$492,213; and
Arthur Harreld--$603,844.
The GFB Officers and Great Financial directors hold options to purchase
Great Financial Common Stock under the Great Financial Stock Option Plans. As
described in "THE MERGER AGREEMENT-- Employee Benefits--Great Financial Stock
Options," all such non-incentive stock options outstanding at the Effective
Time, whether or not exercisable before the Effective Time, will be cancelled
and cashed out and all such incentive stock options will be, at the election of
the option holder, exercised or converted into incentive stock options for Star
Common Stock. As a result of the acceleration provisions of the terms of such
options and the Merger Agreement, each GFB Officer and the members of the Board
of Directors (as a whole) will enjoy acceleration of exercise rights as to the
following numbers of options: Paul Baker-- 132,250; Jack Shipman--38,000;
Richard Klapheke--37,470; James Statler--36,859; Arthur Harreld-- 77,146; Board
of Directors--132,257.
The GFB Officers and Great Financial directors also hold rights to Great
Financial Common Stock granted under the Great Financial Bank, FSB Recognition
and Retention Plan for Officers and Employees (the "Officers' RRP Plan") and the
Great Financial Bank, FSB Recognition and Retention Plan for Outside Directors
(the "Directors' RRP Plan") (collectively, the "RRP Plans"). The shares granted
under the RRP Plans are subject to vesting periods, some of which will not have
expired prior to the Effective Time. As a result of the Merger, all unvested
shares granted under the RRP Plans will immediately vest and become the
unrestricted property of the grantee. The number of shares of Great Financial
Common Stock which will vest in each GFB Officer and the Great Financial
directors (as a whole) due to the accelerated vesting due to the Merger will be
as follows: Paul Baker--34,387; Jack Shipman--3,094; Richard Klapheke--12,894;
James Statler--10,580; Arthur Harreld--18,517; Board of Directors--78,764.
Star has agreed to provide for a period of not less than two years after the
Effective Time directors and officers "tail" liability insurance coverage no
less favorable than that provided by Star to its officers and directors.
In connection with the proposed Merger, Paul Baker has entered into a
consulting agreement with Star, pursuant to which Mr. Baker will provide Star
with consulting services for a period of three years following the Effective
Time. Mr. Baker's compensation for such services and for refraining from
competing with Star in the banking business will be $150,000 per annum. In
addition, Star has agreed to appoint Mr. Baker to the Board of Directors of Star
subsequent to the Merger. As a Star director Mr. Baker will be entitled to
receive standard directors' fees and an indeterminate amount of options for Star
Common Stock.
REGULATORY APPROVAL
The obligations of the parties to effect the Merger are subject to prior
approval of the Federal Reserve Board and any other necessary Regulatory
Authority (as defined herein).
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The Merger is subject to the prior approval of the Federal Reserve Board
under the BHCA. Under the BHCA, the Federal Reserve Board is required, in
approving transactions such as the Merger, to take into consideration the
financial and managerial resources and future prospects of the existing and
proposed institutions and the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the Federal
Reserve Board will, among other things, evaluate the adequacy of the capital
levels of Star and its bank subsidiary following the Merger.
The BHCA prohibits the Federal Reserve Board from approving the Merger if
the Merger would result in a monopoly, or be in furtherance of any combination
or conspiracy to monopolize or to attempt to monopolize, the business of banking
in any part of the United States, if the effect of the Merger in any section of
the country may be substantially to lessen competition or to tend to create a
monopoly, or if the Merger would in any other manner result in a restraint of
trade, unless the Federal Reserve Board finds that the anticompetitive effects
of the Merger are clearly outweighed in the public interest by the probable
effect of transactions in meeting the convenience and needs of the communities
to be served. In addition, under the Community Reinvestment Act of 1977, as
amended, the Federal Reserve Board must take into account the record of
performance of the existing institutions in meeting the credit needs of the
entire community, including low- and moderate-income neighborhoods, served by
such institutions.
Under the BHCA, the Merger may not be consummated until the 30th day
following the date of Federal Reserve Board approval (or, if the United States
Department of Justice (the "DOJ") has not submitted adverse comments with
respect to competitive factors, the 15th day), during which time the DOJ may
challenge the Merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of the Federal Reserve Board's approval
unless a court specifically orders otherwise.
The BHCA provides for the publication of notice and public comment on the
applications and authorizes the Federal Reserve Board to permit interested
parties to intervene in the proceedings. If an interested party is permitted to
intervene, such intervention could delay the regulatory approvals required for
consummation of the Merger.
Star and Great Financial have filed (or will promptly file) all applications
and notices, and have taken (or will promptly take) other appropriate action
with respect to any requisite approvals or other action of any Regulatory
Authority. Star and Great Financial are not aware of any governmental approvals
or actions that may be required for consummation of the Merger other than as
described above. Should any other approval or action be required, it is
presently contemplated that such approval or action would be sought.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT ANY NECESSARY APPROVALS OR ACTIONS
WILL BE RECEIVED OR TAKEN, AS TO THE TIMING OF SUCH APPROVALS OR ACTIONS, OR
THAT ANY APPROVALS OR ACTIONS WILL NOT BE CONDITIONED IN A MANNER THAT WOULD
CAUSE THE PARTIES TO ABANDON THE MERGER. IN ADDITION, THERE CAN BE NO ASSURANCE
THAT ACTION WILL NOT BE BROUGHT CHALLENGING SUCH APPROVALS OR ACTIONS, OR, IF
SUCH A CHALLENGE IS BROUGHT, AS TO THE RESULT THEREOF.
See "THE MERGER AGREEMENT--Closing and Effective Time," "THE MERGER
AGREEMENT--Conditions of the Merger," "--Waiver and Amendment" and
"--Termination of the Merger Agreement," and "SUPERVISION AND REGULATION."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting.
Accordingly, data regarding the financial condition and results of operations of
Great Financial will be included in Star's consolidated financial statements on
and after the Closing Date. See "SUMMARY INFORMATION --
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Comparative Unaudited Per Share Data" and "--Summary Financial Data," and "PRO
FORMA FINANCIAL INFORMATION."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material United States federal
income tax consequences of the Merger. The discussion does not address all
aspects of United States federal taxation that may be relevant to particular
Great Financial stockholders, and it may not be applicable to Great Financial
stockholders who, for United States federal income tax purposes, are nonresident
alien individuals, foreign corporations, foreign partnerships, foreign trusts or
foreign estates, or who acquired their Great Financial Common Stock pursuant to
the exercise of Great Financial Stock Options or otherwise as compensation. The
discussion does not address the effect of any applicable state, local or foreign
tax laws or any United States federal tax laws other than those pertaining to
the income tax, or to persons who exercise Appraisal Rights. EACH GREAT
FINANCIAL STOCKHOLDER SHOULD CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER.
This discussion is based on the Code, regulations and rulings now in effect
or proposed thereunder, current administrative rulings and practice, and
judicial precedent, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to Great
Financial stockholders discussed herein. This discussion is also based on
certain assumptions regarding the factual circumstances that will exist at the
Effective Time, including (i) including the Merger being qualified as a
statutory merger under the applicable laws of the States of Ohio and Delaware
and (ii) certain representations made or to be made by Star, Great Financial and
others. Counsel is unable to render an opinion as to the qualification of the
Merger as a statutory merger under the laws of the states of Ohio and Delaware
at this time because such qualification is itself contingent on future factors
on which counsel cannot presently render a meaningful opinion. Pursuant to
Section 1.03 of the Merger Agreement, there will be no Effective Time if the
Merger does not qualify as a statutory merger and thus there will be no Closing.
This discussion assumes that Great Financial stockholders hold their Great
Financial Common Stock as a capital asset within the meaning of Section 1221 of
the Code.
In the opinion of Wachtell, Lipton, Rosen & Katz, special counsel to Star,
assuming the Merger occurs in accordance with the Merger Agreement, and
conditioned on the accuracy of certain representations made by Star, Great
Financial and others, the material United States federal income tax consequences
expected to result from the Merger, under currently applicable law, are as
follows:
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
(ii) No gain or loss will be recognized by Great Financial or Star as a
result of the Merger under Section 361(a) of the Code.
(iii) Great Financial stockholders who receive solely shares of Star
Common Stock in exchange for their Great Financial Common Stock pursuant to
the Merger will recognize no gain or loss, except with respect to cash
received in lieu of fractional shares, if any, as discussed below.
(iv) A Great Financial stockholder who receives only cash in exchange
for shares of Great Financial Common Stock pursuant to the Merger will
realize gain or loss for federal income tax purposes in an amount equal to
the difference between (1) the amount of cash received by such stockholder,
and (2) such stockholder's tax basis for the shares of Great Financial
Common Stock surrendered in exchange therefor. Any such gain or loss will be
recognized for United States federal income tax purposes and will generally
be treated as capital gain or loss.
(v) A Great Financial stockholder who receives shares of Star Common
Stock and cash in exchange for shares of Great Financial Common Stock in the
Merger will realize gain (determined
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separately as to each block of Great Financial Common Stock exchanged) if
the sum of the amount of cash and the fair market value of any block of the
shares of Star Common Stock received by such stockholder exceeds such
stockholder's tax basis for the shares of Great Financial Common Stock
surrendered in exchange therefor. The amount of such gain that is recognized
for United States federal income tax purposes will be limited to the amount
of cash received. If the amount of cash received exceeds the amount of gain
realized, only the amount of gain realized will be recognized for United
States federal income tax purposes. Any such gain recognized will be taxable
as capital gain, PROVIDED that the cash payment does not have the effect of
the distribution of a dividend. Any loss realized will not be recognized for
United States federal income tax purposes. Under Section 356 of the Code,
the determination of whether a cash payment has the effect of the
distribution of a dividend generally will be made in accordance with the
provisions and limitations of Section 302 of the Code, taking into account
the constructive stock ownership rules of Section 318 of the Code. See
"--Impact of Section 302 of the Code."
(vi) The aggregate adjusted tax basis of the shares of Star Common Stock
received by each Great Financial stockholder in the Merger (including any
fractional share of Star Common Stock deemed to be received, as described in
paragraph (viii) below), will be equal to the aggregate adjusted tax basis
of the shares of Great Financial Common Stock surrendered therefor,
decreased by the amount of any cash received and increased by the amount of
any gain (or dividend) recognized.
(vii) The holding period of the shares of Star Common Stock (including
any fractional share of Star Common Stock deemed to be received, as
described in paragraph (viii) below) will include the holding period of the
shares of Great Financial Common Stock exchanged therefor.
(viii) A Great Financial stockholder who receives cash in the Merger in
lieu of a fractional share of Star Common Stock will be treated as if the
fractional share had been received in the Merger and then redeemed by Star
in return for the cash. The receipt of such cash will generally cause the
recipient to recognize capital gain or loss equal to the difference between
the amount of cash received and the portion of such holder's adjusted tax
basis in the shares of Star Common Stock allocable to the fractional share.
IMPACT OF SECTION 302 OF THE CODE. A Great Financial stockholder who
receives only cash in exchange for its Great Financial Common Stock or a Great
Financial stockholder who receives a combination of stock and cash (other than
with respect to a fractional share) will receive capital gains or dividend
treatment based upon the tests defined below under Section 302 of the Code.
The determination of whether a cash payment has the effect of the
distribution of a dividend generally will be made in accordance with the
provisions of Section 302 of the Code. A cash payment to a Great Financial
stockholder will be considered not to have the effect of the distribution of a
dividend under Section 302 of the Code and such stockholder will recognize
capital gain or loss if the cash payment (i) results in a "complete redemption"
of such stockholder's actual and constructive stock interest, (ii) results in a
"substantially disproportionate" reduction in such stockholder's actual and
constructive stock interest or (iii) is "not essentially equivalent to a
dividend."
A cash payment will result in a "complete redemption" of a stockholder's
stock interest and such stockholder will recognize capital gain or loss if such
stockholder does not actually or constructively own any stock after the receipt
of the cash payment. A reduction in a stockholder's stock interest will be
"substantially disproportionate" and such stockholder will recognize capital
gain or loss if the percentage of outstanding shares actually and constructively
owned by such stockholder after the receipt of the cash payment is less than 80%
of the percentage of outstanding shares actually and constructively owned by
such stockholder immediately prior to the receipt of the cash payment. A cash
payment will qualify as "not essentially equivalent to a dividend" and a
stockholder will recognize capital gain or loss if it results in a meaningful
reduction in the percentage of outstanding shares actually and constructively
owned by such stockholder. No specific tests apply to determine whether a
reduction in a stockholder's ownership interest
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is meaningful; rather, such determination will be made based on all the facts
and circumstances applicable to such Great Financial stockholder. No general
guidelines dictating the appropriate interpretation of facts and circumstances
have been announced by the courts or issued by the Internal Revenue Service (the
"Service"). However, the Service has indicated that a minority stockholder
(I.E., a holder who exercises no control over corporate affairs and whose
proportionate stock interest is minimal in relation to the number of shares
outstanding) generally is treated as having had a "meaningful reduction" in
interest if a cash payment reduces such holder's actual and constructive stock
ownership to any extent.
With regard to Great Financial stockholders who receive Star Common Stock
and cash in the Merger, the determination of whether a cash payment has the
effect of a distribution of a dividend will be made as if the Great Financial
Common Stock exchanged for cash in the Merger had instead been exchanged in the
Merger for shares of Star Common Stock followed immediately by a redemption of
such shares by Star for the cash payment (a "deemed Star redemption"). Under
this analysis, the determination of whether a cash payment qualifies as a
substantially disproportionate reduction of interest or is not essentially
equivalent to a dividend will be made by comparing (i) the stockholder's actual
and constructive stock interest in Star before the deemed Star redemption
(determined as if such stockholder had received solely Star Common Stock in the
Merger) with (ii) such stockholder's actual and constructive stock interest in
Star after the deemed Star redemption.
The determination of ownership for purposes of the three foregoing tests
will be made by taking into account both shares owned actually by such
stockholder and shares owned constructively by such stockholder pursuant to
Section 318 of the Code. Under Section 318 of the Code, a stockholder will be
deemed to own stock that is actually or constructively owned by certain members
of his or her family (spouse, children, grandchildren and parents) and other
related parties including, for example, certain entities in which such
stockholder has a direct or indirect interest (including partnerships, estates,
trusts and corporations), as well as shares of stock that such stockholder (or a
related person) has the right to acquire upon exercise of an option or
conversion right.
BECAUSE THE DETERMINATION OF WHETHER A PAYMENT WILL BE TREATED AS HAVING THE
EFFECT OF THE DISTRIBUTION OF A DIVIDEND WILL GENERALLY DEPEND UPON THE FACTS
AND CIRCUMSTANCES OF EACH GREAT FINANCIAL STOCKHOLDER, GREAT FINANCIAL
STOCKHOLDERS ARE STRONGLY ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE TAX TREATMENT OF CASH RECEIVED IN THE MERGER.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS
AND CIRCUMSTANCES OF EACH STOCKHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT,
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING
DISCUSSION MAY NOT APPLY TO EACH STOCKHOLDER. IN VIEW OF THE INDIVIDUAL NATURE
OF INCOME TAX CONSEQUENCES, EACH STOCKHOLDER IS URGED TO CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF UNITED
STATES FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN UNITED STATES FEDERAL AND OTHER TAX LAWS.
APPRAISAL RIGHTS OF STOCKHOLDERS OF GREAT FINANCIAL
Each stockholder of Great Financial has the right to demand the appraised
value of such stockholder's shares of Great Financial Common Stock in cash if
the stockholder follows the procedures set forth under Section 262 of the
Delaware Law, a copy of which is attached as Annex C to this Proxy
Statement/Prospectus.
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Under the Delaware Law, a stockholder of Great Financial may demand an
appraisal of the fair value (as determined pursuant to Section 262 of the
Delaware Law) of such stockholder's shares of Great Financial Common Stock and
payment of such fair value to the stockholder in cash if the Merger is
consummated. Star, as the surviving corporation, will pay to such stockholder
the fair value of such stockholder's shares of Great Financial Common Stock if
such Great Financial stockholder (i) files with Great Financial, prior to the
vote at the Special Meeting, a written demand for an appraisal of the fair value
of shares; (ii) does not vote in favor of the Merger; (iii) continues to hold
shares through the Effective Time; and (iv) does not withdraw the demand for
appraisal within a period of 60 days after the Closing Date. Such demand shall
be sufficient if it reasonably informs Great Financial of the identity of the
stockholder and that the stockholder intends thereby to demand an appraisal of
such stockholder's shares. A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT
WILL NOT, BY ITSELF, BE REGARDED AS A WRITTEN OBJECTION FOR PURPOSES OF
ASSERTING APPRAISAL RIGHTS. A VOTE IN FAVOR OF THE APPROVAL OF THE MERGER
AGREEMENT WILL CONSTITUTE A WAIVER OF A STOCKHOLDER'S APPRAISAL RIGHTS.
All written demands for appraisal should be addressed to and received by:
Richard M. Klepheke, Great Financial Corporation, 329 W. Main Street, 19th
Floor, Louisville, Kentucky 40202, before the taking of the vote concerning the
Merger Agreement at the Special Meeting, and should be executed by, or on behalf
of, the holder of record.
To be effective, a demand for appraisal must be executed by or for the
stockholder of record who held such shares on the date of making such demand,
and who continuously holds such shares through the Effective Time, fully and
correctly, as such stockholder's name appears on such stockholder's Certificates
and cannot be made by the beneficial owner if such stockholder does not also
hold the shares of record. The beneficial holder must, in such case, have the
registered owner submit the required demand in respect of such shares.
If Great Financial Common Stock is owned of record in a fiduciary capacity,
as by a trustee, guardian or custodian, execution of a demand for appraisal
should be made in such capacity. If Great Financial Common Stock is owned of
record by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including one of two or more joint owners, may execute the demand for appraisal
for a stockholder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, he or
she is acting as agent for the record owner. A record owner, such as a broker,
who holds Great Financial Common Stock may exercise such record owner's right of
appraisal with respect to the shares held for one or more beneficial owners,
while not exercising such right for other beneficial owners. In such case, the
written demand should set forth the number of shares as to which the record
owner dissents. Where no number of shares is expressly mentioned, the demand
will be presumed to cover all shares of Great Financial Common Stock in the name
of such record owner.
If, at any time within the 60-day period after the Effective Time, a
stockholder of Great Financial withdraws such stockholder demand for appraisal,
then such stockholder will be deemed to have accepted the terms offered pursuant
to the Merger. After the 60-day withdrawal period, a Great Financial stockholder
may withdraw only with the consent of Star and the approval of the Delaware
Court of Chancery. Within 10 days after the Effective Time, Star (as the
surviving corporation in the Merger) must give written notice that the Merger
has become effective to each stockholder who so filed a written demand for
appraisal and who did not vote in favor of the Merger Agreement. Within 120 days
after the Effective Time, any stockholder of Great Financial who has validly
perfected appraisal rights shall be entitled, upon written request, to receive
from Star a statement setting forth the aggregate number of shares of Great
Financial Common Stock not voted in favor of the Merger with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares. Star shall respond to such request within 10 days after receipt or
within 10 days after the date of the Special Meeting, whichever is later. Within
120 days after the Effective Time, Star or any such stockholder seeking
appraisal may file a
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petition in the Delaware Court of Chancery demanding a determination of the
value of the Great Financial Common Stock held by all stockholders seeking
appraisal. The Delaware Law contemplates a single proceeding in the Delaware
Court of Chancery that will apply to all stockholders of Great Financial who
have perfected their appraisal rights, whether or not such stockholders have
individually filed a petition seeking appraisal with the Delaware Court of
Chancery. If neither Star nor any of the stockholders of Great Financial who
have perfected their appraisal rights have filed a petition in the Delaware
Court of Chancery within the 120-day period following the Effective Time, such
appraisal rights will be waived, and the stockholders will be entitled to
receive, upon surrender of the Certificates, the amount of cash equal to that
paid to holders of the Cash Election Shares in the Merger (I.E., $44.00 per
share of Great Financial Common Stock), subject to the adjustments as provided
in the Merger Agreement. Star has no present intention to file such a petition
with the Delaware Court of Chancery.
If a petition for appraisal is filed by a stockholder, a copy of the
petition shall be served on Star, which then will have 20 days after such
service to file with the Register of the Delaware Court of Chancery (the
"Register") a verified list of Great Financial stockholders who have perfected
appraisal rights but have not yet reached agreement as to value with Star. If
the petition is filed by Star, such verified list must accompany the filing. The
Register, if so ordered by the Delaware Court of Chancery, will give notice of
the time and place fixed for hearing of the petition, by registered or certified
mail, to Star and each stockholder named on the verified list. Such notice shall
also be published at least one week prior to the hearing in one or more
newspapers of general circulation in Wilmington, Delaware and in such other
publications as directed by the Delaware Court of Chancery.
The Delaware Court of Chancery shall conduct a hearing on the petition for
appraisal at which the Delaware Court of Chancery will determine the
stockholders of Great Financial who have properly perfected appraisal rights
with respect to their shares and may require such stockholders to submit the
Certificates to the Register for notation of the pendency of the appraisal
proceeding thereon. Failure to comply with such direction may result in
dismissal of the proceeding as to such non-complying stockholder. After
determining the stockholders entitled to appraisal, the Delaware Court of
Chancery, after taking into account all relevant factors, will appraise the
shares, determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, to be paid upon the amount determined to be the fair value.
Upon application of either Star or any of the stockholders entitled to
appraisal, the Delaware Court of Chancery may permit discovery or other pretrial
proceedings and may proceed to trial prior to a final determination of the
stockholders entitled to appraisal. Any stockholder whose name appears on the
verified list submitted by Star may participate in the appraisal proceedings
until it is finally determined by the Delaware Court of Chancery that such
stockholder is not entitled to appraisal rights. The judgment shall be payable
only upon and simultaneously with the surrender to Star of the Certificates.
Upon payment of the judgment, the stockholder who sought appraisal shall cease
to have any interest in such shares or in Great Financial and will have no right
to receive dividends in such stock or exercise other rights of stock ownership.
Section 262 of the Delaware Law provides fair value is to be "exclusive of
any element of value arising from the accomplishment or expectation of the
merger." The Delaware Supreme Court has construed Section 262 of the Delaware
Law to mean that "elements of future value, including the nature of the
enterprise, which are known or susceptible of proof as of the date of the merger
and are not the product of speculation, may be considered." Stockholders who are
considering seeking an appraisal should bear in mind that the fair value of
their shares of Great Financial Common Stock determined under Section 262 of the
Delaware Law could be more than, the same as or less than the consideration they
are to receive pursuant to the Merger Agreement if they do not seek appraisal of
their shares of Great Financial Common Stock, and that an opinion of an
investment banking firm as to fairness is not an opinion as to fair value under
Section 262 of the Delaware Law.
Costs of the appraisal proceeding may be assessed against the parties
thereto (I.E., Star and the stockholders participating in the appraisal
proceeding) by the Delaware Court of Chancery as the
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Delaware Court of Chancery deems equitable in the circumstances. Upon the
application of any stockholder, the Delaware Court of Chancery may determine the
amount of interest, if any, to be paid upon the value of the stock of
stockholders entitled thereto. Upon application of a stockholder, the Delaware
Court of Chancery may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, to
be charged PRO RATA against the value of all shares entitled to appraisal. Any
stockholder who has demanded appraisal rights will not, after the Effective
Time, be entitled to vote the stock subject to such demand for any purpose or to
receive payment of dividends or any other distribution with respect to such
shares (other than dividends or distributions, if any, payable to holders of
record as of a record date prior to the Effective Time) or to receive the
payment of the consideration provided for in the Merger Agreement. However, if
no petition for an appraisal is filed within 120 days after the Effective Time
or if such stockholder delivers to Star a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the Merger, either
within 60 days after the Effective Time or thereafter with the written approval
of Star, then the right of such stockholder to an appraisal will cease.
Notwithstanding the foregoing, no appraisal proceeding in the Delaware Court of
Chancery will be dismissed as to any stockholder without the approval of the
Delaware Court of Chancery, and such approval may be conditioned upon such terms
as the Delaware Court of Chancery deems just.
FAILURE TO COMPLY STRICTLY WITH THESE PROCEDURES WILL CAUSE THE STOCKHOLDER
TO LOSE SUCH STOCKHOLDER'S APPRAISAL RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WHO
DESIRES TO EXERCISE HIS OR HER APPRAISAL RIGHTS IS URGED TO CONSULT A LEGAL
ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING APPRAISAL
RIGHTS UNDER THE DELAWARE LAW AND IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF
SECTION 262 OF THE DELAWARE LAW WHICH IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT/PROSPECTUS.
GREAT FINANCIAL STOCKHOLDERS WHO ARE INTERESTED IN PERFECTING APPRAISAL
RIGHTS PURSUANT TO THE DELAWARE LAW IN CONNECTION WITH THE MERGER SHOULD CONSULT
WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES REQUIRED TO BE FOLLOWED.
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THE MERGER AGREEMENT
THE FOLLOWING SUMMARY OF CERTAIN TERMS AND PROVISIONS OF THE MERGER
AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT,
WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT/ PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE.
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that Great Financial will merge at the
Effective Time with and into Star, subject to Stockholder Approval and the
satisfaction or waiver of the other conditions to the Merger. Upon consummation
of the Merger, Great Financial's corporate existence will terminate, with Star
continuing as the surviving corporation or a combination thereof.
Simultaneously with the effectiveness of the Merger, and subject to the
election and allocation procedures set forth in the Merger Agreement and
described below, each outstanding share of Great Financial Common Stock, other
than shares held by stockholders of Great Financial who exercise their appraisal
rights under the Delaware Law, will be converted into, at the election of the
holder thereof as provided in the Merger Agreement, either the Per Share Stock
Consideration or the Per Share Cash Consideration. A stockholder may elect to
receive Per Share Stock Consideration for a portion of his or her shares and Per
Share Cash Consideration for the remaining portion of his or her shares.
The shares of Star Common Stock to be issued pursuant to the Merger will be
freely transferable except by certain stockholders of Great Financial who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
Great Financial. The shares of Star Common Stock issued to such affiliates will
be restricted in their transferability in accordance with the rules and
regulations promulgated by the Commission and pursuant to agreements entered
into with Star. See "COMPARISON OF SHAREHOLDER RIGHTS--Restrictions on Resale of
Star Capital Stock by Affiliates; Affiliate Agreements."
CLOSING AND EFFECTIVE TIME
Unless the parties otherwise agree, the Closing of the Merger will take
place at 10:00 a.m., local time, on the date on which the Effective Time occurs,
which shall be any such date on or after January 2, 1997 as Star notifies Great
Financial in writing but not earlier than the Approval Date, and not later than
the first business day of the first full calendar month commencing at least five
business days after the Approval Date. The Effective Time will occur upon the
filing of the appropriate documents in respect of the Merger with the
Secretaries of State of the States of Delaware and Ohio. Star and Great
Financial currently anticipate that the Effective Time will occur on January 16,
1998.
ELECTION PROCEDURES
The Exchange Agent is mailing to each Great Financial Stockholder an
Election Form to be used by each such stockholder to indicate such stockholder's
desired combination of Stock Election Shares, Cash Election Shares or No
Election Shares. In order for an Election Form to be deemed to be effective,
such Election Form must be properly completed and duly executed by the Great
Financial Stockholder and returned to the Exchange Agent by the Election
Deadline, together with a duly executed letter of transmittal and the
certificates representing the stockholder's shares of Great Financial Common
Stock. See "--Surrender of Great Financial Stock Certificates and Receipt of
Star Common Stock and/or Cash." Star and Great Financial currently anticipate
that the Effective Time will occur on January 16, 1998. The parties have
determined that the Election Deadline will be 5:00 p.m., Eastern Time, on
January 16, 1998 or the date of the Effective Time.
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Persons who become Great Financial stockholders after the record date for
the initial mailing of Election Forms will be able to request Election Forms
from the Exchange Agent and make an election prior to the Election Deadline.
Each Great Financial stockholder may elect to receive shares of Star Common
Stock, to elect to receive cash, a combination of Star Common Stock and cash or
to indicate that such holder makes no election, in each case, with respect to
such holder's Great Financial Common Stock. ANY SHARES OF GREAT FINANCIAL COMMON
STOCK WITH RESPECT TO WHICH AN EFFECTIVE, PROPERLY COMPLETED ELECTION FORM HAS
NOT BEEN SUBMITTED TO THE EXCHANGE AGENT BY THE ELECTION DEADLINE WILL BE DEEMED
TO BE NO ELECTION SHARES. For purposes of the election procedures, dissenting
shares will be treated as Cash Election Shares, PROVIDED, HOWEVER, that holders
of dissenting shares will receive payment for such shares in accordance with the
provisions of the Delaware Law. See "THE MERGER--Appraisal Rights of
Stockholders of Great Financial." Subject to compliance with the applicable
provisions of the Delaware Law, holders of dissenting shares will receive the
fair value of their shares of Great Financial Common Stock. Holders of Cash
Election Shares will receive the Per Share Cash Consideration, subject to the
allocation procedures described below. As a result, the value of the Merger
Consideration received by holders of dissenting shares may not be the same as
the value of the consideration received by holders of Cash Election Shares.
Additionally, as a result of the allocation procedures, holders of Cash Election
Shares may not receive precisely the type of consideration requested. See
"--Allocation."
The actual Merger Consideration that will be paid to each Great Financial
stockholder upon consummation of the Merger may differ from the form of Merger
Consideration elected by such stockholder pursuant to such shareholder's
Election Form in the event that the aggregate number of shares of Star Common
Stock to be issued pursuant to the Merger would not equal the Stock Amount.
Because the aggregate number of shares of Star Common Stock that will be issued
in the Merger is fixed at the Stock Amount, the extent to which elections by
Great Financial stockholders will be accommodated will depend upon the
respective numbers of shares for which Great Financial stockholders elect to
receive cash, Star Common Stock or make no election. In the event that one type
of consideration is oversubscribed, the Exchange Agent will follow the
allocation procedures set forth in the Merger Agreement and described below. See
"--Allocation."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF STAR COMMON
STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF STAR COMMON STOCK ON THE
DATE SUCH STOCK IS RECEIVED BY A GREAT FINANCIAL STOCKHOLDER OR AT ANY OTHER
TIME. THE FAIR MARKET VALUE OF STAR COMMON STOCK RECEIVED BY A GREAT FINANCIAL
STOCKHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF STAR
COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
In addition to a properly completed Election Form, each stockholder of Great
Financial will be required to submit to the Exchange Agent a properly executed
letter of transmittal and surrender to the Exchange Agent the stock
certificate(s) representing shares of Great Financial Common Stock (the
"Certificates"). No new stock certificate evidencing the shares of Star Common
Stock and/or cash to which such stockholder is entitled in the Merger will be
issued or paid, and no dividends or other distributions will be paid to a former
Great Financial stockholder with respect to shares of Star Common Stock until
such person surrenders the Certificates, or documentation acceptable to the
Exchange Agent in lieu of lost or destroyed Certificates, at which time the
Merger Consideration and such dividends will be remitted to such person, without
interest and less any taxes that may have been imposed thereon. See "--Surrender
of Great Financial Stock Certificates and Receipt of Star Common Stock and/or
Cash."
TO MAKE AN EFFECTIVE ELECTION, A GREAT FINANCIAL COMMON STOCKHOLDER MUST
SUBMIT A PROPERLY COMPLETED ELECTION FORM SO THAT IT IS ACTUALLY
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RECEIVED BY THE EXCHANGE AGENT AT OR PRIOR TO THE ELECTION DEADLINE IN
ACCORDANCE WITH THE INSTRUCTIONS ON THE ELECTION FORM. AN ELECTION FORM WILL BE
PROPERLY COMPLETED ONLY IF ACCOMPANIED BY A PROPERLY COMPLETED LETTER OF
TRANSMITTAL AND CERTIFICATE(S) REPRESENTING ALL SHARES OF GREAT FINANCIAL COMMON
STOCK COVERED THEREBY. THE ELECTION DEADLINE IS 5:00 P.M. FRIDAY, JANUARY 9,
1998 OR SUCH OTHER DATE UPON WHICH STAR AND GREAT FINANCIAL MUTUALLY AGREE. STAR
AND GREAT FINANCIAL CURRENTLY ANTICIPATE THAT THE EFFECTIVE TIME WILL OCCUR ON
JANUARY 16, 1998.
Star will make available one or more Election Forms as may be reasonably
requested by all persons who become holders (or beneficial owners) of Great
Financial Common Stock between the Record Date and close of business on the
business day prior to the Election Deadline, and Great Financial will provide to
the Exchange Agent all information reasonably necessary for it to perform as
specified in the Merger Agreement.
Any Election Form may be revoked or changed by the person submitting such
Election Form at or prior to the Election Deadline. In addition, Election Forms
will become revocable if the Merger is not consummated within 45 days of the
date Election Forms are mailed to Great Financial stockholders, until the Merger
is effective. In the event an Election Form is revoked, the shares of Great
Financial Common Stock represented by such Election Form shall become No
Election Shares and Star will cause the Certificates to be promptly returned
without charge to the person submitting the Election Form upon written request
to that effect from the person who submitted the Election Form. Subject to the
terms of the Merger Agreement and of the Election Form, the Exchange Agent will
have reasonable discretion to determine whether any election, revocation or
change has been properly or timely made and to disregard immaterial defects in
the Election Forms, and any good faith decisions of the Exchange Agent regarding
such matters will be binding and conclusive. Neither Star nor the Exchange Agent
will be under any obligation to notify any person of any defect in an Election
Form.
ALLOCATION
In the event that the number of shares of Star Common Stock that would be
issued upon conversion in the Merger of the Stock Election Shares is less than
the Stock Amount, (i) all Stock Election Shares will be converted into the right
to receive the Per Share Stock Consideration, (ii) the Exchange Agent will
select first PRO RATA from among the holders of No Election Shares and then (if
necessary) PRO RATA from among the Cash Election Shares (excluding dissenting
shares), a sufficient number of shares such that the number of shares of Star
Common Stock that will be issued in the Merger equals as closely as practicable
the Stock Amount, and all Stock Designated Shares will be converted into the
right to receive the Per Share Stock Consideration, and (iii) the Cash Election
Shares and the No Election Shares which are not Stock Designated Shares will be
converted into the right to receive the Per Share Cash Consideration.
In the event that the number of shares of Star Common Stock that would be
issued upon the conversion of the Stock Election Shares is greater than the
Stock Amount, (i) all Cash Election Shares and No Election Shares will be
converted into the right to receive the Per Share Cash Consideration, (ii) the
Exchange Agent will select PRO RATA from among the Stock Election Shares, a
sufficient number of shares such that the number of shares of Star Common Stock
that will be issued in the Merger equals as closely as practicable the Stock
Amount, and all Cash Designated Shares will be converted into the right to
receive the Per Share Cash Consideration, and (iii) the Stock Election Shares
which are not Cash Designated Shares shall be converted into the right to
receive the Per Share Stock Consideration.
In the event that the number of shares of Star Common Stock that would be
issued upon conversion of the Stock Election Shares is equal or nearly equal (as
determined by the Exchange Agent) to the Stock Amount, then all Stock Election
Shares will be converted into the right to receive the Per Share Stock
Consideration and all Cash Election Shares and No Election Shares will be
converted into the right to
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receive the Per Share Cash Consideration. In the event that the number of shares
of Star Common Stock that would be issued upon the conversion of the Stock
Election Shares and No Election Shares would equal or nearly equal (as
determined by the Exchange Agent) the Stock Amount, then all Cash Election
Shares will be converted into the right to receive the Per Share Cash
Consideration and all Stock Election Shares and No Election Shares will be
converted into the right to receive the Per Share Stock Consideration.
The value of Star Common Stock to be issued pursuant to the Merger may
fluctuate prior to and following the Effective Time. It is currently anticipated
that the Effective Time will occur on January 16, 1998.
BECAUSE THE TAX CONSEQUENCES OF RECEIVING CASH OR STAR COMMON STOCK WILL
DIFFER, GREAT FINANCIAL STOCKHOLDERS ARE URGED TO READ CAREFULLY THE INFORMATION
SET FORTH UNDER "THE MERGER--CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER."
SURRENDER OF GREAT FINANCIAL STOCK CERTIFICATES AND RECEIPT OF STAR COMMON STOCK
AND/OR CASH
Concurrently with the mailing of the Election Forms, holders of record of
Certificates will be instructed to tender such Certificates to the Exchange
Agent pursuant to a letter of transmittal that Star will deliver or cause to be
delivered to such holders. The letter of transmittal will specify that risk of
loss and title to Certificates will pass only upon delivery of such Certificates
to the Exchange Agent.
Each holder of a Certificate that surrenders such Certificate together with
duly executed transmittal materials and the Election Form to the Exchange Agent
will, after the Effective Time and upon acceptance thereof by the Exchange
Agent, be entitled to a certificate or certificates representing the number of
full shares of Star Common Stock and/or cash, as the case may be, into which the
Certificate so surrendered will have been converted pursuant to the Merger
Agreement and any distribution theretofore declared and not yet paid with
respect to such shares of Star Common Stock, without interest.
The Exchange Agent will accept Certificates upon compliance with such
reasonable terms and conditions as Star or the Exchange Agent may impose to
effect an orderly exchange thereof in accordance with customary exchange
practices. Certificates shall be appropriately endorsed or accompanied by such
instruments of transfer as Star or the Exchange Agent may require. See "THE
MERGER AGREEMENT--General Description of the Merger."
Each outstanding Certificate will, until duly surrendered to the Exchange
Agent, be deemed to evidence ownership of the Merger Consideration into which
the Great Financial Common Stock previously represented such Certificate will
have been converted in the Merger. After the Effective Time, holders of
Certificates will cease to have rights with respect to the Great Financial
Common Stock previously represented by such Certificates, and their sole rights
shall be to exchange such Certificates for the Merger Consideration provided for
in the Merger Agreement. After the Effective Time, there will be no further
transfer on the records of Great Financial of Certificates, and, if such
Certificates are presented to Great Financial for transfer, they will be
cancelled against delivery of the Merger Consideration.
Star will not be obligated to deliver the Merger Consideration to which any
former holder of Great Financial Common Stock is entitled as a result of the
Merger until such holder surrenders the Certificates as provided in the Merger
Agreement. No dividends declared will be remitted to any person entitled to
receive Star Common Stock under the Merger Agreement until such person
surrenders the Certificate representing the right to receive such Star Common
Stock, at which time such dividends will be remitted to such person, without
interest and less any taxes that may have been imposed thereon.
The shares of Star Common Stock to be issued pursuant to the Merger will be
freely transferable except by certain stockholders of Great Financial who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
Great Financial. The shares of Star Common Stock issued to such
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affiliates will be restricted in their transferability in accordance with the
rules and regulations promulgated by the Commission and pursuant to agreements
entered into thereby and delivered to Star. See "COMPARISON OF SHAREHOLDER
RIGHTS --Restrictions on Resale of Star Capital Stock by Affiliates; Affiliate
Agreements."
Neither the Exchange Agent nor any party to the Merger Agreement nor any
affiliate thereof will be liable to any holder of Great Financial Common Stock
represented by any Certificate for any Merger Consideration paid to a public
official pursuant to applicable abandoned property, escheat or similar laws.
Star and the Exchange Agent will be entitled to rely upon the stock transfer
books of Great Financial to establish the identity of those persons entitled to
receive Merger Consideration, which books will be conclusive with respect
thereto. In the event of a dispute with respect to ownership of Great Financial
Common Stock represented by any Certificate, Star and the Exchange Agent shall
be entitled to deposit any Merger Consideration represented thereby in escrow
with an independent third party and thereafter be relieved with respect to any
claims thereto.
At or prior to the Effective Time of the Merger, Star will deposit the
Merger Consideration with the Exchange Agent. Any portion of the Merger
Consideration which remains undistributed six months following the Effective
Time of the Merger will be returned to Star, and thereafter holders of
Certificates shall look only to Star for payment of the Merger Consideration
(and any related dividends) to which they may be entitled.
A FIXED NUMBER OF SHARES OF STAR COMMON STOCK WILL BE ISSUED IN THE MERGER.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT EACH GREAT FINANCIAL STOCKHOLDER
WILL RECEIVE THE FORM OF CONSIDERATION THAT SUCH HOLDER ELECTS WITH RESPECT TO
ANY OR ALL SHARES OF GREAT FINANCIAL COMMON STOCK HELD BY SUCH HOLDER. IF THE
ELECTIONS RESULT IN AN OVERSUBSCRIPTION IN RESPECT OF SHARES OF GREAT FINANCIAL
COMMON STOCK WHICH WOULD OTHERWISE RECEIVE EITHER THE PER SHARE STOCK
CONSIDERATION OR THE PER SHARE CASH CONSIDERATION, THE PROCEDURES FOR ALLOCATING
STAR COMMON STOCK AND CASH, DESCRIBED UNDER "--ALLOCATION," WILL BE FOLLOWED BY
THE EXCHANGE AGENT.
FRACTIONAL SHARES
No fractional shares of Star Common Stock will be issued to the former
stockholders of Great Financial in connection with the Merger. Each former
holder of Great Financial Common Stock who otherwise would have been entitled to
receive a fraction of a share of Star Common Stock will receive cash in lieu
thereof, without interest, in an amount equal to the holder's fractional share
interest multiplied by the closing stock price of Star Common Stock on the NYSE
Composite Tape on the last business day preceding the Effective Time. No
shareholder of Great Financial entitled to receive cash in lieu of fractional
shares will be entitled to dividends, voting rights or any other rights in
respect of such fractional shares. Cash received by Great Financial shareholders
in lieu of fractional shares may give rise to taxable income. See "THE
MERGER--Certain Federal Income Tax Consequences of The Merger."
CONDITIONS OF THE MERGER
The respective obligations of Star and Great Financial to consummate the
Merger are subject to the fulfillment or waiver at or prior to the Effective
Time of the following conditions:
(i) The Merger Agreement shall have received the requisite approval of
stockholders of Great Financial.
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(ii) All requisite approvals of the Merger Agreement and the
transactions contemplated thereby shall have been received from the Federal
Reserve Board, and any other necessary governmental or regulatory authority
or agency (collectively, the "Regulatory Authorities").
(iii) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order.
(iv) Neither Star nor Great Financial shall be subject to any order,
decree or injunction, and there shall be no pending or threatened order,
decree or injunction, of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger.
(v) There shall be no legislative, statutory or regulatory action
(whether United States federal or state) pending which prohibits or
threatens to prohibit consummation of the Merger or which otherwise
materially adversely affects the Merger.
(vi) Each of Star and Great Financial shall have received, from counsel
reasonably satisfactory to it, an opinion reasonably satisfactory in form
and substance to it to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code and that no
gain or loss will be recognized by the stockholders of Great Financial to
the extent they receive Star Common Stock solely in exchange for shares of
Great Financial Common Stock.
(vii) The shares of Star Common Stock which shall be issued to the
holders of Great Financial Common Stock (and where applicable, Great
Financial Stock Options) upon consummation of the Merger shall have been
authorized for listing on the NYSE, subject to official notice of issuance.
Great Financial's obligation to effect the Merger is subject to the
fulfillment or waiver at or prior to the Effective Time of the following
additional conditions:
(i) The representations and warranties of Star set forth in Article III
of the Merger Agreement shall be true and correct in all material respects
as of September 15, 1997 and as of the Effective Time (as though made on and
as of the Effective Time except (a) to the extent such representations and
warranties are by their express provisions made as of a specified date or
period and (b) for the effect of transactions contemplated by the Merger
Agreement).
(ii) Star shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement prior to the
Effective Time.
(iii) Great Financial shall have received a certificate of the Chief
Financial Officer of Star as to the satisfaction of the conditions set forth
in clauses (i) and (ii).
Star's obligation to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional conditions:
(i) The representations and warranties of Great Financial set forth in
Article II of the Merger Agreement shall be true and correct in all material
respects as of September 15, 1997 and as of the Effective Time (as though
made on and as of the Effective Time except (a) to the extent such
representations and warranties are by their express provisions made as of a
specified date or period and (b) for the effect of transactions contemplated
by the Merger Agreement).
(ii) Great Financial shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement prior
to the Effective Time.
(iii) Star shall have received certificates of the Vice Chairman of Great
Financial as to the satisfaction of the conditions set forth in clauses (i)
and (ii).
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TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any Stockholder Approval: (i) by mutual consent of
the Executive Committee of the Star Board (the "Star Executive Committee") and
the Great Financial Board; (ii) by the Star Executive Committee or the Great
Financial Board (a) at any time after September 15, 1998 if the Merger shall not
theretofore have been consummated (PROVIDED that the terminating party is not
then in material breach of the Merger Agreement), (b) if the Federal Reserve
Board has denied approval of the Merger and such denial has become final and
nonappealable or (c) if stockholders of Great Financial shall not have approved
the Merger Agreement at the Special Meeting, PROVIDED that Great Financial has
not breached its obligation, subject to certain exceptions, to recommend the
proposal; (iv) by the Great Financial Board in the event of a material breach by
Star of the Merger Agreement, which breach is not cured within 30 days after
written notice thereof is given to Star by Great Financial; (v) by the Executive
Committee of the Star Board in the event of a material breach by Great Financial
of the Merger Agreement, which breach is not cured within 30 days after written
notice thereof is given to Great Financial by Star; or (vi) by the Great
Financial Board, if the average closing price of a share of Star Common Stock on
the Composite Tape on the Determination Date (as defined herein) for the 10 NYSE
trading days preceding the Determination Date shall be less $37.00; PROVIDED
that, if Great Financial gives notice of its intent to exercise its termination
right, (i) Great Financial may not negotiate any Acquisition Transaction (as
defined herein) for a period of 10 business days after receipt of such notice
and during such 10-business-day period shall negotiate exclusively with Star for
a mutually acceptable amendment to certain parts of the Merger Agreement, and
(ii) the termination pursuant to this provision will not be effective until the
end of such 10-business-day period or if Great Financial breaches its obligation
to conduct such negotiations. "Determination Date" means the date five days
before the scheduled Closing Date. Star and Great Financial currently anticipate
the Closing Date to be January 16, 1998.
No assurance can be given that the Merger will be consummated, that Star and
Great Financial will not mutually agree to terminate the Merger Agreement, or
that Star or Great Financial will not elect to terminate the Merger Agreement if
the Merger has not been consummated on or before September 15, 1998.
BUSINESS PENDING THE MERGER
From September 15, 1997 to the Effective Time, each of Star and Great
Financial agreed to, and agreed to cause each of their respective subsidiaries
to, conduct its business according to the ordinary and usual course consistent
with past practices, and agreed to, and agreed to cause each such subsidiary to,
use its best efforts to maintain and preserve its business organization,
employees and advantageous business relationships and retain the services of its
officers and key employees.
From September 15, 1997 to the Effective Time, the Merger Agreement provides
that, except as provided in the Merger Agreement, Great Financial has agreed not
to, and to cause each of its subsidiaries not to, without the prior written
consent of Star:
(i) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
dividends from a subsidiary of Great Financial to Great Financial or another
subsidiary of Great Financial), except that Great Financial may declare and
pay cash dividends on the Great Financial Common Stock of not more than $.15
per share per quarterly period; PROVIDED that Great Financial shall not
declare any dividends on Great Financial Common Stock during any quarter in
which its stockholders will be entitled to receive any regular quarterly
dividend on the shares of Star Common Stock to be issued in the Merger;
(ii) enter into or amend any employment, severance or similar agreement
or arrangement with any director or officer or employee, or materially
modify any of Great Financial's employee benefit plans specified in the
Merger Agreement or grant any salary or wage increase or materially increase
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any employee benefit (including incentive or bonus payments), except normal
individual increases in compensation to employees consistent with past
practice, or as required by law or contract;
(iii) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in principle
with respect to, any merger, consolidation or business combination (other
than the Merger), any acquisition or disposition of a material amount of
assets (except in the usual course of business consistent with past
practices) including mortgage servicing rights, loans or securities as well
as any release or relinquishment of any material contract rights;
(iv) propose or adopt any amendments to its certificate or articles of
incorporation, association or other charter document or by-laws;
(v) issue, sell, grant, confer or award any of its Equity Securities (as
defined in the Merger Agreement) (except shares of Great Financial Common
Stock issued upon exercise of Great Financial Stock Options outstanding on
September 15, 1997) effect any stock split or adjust, combine, reclassify or
otherwise change its capitalization as it existed on September 15, 1997;
(vi) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity Securities,
whether pursuant to the terms of such Equity Securities or otherwise;
(vii) without first consulting with Star, (a) enter into, renew or
increase any loan or credit commitment (including standby letters of credit)
to, or invest or agree to invest in any person or entity or modify any of
the material provisions or renew or otherwise extend the maturity date of
any existing loan or credit commitment (collectively, "lend to") in an
amount in excess of $1,000,000 or in an amount which, or when aggregated
with any and all loans or credit commitments to such person or entity, would
be in excess of $1,000,000; (b) lend to any person other than in accordance
with lending policies as in effect on the date of the Merger Agreement;
PROVIDED that, in the case of subclause (a) Great Financial or any Great
Financial subsidiary may make any such loan in the event (1) Great Financial
or any Great Financial subsidiary has delivered to Star or its designated
representative a notice of its intention to make such loan and such
information as Star or its designated representative may reasonably require
in respect thereof and (2) Star or its designated representative will not
have reasonably objected to such loan by giving written or facsimile notice
of such objection within two business days following the delivery to Star of
the notice of intention and information as aforesaid; or (c) lend to any
person or entity any of the loans or other extensions of credit to which or
investments in which are on a "watch list" or similar internal report of
Great Financial or any Great Financial subsidiary (except those denoted
"pass" thereon) in an amount in excess of $100,000; PROVIDED, HOWEVER, that
nothing in this paragraph will prohibit Great Financial or any Great
Financial subsidiary from honoring any contractual obligation in existence
on the date of the Merger Agreement. Notwithstanding the provisions of
clause (a) described above, Great Financial will be authorized to increase
the aggregate amount of any credit facilities theretofore established in
favor of any person or entity (each a "Pre-Existing Facility"), PROVIDED
that aggregate increases with respect to any Pre-Existing Facility will not
be in excess of the lesser of 5% of such Pre-Existing Facility or $50,000;
(viii) directly or indirectly (including through its officers, directors,
employees or other representatives), initiate, solicit or encourage any
discussions, inquiries or proposals with any third party relating to the
disposition of any significant portion of the business or assets of Great
Financial or any Great Financial subsidiary or the acquisition of Equity
Securities of Great Financial or any Great Financial subsidiary or the
merger of Great Financial or any Great Financial subsidiary with any person
(other than Star) or any similar transaction or provide any such person with
information or assistance or negotiate with any such person with respect to
such a transaction, and Great Financial will notify Star orally of all the
relevant details relating to all inquiries, indications of interest and
proposals which it may receive with respect to such a transaction within 24
hours of the receipt of any such inquiry, indication or proposal;
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<PAGE>
(ix) take any action that would (a) materially impede or delay the
consummation of the transactions contemplated by the Merger Agreement or the
ability of Star or Great Financial to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger Agreement
or to perform its covenants and agreements under the Merger Agreement or (b)
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code;
(x) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity;
(xi) materially restructure or materially change its investment
securities portfolio, through purchases, sales or otherwise, or the manner
in which the portfolio is classified or reported as of the date of the
Agreement;
(xii) agree in writing or otherwise to take any of the foregoing actions
or engage in any activity, enter into any transaction or take or omit to
take any other act which would make any of the representations and
warranties of Great Financial in the Merger Agreement untrue or incorrect in
any material respect if made anew after engaging in such activity, entering
into such transaction, or taking or omitting such other act.
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement may be amended by or on behalf of
the Star Board and the Great Financial Board at any time before or after
Stockholder Approval, by an instrument in writing signed on behalf of each
party; PROVIDED that, after Stockholder Approval, no such modification may alter
or change the amount or kind of consideration to be received by holders of Great
Financial Common Stock in the Merger.
EMPLOYEE BENEFITS
EMPLOYEE BENEFITS. Pursuant to the Merger Agreement, Star will take such
steps as are necessary or required to integrate the employees of Great Financial
and the Great Financial subsidiaries in Star's employee benefit plans available
to other employees of Star and Star subsidiaries as soon as practicable after
the Effective Time, (i) with full credit for prior service with Great Financial
or any of the Great Financial subsidiaries for all purposes other than
determining the amount of benefit accruals under any defined benefit plan, (ii)
without any waiting periods, evidence of insurability, or application of any
pre-existing condition limitation, and (iii) with full credit for claims arising
prior to the Effective Time for purposes of deductibles, out-of-pocket maximums,
benefit maximums, and all other similar limitations for the applicable plan year
during which the Merger is consummated. Each of Star and Great Financial will
use all reasonable efforts to insure that no amounts paid or payable by Great
Financial, Great Financial Subsidiaries or Star to or with respect to any
employee or former employee of Great Financial or any Great Financial Subsidiary
will fail to be deductible for United States federal income tax purposes by
reason of Section 280G of the Code.
Pursuant to the Merger Agreement, Star will abide by the terms of Great
Financial's Severance Plan and GFB Severance Compensation Plan for officers who
are Vice Presidents and above as of the Closing Date. With respect to employees
of Great Financial, GFB or any of its subsidiaries, Star will provide severance
payments in the minimum amount of one week for each year of employment by Great
Financial, Great Financial Bank, GFB's subsidiaries or predecessor corporations
up to a maximum of 26 weeks of total severance compensation.
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<PAGE>
Star has agreed to a continuation of COBRA health benefits pursuant to the
existing GFB Plan for employees who are terminated as a result of the Closing,
said COBRA benefits to continue for a seven-year period.
Star has agreed that GFB may allocate the remaining shares of Great
Financial Common Stock in the Recognition and Retention Plan for Outside
Directors and Recognition and Retention Plan for Officers and Employees (the
"RRP Plans") in such manner as GFB deems appropriate; GFB may take any actions
prior to the Effective Time reasonably required to vest and distribute Plan
Shares (as defined in the RRP Plans) awarded to the participants in the RRP
Plans prior to the Effective Time, including, without limitation, adopting a
resolution to the effect that a Change in Control of Great Financial or Great
Financial Bank has taken place prior to the Effective Time for purposes of
accelerating vesting of Plan Shares.
Star has agreed to establish a Rabbi Trust for those amounts necessary to
actuarially fund retirement payments pursuant to the Great Financial Federal
Restated Directors Retirement Plan effective January 1, 1992 (the "Board of
Directors Retirement Plan") and to fund the Rabbi Trust to purchase split dollar
life insurance for those members of the Great Financial Board who have waived
their rights under the Board of Directors Retirement Plan; PROVIDED, HOWEVER,
that Star shall not be required to fund any such plans to an extent beyond the
amounts presently reserved on the books of GFB.
GREAT FINANCIAL STOCK OPTIONS. At the Effective Time, all rights with
respect to Great Financial Incentive Stock Options that are outstanding at the
Effective Time, whether or not then exercisable, will be converted into and
become rights with respect to Star Common Stock, and Star will assume each Great
Financial Stock Option in accordance with the terms of the Great Financial Stock
Plan under which it was issued and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each Great Financial Incentive
Stock Option assumed by Star will be exercisable solely for shares of Star
Common Stock, (ii) the number of shares of Star Common Stock subject to each
Great Financial Incentive Stock Option will be equal to the number of shares of
Great Financial Common Stock subject to such Great Financial Incentive Stock
Option immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole share of Star Common Stock and (iii) the per
share exercise price under each Great Financial Incentive Stock Option shall be
adjusted by dividing the per share exercise price under such Great Financial
Incentive Stock Option by the Exchange Ratio and rounding up to the nearest
cent; PROVIDED, HOWEVER, that the terms of each Great Financial Stock Option
shall, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction subsequent to the Effective Time. The foregoing
assumption shall be undertaken by Star in a manner that will comply with Section
424(a) of the Code, as to any Great Financial Incentive Stock Option. The holder
of a Great Financial Incentive Stock Option which is converted into an option
with respect to Star Common Stock will not recognize gain or loss solely as a
result of such conversion. See "THE MERGER--Certain Federal Income Tax
Consequences of The Merger."
Prior to the Effective Time, Great Financial intends to cancel each Great
Financial Stock Option which (i) is not a Great Financial Incentive Stock Option
and (ii) is not exercised prior to the Effective Time, by paying to the holder
thereof an amount of cash equal to the product of (a) the amount by which the
Per Share Cash Consideration exceeds the exercise price of such Great Financial
Stock Option and (b) the number of shares of Great Financial Common Stock
subject to such Great Financial Stock Option.
The holder of a Great Financial Stock Option which is converted into an
option with respect to Star Common Stock will not recognize gain or loss solely
as a result of such conversion. Certain tax consequences will arise, however,
upon the exercise of any Great Financial Stock Option that is a nonqualified
stock option or the sale or disposition of the shares acquired by exercise of
any Great Financial Stock Option that is a Great Financial Incentive Stock
Option. See "THE MERGER --Certain Federal Income Tax Consequences of The
Merger."
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Certain executive officers of Great Financial, including certain executive
officers who are directors, currently hold Great Financial Stock Options which
will be converted into rights with respect to Star Common Stock as described
above. See "THE MERGER--Interests of Certain Persons in the Merger."
Certain executive officers, including certain executive officers who are
directors, of Great Financial currently hold both Great Financial Incentive
Stock Options, which will be converted into rights with respect to Star Common
Stock as described above, and other Great Financial Stock Options which will be
canceled and paid cash as described above.
GREAT FINANCIAL EMPLOYEE STOCK OWNERSHIP PLAN. Pursuant to the Merger
Agreement Great Financial may cause the Employee Stock Ownership Plan of Great
Financial Bank (first effective January 1, 1994) (the "Great Financial ESOP") to
allocate, prior to the Effective Time, to participants in the Great Financial
ESOP the maximum number of currently unallocated shares of Great Financial
Common Stock allowable under Section 415 of the Code. Except as provided in the
following paragraph, Great Financial will not take any action which would cause
the Great Financial ESOP to be disqualified under Section 401(a) of the Code or
to lose its status as an employee stock ownership plan under Section 4975 of the
Code.
On or before the Effective Time, Great Financial will take steps reasonably
necessary to cause the Great Financial ESOP to be terminated as of the Effective
Time. Any indebtedness of the Great Financial ESOP shall be repaid from the
trust associated with the Great Financial ESOP. A final allocation will be
prepared, and a request for a favorable determination letter on the termination
of the Great Financial ESOP will be filed with the Service. To the maximum
extent permitted by the rules and regulations of the Service, upon receipt of
the favorable determination letter, the assets of the Great Financial ESOP will
be distributed to the participants in due course. At and after the Effective
Time, no additional employees will become eligible to participate in the Great
Financial ESOP and the assets of the Great Financial ESOP will be applied in
accordance with its terms and the rules and regulations of the Service and the
United States Department of Labor.
INDEMNIFICATION AND INSURANCE. Star has agreed that the Merger will not
affect or diminish any of Great Financial's duties and obligations of
indemnification existing as of the Effective Time in favor of employees, agents,
directors or officers of Great Financial or its subsidiaries arising by virtue
of its Certificate of Incorporation or Bylaws in the form in effect at the date
of the Merger Agreement or arising by operation of law or arising by virtue of
any contract, resolution or other agreement or document existing at the date of
the Merger Agreement, and such duties and obligations will continue in full
force and effect and be honored by Star for so long as they would (but for the
Merger) otherwise survive and continue in full force and effect. Star will
provide, or cause to be provided, for a period of not less than two years from
the Effective Time, a "tail" insurance and indemnification policy that provides
the officers and directors of Great Financial subsidiaries immediately prior to
the Effective Time coverage no less favorable than as currently provided by Star
to its officers and directors.
STOCK OPTION AGREEMENT
Concurrently with the execution of the Merger Agreement, Great Financial
executed and delivered the Stock Option Agreement, pursuant to which Great
Financial granted to Star the Option. Great Financial approved and entered into
the Stock Option Agreement to induce Star to enter into the Merger Agreement.
The Stock Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms of the Merger Agreement.
Consequently, certain aspects of the Stock Option Agreement may have the effect
of discouraging persons who might now or at any other time prior to the
Effective Time be interested in acquiring all of or a significant interest in
Great Financial from considering or proposing such an acquisition, even if such
persons were prepared to offer to pay consideration to the Great Financial
stockholders which had a higher current market price than the Per
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Share Stock Consideration and/or the Per Share Cash Consideration. The
acquisition of Great Financial could cause the Option to become exercisable. The
existence of the Option could significantly increase the cost to a potential
acquiror of acquiring either Great Financial compared to its cost had the Stock
Option Agreement and the Merger Agreement not been entered into. Such increased
cost might discourage a potential acquiror from considering or proposing an
acquisition or might result in a potential acquiror proposing to pay a lower per
share price to acquire Great Financial than it might otherwise have proposed to
pay. Moreover, following consultation with their respective independent
accountants, Great Financial and Star believe that the exercise or repurchase of
the Option is likely to prohibit any other acquiror of Great Financial from
accounting for any acquisition of Great Financial using the pooling of interests
accounting method for a period of two years.
The Stock Option Agreement provides for the purchase by Star of 2,747,083
shares (the "Option Shares") of Great Financial Common Stock at an exercise
price of $36.00 per share, payable in cash. The Option Shares, if issued
pursuant to the Stock Option Agreement, will in no event exceed 19.9% of the
Great Financial Common Stock issued and outstanding without giving effect to the
issuance of any Great Financial Common Stock subject to the Option.
The number of shares of Great Financial Common Stock subject to the Option
will be increased or decreased, as appropriate, to the extent that additional
shares of Great Financial Common Stock are either (i) issued or otherwise become
outstanding (other than pursuant to an exercise of the Option or as permitted
under the Merger Agreement) or (ii) redeemed, repurchased, retired or otherwise
cease to be outstanding after September 15, 1997, such that, after such
issuance, the number of Great Financial Option Shares will continue to equal
19.9% of the Great Financial Common Stock then issued and outstanding without
giving effect to the issuance of Great Financial Common Stock subject to the
Option. In the event of any change in, or distributions in re spect of, the
number of shares of Great Financial Common Stock by reason of a stock dividend,
split-up, merger, recapitalization, combination, subdivision, conversion,
exchange of shares, distribution on or in respect of such Great Financial Common
Stock that would be prohibited by the Merger Agreement, or similar transaction,
the type and number of Option Shares purchasable upon exercise of the Option,
and the applicable option price will also be adjusted in such a manner as will
fully preserve the economic benefits of the Option.
The Stock Option Agreement provides that the Star or any other holder or
holders of the Option (as used in this section, collectively, the "Holder") may
exercise the Option, in whole or in part, subject to regulatory approval, if
both an Initial Triggering Event (as defined herein) and a Subsequent Triggering
Event (as defined herein) has occurred prior to the occurrence of an Exercise
Termination Event (as defined herein); PROVIDED that the Holder has sent to
Great Financial written notice of such exercise within 90 days following such
Subsequent Triggering Event (subject to extension as provided in the Option
Agreement). The terms Initial Triggering Event and Subsequent Triggering Event
generally relate to attempts by one or more third parties to acquire a
significant interest in Great Financial. Any exercise of the Option will be
deemed to occur on the date such notice is sent.
For purposes of each Option Agreement:
(i) The term "Initial Triggering Event" means the occurrence of any of the
following events or transactions after September 15, 1997: (a) Great Financial
or any subsidiary of Great Financial, without the Star's prior written consent,
enters into an agreement to engage in, or the Great Financial Board recommends
that shareholders of the Great Financial approve or accept, an Acquisition
Transaction (as defined herein) with any person or group; (b) Great Financial,
without the Star's prior written consent, authorizes, recommends, proposes or
publicly announces its in tention to authorize, recommend or propose to engage
in an Acquisition Transaction, or, other than as permitted by the Merger
Agreement, the Great Financial Board publicly withdraws or modifies, or publicly
announces its intention to withdraw or modify, in any manner adverse to the
Star, its recommendation that its shareholders approve the Merger Agreement in
anticipation of engaging in an Acquisition Transaction; (c) any person, other
than
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Star, any subsidiary of the Star or any Great Financial subsidiary acting in a
fiduciary capacity in the ordinary course of business acquires beneficial
ownership, or the right to acquire beneficial ownership, of 10% or more of the
outstanding shares of Great Financial Common Stock; (d) any person other than
Star or any subsidiary of Star made a BONA FIDE proposal to Great Financial or
its shareholders by public announcement or written communication that becomes
the subject of public disclosure to engage in an Acquisition Transaction; (e)
Great Financial breaches any covenant or obligation in the Merger Agreement
after any person, other than Star or any subsidiaries of Star, has proposed an
Acquisition Transaction, and such breach (1) would entitle the Star to terminate
the Merger Agreement and (2) is not remedied prior to the date of the Star's
notice to Great Financial of the exercise of the Option; or (f) any person other
than Star or any subsidiary of Star, other than in connection with a transaction
to which Star has given its prior written consent, files an application or
notice with the Federal Reserve Board, or other United States federal or state
bank regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(ii) For purposes of the Stock Option Agreement, the term "Acquisition
Transaction" means (a) a merger or consolidation, or any similar transaction
with Great Financial or any of its Significant Subsidiaries (as defined in Rule
1-02 of Regulation S-X of the Commission); (b) a purchase, lease or other
acquisition or assumption of all or substantially all of the assets or deposits
of Great Financial or any of its Significant Subsidiaries; (c) a purchase or
other acquisition of securities representing 10% or more of the voting power of
Great Financial; or (d) any substantially similar transaction, PROVIDED,
HOWEVER, that in no event will any merger, consolidation, purchase or similar
transaction involving only Great Financial and one or more of its subsidiaries
or involving only any two or more of such subsidiaries, be deemed to be an
Acquisition Transaction, PROVIDED that any such transaction is not entered into
in violation of the terms of the Merger Agreement.
(iii) The term "Subsequent Triggering Event" means the occurrence of either
of the following events or transactions after September 15, 1997: (a) the
acquisition by any person of beneficial ownership of 20% or more of the then
outstanding shares of Great Financial Common Stock; or (b) the occurrence of the
Initial Triggering Event described above in clause (i)(a), except that the
percentage referred to in clause (ii)(c) of the definition of "Acquisition
Transaction" set forth above will be 20%.
The Option will expire upon the occurrence of an "Exercise Termination
Event," which includes: (i) the Effective Time of the Merger; (ii) termination
of the Merger Agreement in accordance with the provisions thereof if such
termination occurs prior to the occurrence of an Initial Triggering Event,
except in the case of the termination of the Merger Agreement by Star as a
result of an uncured material breach by Great Financial of any of its
representations, warranties, covenants or agreements unless the breach by Great
Financial is non-volitional; or (iii) the date that is 12 months after the
termination of the Merger Agreement if such termination occurs after the
occurrence of an Initial Triggering Event or is a termination by the Star as a
result of an uncured material breach by Great Financial of any of its
representations, warranties, covenants or agreements unless the breach by Great
Financial is non-volitional (provided that, if an Initial Triggering Event
continues or occurs beyond such termination of the Merger Agreement and prior to
the passage of such 12-month period, the Option will terminate 12 months from
the expiration of the last Initial Triggering Event to expire, but in no event
more than 18 months after such termination of the Merger Agreement).
As of the date of this Proxy Statement/Prospectus, to the best knowledge of
Star and Great Financial, no Initial Triggering Event or Subsequent Triggering
Event has occurred.
Immediately prior to the occurrence of a Repurchase Event (as defined
herein), (i) following a request of a Holder, delivered prior to an Exercise
Termination Event, Great Financial (or any successor thereto) will repurchase
the Option from the Holder at a price (the "Option Repurchase Price") equal to
the amount by which (a) the market/offer price (as defined herein) exceeds (b)
the option price, multiplied by the number of shares for which the Option may
then be exercised and (ii) at the request of the owner of
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Option Shares from time to time (the "Owner"), delivered within 90 days of such
occurrence (or such later period as provided in Section 10 of the Stock Option
Agreement), Great Financial will repurchase such number of the Option Shares
from the Owner as the Owner will designate at a price (the "Option Share
Repurchase Price") equal to the market/offer price multiplied by the number of
Option Shares so designated.
The term "market/offer price" means the highest of (i) the price per share
of Great Financial Common Stock at which a tender offer or exchange offer
therefor has been made, (ii) the price per share of Great Financial Common Stock
to be paid by any third party pursuant to an agreement with Great Financial,
(iii) the highest closing price for shares of Great Financial Common Stock
within the six-month period immediately preceding the date the Holder gives
notice of the required repurchase of the Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the event
of a sale of all or a substantial portion of Great Financial's assets, the sum
of the price paid in such sale for such assets and the current market value of
the remaining assets of Great Financial as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to Great Financial, divided by the number of shares of
Great Financial Common Stock outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
will be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be, and reasonably acceptable to Great
Financial. However, if Great Financial at any time after delivery of a notice of
repurchase as described in this paragraph is prohibited under applicable law or
regulation from delivering to the Holder and/or the Owner, as appropriate, the
Option Repurchase Price and the Option Share Repurchase Price, respectively, in
full, the Holder or Owner may revoke its notice of repurchase of the Option or
the Option Shares, either in whole or to the extent of the prohibition,
whereupon, in the latter case, Great Financial will promptly (i) deliver to the
Holder and/or the Owner, as appropriate, that portion of the Option Repurchase
Price or the Option Share Repurchase Price that the Great Financial is not
prohibited from delivering and (ii) deliver, as appropriate, (a) to the Holder,
a new Stock Option Agreement evidencing the right of the Holder to purchase that
number of shares of Great Financial Common Stock obtained by multiplying the
number of shares of Great Financial Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, and (b) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing. A "Repurchase
Event" is deemed to have occurred (i) upon the consummation of an Acquisition
Transaction or (ii) upon the acquisition by any person of the beneficial
ownership of 50% or more of the then outstanding Great Financial Common Stock,
PROVIDED that a Subsequent Triggering Event has occurred prior to an Exercise
Termination Event.
In the event that, prior to an Exercise Termination Event, Great Financial
enters into any agreement (i) to consolidate with or merge into any person,
other than Star or one of its subsidiaries, such that Great Financial is not the
continuing or surviving corporation of such consolidation or merger; (ii) to
permit any person, other than Star or one of its subsidiaries, to merge into
Great Financial and Great Financial is the continuing or surviving corporation,
but, in connection with such consolidation or merger, the outstanding shares of
Great Financial Common Stock are changed into or exchanged for stock or other
securities of any other person or cash or any other property, or the then
outstanding shares of Great Financial Common Stock after such merger will
represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged corporation; or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Star or any of
its subsidiaries, then, and in each such case, the agreement governing such
transaction must provide that, upon consummation of such transaction and upon
terms and conditions set forth in the Stock Option Agreement, the Option will be
converted into, or exchanged for, an option having substantially the same terms
as the Option (the "Substitute Option") to purchase securities, at the election
of the Holder, of either the acquiring person or any person that controls the
acquiring person. At the request of the Holder of the Substitute Option, the
issuer of the Substitute
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Option will repurchase it at a price, and subject to such other terms and
conditions, as set forth in the Stock Option Agreement.
Within 90 days after the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Date (subject to extension as provided
in the Stock Option Agreement), the Star may request Great Financial to prepare,
file and keep current with respect to the Option Shares, a registration
statement with the Commission. Great Financial is required to use its reasonable
best efforts to cause such registration statement to become effective and then
to remain effective for 180 days or such shorter time as may be reasonably
necessary to effect such sales or other disposition of Option Shares. Star has
the right to demand two such registrations.
Neither the Great Financial nor the Star may assign any of its rights and
obligations under the Stock Option Agreement or the Stock Option to any other
person without the express written consent of the other party, except that, if a
Subsequent Triggering Event occurs prior to an Exercise Termination Event, Star,
subject to the terms of the Stock Option Agreement, may assign, in whole or in
part, its rights and obligations thereunder, within 90 days (subject to
extension as provided in the Stock Option Agreement) of such Subsequent
Triggering Event; PROVIDED that, until the date 15 days after the date on which
the Federal Reserve Board approves an application by Star to acquire Option
Shares, Star may not assign its rights under the Option except in (i) a widely
dispersed public distribution, (ii) a private placement in which no one party
acquires the right to purchase in excess of 2% of the voting shares of Great
Financial, (iii) an assignment to a single party for the purpose of conducting a
widely dispersed public distribution on Star's behalf, or (iv) any other manner
approved by the Federal Reserve Board.
Certain rights and obligations of Star and Great Financial under the Stock
Option Agreement are subject to receipt of required regulatory approvals. The
approval of the Federal Reserve Board is required for the acquisition by Star of
more than 5% of the outstanding shares of Great Financial Common Stock.
Accordingly, Star has included or will include in its applications with the
Federal Reserve Board a request for approval of the right of the Star to
exercise its rights under the Stock Option Agreement, including its right to
purchase more than 5% of the outstanding shares of Great Financial Common Stock.
See "THE MERGER--Regulatory Approval."
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UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Financial Information and
explanatory notes are presented to show the impact on the historical financial
position and results of operations of Star for the proposed combination with
Great Financial.
In accordance with the terms of the Merger Agreement, each share of Great
Financial Common Stock outstanding immediately prior to the Effective Time will
be converted into the right to receive, at the election of the holder thereof,
either (i) 0.949 of a share of Star Common Stock and the associated preferred
share purchase rights under Star's Rights Agreement, dated October 27, 1989, or
(ii) $44.00 in cash, provided that the aggregate number of shares of Great
Financial Common Stock that shall be converted in the Merger into the right to
receive Star Common Stock shall equal seventy percent of the issued and
outstanding shares of Great Financial Common Stock immediately prior to the
Effective Time.
The unaudited Pro Forma Condensed Financial Information reflects the Merger
using the purchase method of accounting. The cash component of the purchase
price is assumed to equal 30% of the purchase price in the unaudited Pro Forma
Condensed Financial Information and is expected to be funded by Star through the
issuance of short-term borrowings.
The unaudited Pro Forma Condensed Balance Sheet assumes that the Merger was
consummated on September 30, 1997. The unaudited Pro Forma Condensed Combined
Income Statement reflects the consolidation of the results of operations of Star
and Great Financial for the year ended December 31, 1996, and the nine months
ended September 30, 1997.
The unaudited Pro Forma Condensed Financial Information reflects the Merger
based upon the preliminary purchase accounting adjustments. Actual adjustments,
which will include adjustments to additional assets, liabilities and other items
including identifiable intangibles, will be made on the basis of appraisals and
evaluations as of the Effective Time and, therefore, are likely to differ from
those reflected in the unaudited Pro Forma Condensed Financial Information.
The combined company expects to achieve substantial merger benefits
including operating cost savings and revenue enhancements. The pro forma
earnings, which do not reflect any potential savings or revenue enhancements
which are expected to result from the consolidation of operations of Star and
Great Financial, are not indicative of the results of future operations. No
assurances can be given with respect to the ultimate level of expense savings
and revenue enhancements to be realized.
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STAR BANC CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
GREAT STAR
STAR BANC FINANCIAL PRO FORMA BANC
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and Due from Banks................................... $ 529,401 $ 38,813 $ -- $ 568,214
Money Market Instruments.................................. 137,947 3,873 -- 141,820
Investment Securities:
Available-for-Sale...................................... 1,086,472 737,383 -- 1,823,855
Held-to-Maturity........................................ 159,355 -- -- 159,355
------------- ------------ ------------ -------------
Total Securities...................................... 1,245,827 737,383 -- 1,983,210
Loans Net of Unearned Interest............................ 8,325,977 1,989,054 (534 (4) 10,314,497
Allowance for Loan Losses........................... 129,853 14,663 -- 144,516
------------- ------------ ------------ -------------
Net Loans............................................. 8,196,124 1,974,391 (534) 10,169,981
Bank Premises and Equipment............................... 139,855 33,296 -- 173,151
Acceptances - Customers' Liability........................ 19,149 -- -- 19,149
Intangibles............................................... 216,775 11,686 362,377 )(4 590,838
Mortgage Servicing Rights................................. 9,015 39,052 18,000(4) 66,067
Other Assets.............................................. 278,344 55,011 -- 333,355
------------- ------------ ------------ -------------
Total Assets.......................................... $ 10,772,437 $ 2,893,505 $ 379,843 $ 14,045,785
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
LIABILITIES:
Deposits:
Noninterest-Bearing Deposits............................ $ 1,522,249 $ 152,661 $ -- $ 1,674,910
Interest-Bearing Deposits............................... 6,353,755 1,766,617 7,400(4) 8,127,772
------------- ------------ ------------ -------------
Total Deposits........................................ 7,876,004 1,919,278 7,400 9,802,682
Short-Term Borrowings..................................... 1,302,728 242,496 182,469(3) 1,727,693
Long-Term Debt............................................ 318,698 395,952 4,100(4) 715,750
Trust Preferred Securities................................ 148,566 -- -- 148,566
Acceptances Outstanding................................... 19,149 -- -- 19,149
Other Liabilities......................................... 223,794 47,432 37,964(4) 309,190
------------- ------------ ------------ -------------
Total Liabilities..................................... 9,888,939 2,602,158 231,933 12,723,030
------------- ------------ ------------ -------------
SHAREHOLDERS' EQUITY:
Common Stock.............................................. 452,407 165 22,832(8) 475,404
Surplus................................................... 80,570 165,284 104,831(8) 350,685
Retained Earnings......................................... 492,621 192,352 (192,352 (8) 492,621
Treasury Stock, at cost................................... (153,719) (72,313) 218,458(8) (7,574)
Net Unrealized Gain/(Loss) on Securities
Available-for-Sale...................................... 11,619 5,859 (5,859 (8) 11,619
------------- ------------ ------------ -------------
Total Shareholders' Equity............................ 883,498 291,347 147,910 )(8 1,322,755
------------- ------------ ------------ -------------
Total Liabilities and Shareholders' Equity............ $ 10,772,437 $ 2,893,505 $ 379,843 $ 14,045,785
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
information
49
<PAGE>
STAR BANC CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GREAT PRO FORMA
STAR BANC FINANCIAL PRO FORMA STAR BANC
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans............................... $ 635,619 $ 157,893 $ (1,371)(5) $ 792,141
Interest on Investment Securities........................ 98,206 40,323 (1,800)(5) 136,729
Other.................................................... 1,700 1,039 -- 2,739
----------- ----------- ----------- -----------
Total Interest Income.................................. 735,525 199,255 (3,171) 931,609
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on Deposits..................................... 262,675 81,981 (2,338) (6) 342,318
Interest on Borrowings................................... 54,651 41,436 7,339 )(6 103,426
----------- ----------- ----------- -----------
Total Interest Expense................................. 317,326 123,417 5,001 445,744
----------- ----------- ----------- -----------
Net Interest Income................................ 418,199 75,838 (8,172) 485,865
Provision for Loan Losses................................ 40,773 2,586 -- 43,359
----------- ----------- ----------- -----------
Net Interest Income after Provision for
Loan Losses...................................... 377,426 73,252 (8,172) 442,506
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Trust Income............................................. 46,917 -- -- 46,917
Service Charges on Deposits.............................. 55,983 -- -- 55,983
Credit Card Income....................................... 19,183 -- -- 19,183
Electronic Banking Income................................ 10,231 -- -- 10,231
Mortgage Banking Income.................................. 7,556 28,522 (4,000)(5) 32,078
Investment Securities Gains/(Losses)--Net................ (2,451) 848 -- (1,603)
All Other Income......................................... 33,103 6,468 -- 39,571
----------- ----------- ----------- -----------
Total Noninterest Income............................... 170,522 35,838 (4,000) 202,360
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries................................................. 121,366 24,477 -- 145,843
Pension and Other Employee Benefits...................... 19,905 8,257 -- 28,162
Equipment Expense........................................ 17,329 5,894 -- 23,223
Occupancy Expense--Net................................... 22,019 3,371 -- 25,390
All Other Expense........................................ 122,592 26,928 14,815(5) 164,335
----------- ----------- ----------- -----------
303,211 68,927 14,815 386,953
SAIF special assessment.................................. 5,000 9,699 -- 14,699
----------- ----------- ----------- -----------
Total Noninterest Expense.............................. 308,211 78,626 14,815 401,652
----------- ----------- ----------- -----------
INCOME BEFORE TAXES...................................... 239,737 30,464 (26,987) 243,214
Income Tax............................................... 81,378 10,957 (4,260)(7) 88,075
----------- ----------- ----------- -----------
NET INCOME............................................. $ 158,359 $ 19,507 $ (22,727) $ 155,139
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary earnings per common share........................ $ 1.79 $ 1.36 $ 1.59
Fully diluted earnings per common share.................. 1.79 1.36 1.59
Average common shares--primary........................... 88,564 14,293 97,747
Average common shares--fully diluted..................... 88,584 14,357 97,767
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
information.
50
<PAGE>
STAR BANC CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GREAT PRO FORMA
STAR BANC FINANCIAL PRO FORMA STAR BANC
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans............................... $ 523,214 $ 122,612 $ (1,028)(5) $ 644,798
Interest on Investment Securities........................ 70,237 39,427 (1,350)(5) 108,314
Other.................................................... 2,624 376 -- 3,000
----------- ----------- ----------- -----------
Total Interest Income.................................. 596,075 162,415 (2,378) 756,112
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on Deposits..................................... 199,572 68,225 (1,754) (6) 266,043
Interest on Borrowings................................... 53,332 32,435 5,505( (6) 91,272
----------- ----------- ----------- -----------
Total Interest Expense................................. 252,904 100,660 3,751 357,315
----------- ----------- ----------- -----------
Net Interest Income................................ 343,171 61,755 (6,129) 398,797
Provision for Loan Losses................................ 41,614 2,323 -- 43,937
----------- ----------- ----------- -----------
Net Interest Income after Provision for
Loan Losses 301,557 59,432 (6,129) 354,860
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Trust Income............................................. 41,580 -- -- 41,580
Service Charges on Deposits.............................. 44,980 2,159 -- 47,139
Credit Card Income....................................... 17,110 -- -- 17,110
Electronic Banking Income................................ 11,417 -- -- 11,417
Mortgage Banking Income.................................. 9,855 19,825 (3,000)(5) 26,680
Investment Securities Gains/(Losses)--Net................ (4,238) 1,498 -- (2,740)
All Other Income......................................... 28,709 5,638 -- 34,347
----------- ----------- ----------- -----------
Total Noninterest Income............................... 149,413 29,120 (3,000) 175,533
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries................................................. 94,984 20,434 -- 115,418
Pension and Other Employee Benefits...................... 15,723 6,668 -- 22,391
Equipment Expense........................................ 14,441 4,618 -- 19,059
Occupancy Expense--Net................................... 17,003 2,384 -- 19,387
All Other Expense........................................ 94,720 18,441 11,111(5) 124,272
----------- ----------- ----------- -----------
236,871 52,545 11,111 300,527
SAIF special assessment.................................. -- -- -- --
----------- ----------- ----------- -----------
Total Noninterest Expense.............................. 236,871 52,545 11,111 300,527
----------- ----------- ----------- -----------
INCOME BEFORE TAXES...................................... 214,099 36,007 (20,240) 229,866
Income Tax............................................... 71,068 12,485 (3,195)(7) 80,358
----------- ----------- ----------- -----------
NET INCOME............................................. $ 143,031 $ 23,522 $ (17,045) $ 149,508
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary earnings per common share........................ $ 1.66 $ 1.69 $ 1.57
Fully diluted earnings per common share.................. 1.66 1.67 1.57
Average common shares--primary........................... 86,284 13,958 95,467
Average common shares--fully diluted..................... 86,284 14,080 95,467
</TABLE>
See accompanying notes to the unaudited pro forma condensed financial
information.
51
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, SHARES AND PER SHARE AMOUNTS ACTUALS)
The unaudited Pro Forma Condensed Combined Financial Information is based on
the following adjustments and related assumptions; the actual purchase
accounting adjustments will be made on the basis of appraisals and evaluations
as of the date of consummation of the merger, and therefore, will differ from
those reflected in the unaudited Pro Forma Condensed Financial Information.
NOTE 1
The purchase accounting adjustments to record this merger used in the
preparation of the unaudited Pro Forma Condensed Combined Balance Sheet are
summarized below:
<TABLE>
<S> <C>
Shares of Great Financial as of September 30, 1997, net of
treasury shares outstanding.................................. 13,823,438
----------
----------
30% of shares paid in cash..................................... 4,147,031
70% of shares exchanged........................................ 9,676,407
----------
13,823,438
----------
----------
Exchange ratio of Star shares for 70% of Great Financial
Shares....................................................... .949
----------
----------
Treasury shares to be issued (average cost $31.88 per share)... 4,583,513
New shares to be issued........................................ 4,599,397
9,182,910
----------
----------
Total consideration (purchase price):
Shares exchanged for cash.................................... $ 182,469
Shares issued at market value of $46.375 per share (market
value at date of agreement).................................. 425,857
Value of incentive stock options (Note 2).................... 13,400
----------
Total purchase price........................................... 621,726
Historical net assets acquired................................. (291,347)
Cost of cancellation of non-qualified options (Note 2)......... 21,858
----------
Excess of purchase price over historical net assets acquired... $ 352,237
----------
----------
</TABLE>
In accordance with the terms of the Merger Agreement, each share of Great
Financial Common Stock outstanding immediately prior to the Effective Time will
be converted into the right to receive, at the election of the holder thereof,
either (i) 0.949 of a share of Star Common Stock and the associated preferred
share purchase rights under Star's Rights Agreement, dated October 27, 1989, or
(ii) $44.00 in cash, provided that the aggregate number of shares of Great
Financial Common Stock that shall be converted in the Merger into the right to
receive Star Common Stock shall equal seventy percent of the issued and
outstanding shares of Great Financial Common Stock immediately prior to the
Effective Time. The adjustment to paid-in capital for the difference in the cost
of the treasury shares and the market value at the date of agreement is $66
million. The pro forma adjustments include approximately $15 million related to
current estimates of direct charges in connection with the merger as detailed in
note 4.
NOTE 2
The purchase price includes an estimated valuation of 416,188 shares of
incentive stock options which will be converted into and become rights with
respect to Star common stock multiplied by the Exchange Ratio. Prior to the
Effective Time Great Financial intends to cancel each of its 1,049,444
nonqualified stock options with an average exercise price of $11,967, and pay to
the holders thereof an amount of cash equal to the amount by which the Per Share
Consideration exceeds the exercise price of such options. The
52
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, SHARES AND PER SHARE AMOUNTS ACTUALS)
NOTE 2 (CONTINUED)
$21,858,000 value represents such consideration paid assuming the Per Share Cash
Consideration price of $44.00 and is net of a 35% tax benefit attributable to
the consideration paid.
NOTE 3
The Pro Forma Condensed Combined Financial Information reflects additional
short-term borrowings of $182.5 million to acquire 30% of the shares
outstanding. The ultimate source of cash may vary.
NOTE 4
The following assumptions were used in establishing the purchase accounting
adjustments related to the Merger in the unaudited Pro Forma Condensed Combined
Financial Information.
SECURITIES--All securities are available for sale; accordingly, the net
unrealized gain is reflected as retained earnings. The securities premium is
assumed to be amortized into interest income on an effective interest method
basis over the remaining estimated maturities of the affected securities,
approximately 4.5 years.
LOANS--Reflects the difference between the estimated fair value and carrying
value based on current market rates and estimated remaining maturities of loans
with similar terms to borrowers of similar credit quality.
MORTGAGE SERVICING RIGHTS--Reflects the estimated fair value in excess of
carrying value of mortgage servicing rights at September 30, 1997. The excess of
fair value over carrying value is amortized over the estimated eight year
maturity of the underlying mortgages.
INTANGIBLES--Includes both identifiable intangibles (primarily deposit core
benefit), and goodwill. Since the final determination of adjustments to assets
and liabilities will be made based on the fair values as of the Effective Time
and after appraisals and evaluations are complete, the final amounts will differ
from the estimates provided herein. The identifiable intangibles are amortized
as noninterest expense on a straight-line basis over a currently estimated
10-year life and goodwill on a straight-line basis over 25 years.
DEPOSITS AND LONG-TERM DEBT--Reflects the difference between the estimated
fair value and carrying value based on current market rates of deposits and debt
with similar terms and remaining maturities.
OTHER LIABILITIES--Represents the estimated tax liability associated with
adjustments to the carrying value of loans, deposits, and mortgage servicing
rights, in addition to liabilities for the estimated direct charges in
connection with the merger and the cost of cancellation of the non-qualified
options.
SUMMARY OF PURCHASE ACCOUNTING ADJUSTMENTS--The following details the effect
of the purchase accounting adjustments on goodwill as described above and
includes current estimates of direct charges in connection with the Merger. Such
estimated direct charges ($15 million), in addition to the related tax effects
of the fair value adjustments ($1.1 million) and the cost of cancellation of the
nonqualified options
53
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, SHARES AND PER SHARE AMOUNTS ACTUALS)
NOTE 4 (CONTINUED)
have been included in other liabilities and appropriately goodwill in the
accompanying pro forma financial information.
<TABLE>
<S> <C>
Excess of purchase price over historical net assets acquired (note
1).............................................................. $ 352,237
Net fair value adjustment of loans.............................. 534
Fair value adjustment of mortgage servicing rights.............. (18,000)
Fair value adjustments of CDs and long-term debt................ 11,500
Direct charges:
Write-off of existing lease obligations, contracts, software
and equipment................................................. 2,800
Severance and officer payouts................................. 7,000
Professional fees and other direct charges.................... 5,200
Tax effect of fair value adjustments............................ 1,106
---------
Total goodwill and identified intangible assets............... 362,377
Identified core deposit intangible.............................. 20,000
---------
Total goodwill................................................ $ 342,377
---------
---------
</TABLE>
NOTE 5
The purchase accounting adjustments related to the Merger reflected in the
unaudited Pro Forma Condensed Combined Income Statement are summarized as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Interest income--
Amortization of investment securities.................................... $ (1,350) $ (1,800)
Amortization of loans.................................................... (1,028) (1,371)
Interest expense--
Amortization of CDs...................................................... (1,754) (2,338)
Amortization of long-term debt........................................... (1,160) (1,547)
Noninterest income--
Amortization of mortgage servicing rights................................ (3,000) (4,000)
Noninterest expense--
Amortization of identifiable intangibles and goodwill.................... 11,111 14,815
</TABLE>
54
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, SHARES AND PER SHARE AMOUNTS ACTUALS)
NOTE 6
Purchase accounting adjustments related to Star's funding of the merger have
been reflected in the unaudited Pro Forma Condensed Combined Income Statement as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
Interest expense on short-term borrowings to fund the cash component of the
purchase price........................................................... $ 6,665 $ 8,886
</TABLE>
NOTE 7
Income tax expense on pro forma adjustments is reflected using a 35% tax
rate.
NOTE 8
The Pro Forma Adjustments impacting shareholders' equity are as follows:
<TABLE>
<S> <C>
(a) Elimination of Great Financial Shareholders' Equity..................... $ (291,347)
(b) Issuance of 9,182,910 Star common shares at a market value of $46.375... 425,857
(c) Value of 416,188 shares of incentive stock options discussed in Note
2......................................................................... 13,400
--------------
$ 147,910
--------------
--------------
</TABLE>
55
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
Upon the conversion of their shares of Great Financial Common Stock into the
right to receive shares of Star Common Stock pursuant to the Merger, the
stockholders of Great Financial, a Delaware corporation, will become
shareholders of Star, an Ohio corporation. The following is a description of
Star capital stock, including the Star Common Stock to be issued in the Merger,
and a summary of the material differences between the rights of holders of Great
Financial Common Stock and the rights of holders of Star Common Stock. These
differences arise in part from the differences between the Delaware Law and the
Ohio Law. Additional differences arise from the governing instruments of the two
companies (in the case of Great Financial, the Great Financial Certificate of
Incorporation and the Great Financial By-laws, and, in the case of Star, the
Star Articles of Incorporation and the Star Regulations). Although it is
impractical to compare all of the aspects in which the Delaware Law and the Ohio
Law and the companies' governing instruments differ with respect to
shareholders' rights, the following discussion summarizes certain significant
differences between them.
DESCRIPTION OF STAR COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
GENERAL. Star has authorized 200,000,000 shares of Star Common Stock and
1,000,000 shares of preferred stock, no par value ("Star Preferred Stock"). At
the Record Date, Star had 85,398,978 shares of Star Common Stock issued and
outstanding and no shares of Star Preferred Stock issued and outstanding. Under
the Ohio Law, the Star Board may generally approve the issuance of authorized
shares of Star Common Stock and Star Preferred Stock without shareholder
approval.
The Star Board is also authorized to fix the number of shares and determine
the designation of any series of Star Preferred Stock and to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any series of Star Preferred Stock. The Star Board has designated and reserved
Series A Preferred Stock pursuant to the Star Preferred Share Purchase Rights
Plan defined and described below.
The existence of a substantial number of unissued and unreserved shares of
Star Common Stock and undesignated shares of Star Preferred Stock may enable the
Star Board to issue shares to such persons and in such manner as may be deemed
to have an antitakeover effect.
DIVIDENDS. The holders of the Star Common Stock are entitled to share
ratably in dividends when, as and if declared by the Star Board from funds
legally available therefor, after full cumulative dividends have been paid or
declared, and funds sufficient for the payment thereof set apart, on all series
of Star Preferred Stock ranking superior as to dividends to the Star Common
Stock.
The Star Board intends to maintain its present policy of paying quarterly
cash dividends on the Star Common Stock when justified by the financial
condition of Star and its subsidiaries. The declaration and amount of future
dividends will depend on circumstances existing at the time, including Star's
earnings, financial condition and capital requirements as well as regulatory
limitations, note and indenture provisions and such other factors as the Star
Board may deem relevant. The payment of dividends to Star by Star Bank, N.A. is
subject to extensive regulation by various state and federal regulatory
agencies. See "SUPERVISION AND REGULATION."
VOTING RIGHTS. Each holder of Star Common Stock has one vote for each share
held on matters presented for consideration by the shareholders. Holders of Star
Common Stock do not have a right to cumulate votes.
PREEMPTIVE RIGHTS. The holders of Star Common Stock have no preemptive
right to acquire any additional unissued shares or treasury shares of Star.
LIQUIDATION RIGHTS. In the event of liquidation, dissolution or winding-up
of Star, whether voluntary or involuntary, the holders of Star Common Stock will
be entitled to share ratably in any of its assets or
56
<PAGE>
funds that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made therefor)
and after preferences on any outstanding Star Preferred Stock.
ASSESSMENT AND REDEMPTION. Shares of Star Common Stock issuable in the
Merger will be, when issued, fully paid and nonassessable. Such shares do not
have any redemption provisions.
PREFERRED SHARE PURCHASE RIGHTS PLAN. One Right is attached to each share
of Star Common Stock. The Rights trade automatically with shares of Star Common
Stock, and become exercisable and will trade separately from the Star Common
Stock only if a person or group has acquired, or has the right to acquire,
beneficial ownership of 20% or more of the outstanding shares of Star Common
Stock, or upon commencement or announcement, or notice to Star, of intent to
make a tender offer for 30% or more of the outstanding shares of Star Common
Stock, or a holder of 10% or more of the outstanding shares of Star Common Stock
is declared an "Adverse Person" by the Star Board. Star is entitled to redeem
the Rights at a price of one cent per Right at any time before the twentieth day
following the occurrence of an event making such Right exercisable. When
exercisable, each Right will entitle the holder to buy 1/100 of a share of Star
Series A Preferred Stock at an exercise price of $100.00 per Right. In the event
a person or group acquires beneficial ownership of 20% or more of Star Common
Stock, holders of Rights (other than the acquiring person or group) may purchase
Star Common Stock having a market value of twice the then current exercise price
of each Right. If Star is acquired by any person or group after the Rights
become exercisable, each Right will entitle its holder to purchase stock of the
acquiring company having a market value of twice the current exercise price of
each Right. The Rights are designed to protect the interests of Star and its
shareholders against coercive takeover tactics. The purpose of the Rights is to
encourage potential acquirors to negotiate with the Star Board prior to
attempting a takeover and to give the Star Board leverage in negotiating on
behalf of all shareholders the terms of any proposed takeover. The Rights may
deter certain takeover proposals. The Rights, which can be redeemed by the Star
Board in certain circumstances, expire by their terms on .
CLASSIFICATION OF THE STAR BOARD. The Star Board is divided into three
classes, and the directors are elected by classes to three-year terms, so that
one of the three classes of the directors of Star will be elected at each annual
meeting of the shareholders. While this provision promotes stability and
continuity of the Star Board, classification of the Star Board may also have the
effect of decreasing the number of directors that could otherwise be elected at
each annual meeting of shareholders by a person who obtains a controlling
interest in the Star Common Stock and thereby could impede a change in control
of Star.
OTHER MATTERS. Star's Articles of Incorporation and Regulations also
contain provisions which: (i) require the affirmative vote of the holders of at
least 80% of the outstanding Star Common Stock and 50% of outstanding Star
Common Stock by shareholders other than the "related person" to approve certain
"business combinations" with "related persons" unless the Star Board first
approves such business combinations; and (ii) require an affirmative vote of at
least 80% of the outstanding Star Common Stock for the amendment, alteration,
change or repeal of any of the above provision PROVIDED, HOWEVER, that, if there
is a "related person" such 80% vote must include the affirmative vote of at
least 50% of the outstanding Star Common Stock held by shareholders other than
the related person. Such provisions may be deemed to have an antitakeover
effect.
RESTRICTIONS ON RESALE OF STAR CAPITAL STOCK BY AFFILIATES; AFFILIATE AGREEMENTS
STAR COMMON STOCK. Under Rule 145 of the Securities Act, all of the
executive officers and directors of Great Financial, by virtue of being
affiliates of Great Financial, will be limited in their right to resell the
stock so received in the Merger. Such officers and directors who desire to
resell the Star Common Stock so received must sell such stock either pursuant to
an effective registration statement under the Securities Act or in accordance
with an applicable exemption. In addition, officers and directors of Great
Financial who become "affiliates" of Star following the Merger will be limited
in their right to resell the Star Common Stock received in the Merger.
57
<PAGE>
Rule 145(d) under the Securities Act provides that persons deemed to be
affiliates of a company such as Star solely by virtue of having been affiliates
of a company such as Great Financial prior to a transaction such as the Merger
may resell their stock pursuant to certain of the requirements of Rule 144 under
the Securities Act if such stock is sold within the first year after the receipt
thereof. After one year, if such person is not an affiliate of Star and if Star
is current with respect to its required public filings, a former affiliate of
Great Financial may freely resell the stock received in the Merger without
limitation. Star has agreed to comply with the current information requirements
of Rule 144 for a period of two years following the Merger. After two years from
the issuance of the stock, if such person is not an affiliate of Star at the
time of sale and for at least three months prior to such sale, such person may
freely resell such stock, without limitation, regardless of the status of Star's
required public filings.
The shares of Star Common Stock to be received by affiliates of Great
Financial in the Merger will be legended as to the restrictions imposed upon
resale of such stock.
COMPARISON OF RIGHTS OF SHAREHOLDERS OF STAR AND STOCKHOLDERS OF GREAT FINANCIAL
AMENDMENT OF CHARTER DOCUMENTS. The Delaware Law requires approval by
holders of a majority of the voting power of Great Financial Common Stock in
order to amend the Great Financial Certificate of Incorporation. To amend an
Ohio corporation's articles of incorporation, the Ohio Law requires the approval
of shareholders holding two-thirds of the voting power of the corporation, or,
in cases in which class voting is required, of shareholders holding two-thirds
of the voting power of such class, unless otherwise specified in such
corporation's articles of incorporation. The Star Articles of Incorporation
specify that the holders of a majority of the voting power of Star may amend the
Star Articles of Incorporation, except that amendments to the number of and
classification of directors, the indemnification of officers and directors,
business combination, nomination of directors and requirement that Shareholder
action be taken at a Shareholder meeting provisions require the affirmative vote
of 80% of the total voting power. The Great Financial Certificate of
Incorporation contains a similar 80% vote of outstanding capital stock to amend
provisions relating to control share acquisitions, certain business
combinations, special meetings, action without a shareholder meeting, number of
and classification of directors, adoption of By-laws and indemnification of
officers and directors. See "--Mergers, Acquisitions and Certain Other
Transactions."
AMENDMENT AND REPEAL OF BY-LAWS AND REGULATIONS. Under the Delaware Law,
holders of a majority of the voting power of a corporation and, when provided in
the certificate of incorporation, the directors of the corporation, have the
power to adopt, amend and repeal the by-laws of a corporation. The Great
Financial Certificate of Incorporation grants the directors of Great Financial
such power.
The Ohio Law provides that only shareholders of a corporation have the power
to amend and repeal a corporation's code of regulations. The Star Regulations
may only be amended by the affirmative vote of a majority of the voting power
represented by the outstanding voting stock of Star present in person or by
proxy at an annual or special meeting called for such purpose.
REMOVAL OF DIRECTORS. The Delaware Law provides that directors may be
removed from office, with or without cause, by the holders of a majority of the
voting power of all outstanding voting stock, unless the corporation has a
classified board and its certificate of incorporation otherwise provides. The
Great Financial Certificate of Incorporation does provide for a classified board
and that directors may only be removed for cause by affirmative vote of at least
80% of the voting power of all then-outstanding shares of capital stock of Great
Financial entitled to vote in the election of directors.
The Ohio Law provides that, unless the governing documents of a corporation
provide otherwise, directors may be removed, with or without cause, by the
affirmative vote of the holders of a majority of the voting power of the
corporation with respect to the election of directors, except that, unless all
the directors or all the directors of a particular class are removed, no
individual director may be removed if the votes of a sufficient number of shares
are cast against such director's removal which, if voted at an election
58
<PAGE>
of all the directors, or all the directors of a particular class, as the case
may be, would be sufficient to elect at least one director. Star has a
classified board, with the result that directors serve for three year terms and
one-third of the Star Board is elected annually. Directors of Star may be
removed only for cause by the affirmative vote of a majority of the voting power
present at a meeting of Star shareholders.
VACANCIES ON THE BOARD. The Delaware Law provides that, unless the
governing documents of a corporation provide otherwise, vacancies and newly
created directorships resulting from a resignation or any increase in the
authorized number of directors elected by all of the stockholders having the
right to vote as a single class may be filled by a majority of the directors
then in office. The Great Financial Certificate of Incorporation provides that
any vacancy on the Great Financial Board that results from an increase in the
number of directors may be filled by a majority of the directors then in office,
even though less than a quorum. Any director of any class elected to fill a
vacancy resulting from an increase in the number of directors shall have a term
that shall coincide with the remaining term of that class. Any directors elected
to fill a vacancy not resulting from an increase in the number of directors
shall have the same remaining term as that of his or her predecessor.
The Ohio Law provides that, unless the governing documents of a corporation
provide otherwise, vacancies on the board of directors may be filled by a
majority of the remaining directors of a corporation. The Star Articles of
Incorporation provide that the remaining directors of the class may or in the
event that no directors of such class remain by the remaining directors of the
other two classes, in either case by a vote of a majority of their number, fill
any vacancy for the unexpired term.
RIGHT TO CALL SPECIAL MEETINGS OF SHAREHOLDERS. The Delaware Law permits
special meetings of stockholders to be called by the board of directors and such
other persons, including stockholders, as the certificate of incorporation or
by-laws may provide. The Delaware Law does not require that stockholders be
given the right to call special meetings. The Great Financial By-laws provide
that special meetings may be called for any purpose or purposes by the Great
Financial Board.
Under the Ohio Law, the holders of at least 25% of the outstanding shares of
a corporation, unless the corporation's regulations specify another percentage,
which may in no case be greater than 50%, the directors, by action at a meeting
or a majority of the directors acting without a meeting, the Chairman of the
Board, the President or, in case of the President's death or disability, the
Vice President authorized to exercise the authority of the President have the
authority to call special meetings of shareholders. The Star Articles of
Incorporation expressly provide that special meetings of Star shareholders may
be called by the Star Chief Executive Officer or by shareholders holding 50% or
more of the voting power of the then-outstanding shares entitled to vote in an
election of directors, taken together as a single class.
SHAREHOLDER ACTION WITHOUT A MEETING. The Delaware Law provides that,
unless otherwise provided in the Certificate of Incorporation, any action that
may be taken at a meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if the holders of common stock having
not less than the minimum number of votes otherwise required to approve such
action at a meeting of stockholders consent in writing. The Great Financial
Certificate of Incorporation provides that any action required or permitted to
be taken by the stockholders must be effected at an annual or special meeting of
stockholders, duly called and held with prior notice and a vote, and may not be
effected by any consent in writing by such stockholders. Under the Ohio Law,
unless otherwise provided in governing documents, any action that may be taken
by shareholders at a meeting may be taken without a meeting with the unanimous
written consent of all shareholders entitled to vote thereat. The Star Articles
of Incorporation provide that action by shareholders may not be effected by a
consent in writing without a meeting.
CLASS VOTING. The Delaware Law requires voting by separate classes only
with respect to amendments to a corporation's certificate of incorporation that
adversely affect the holders of those classes or that increase or decrease the
aggregate number of authorized shares or the par value of the shares of any of
those classes. Under the Ohio Law, holders of a particular class of shares are
entitled to vote as a separate
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class if the rights of that class are affected in certain respects by mergers,
consolidations or amendments to the articles of incorporation.
CUMULATIVE VOTING. Under the Delaware Law, stockholders do not have the
right to cumulate their votes in the election of directors unless such right is
granted in the certificate of incorporation. The Great Financial Certificate of
Incorporation does not grant such rights. Under the Ohio Law, unless the
articles of incorporation are amended to eliminate cumulative voting for
directors following their initial filing with the Ohio Secretary of State, each
shareholder has the right to vote cumulatively in the election of directors if
certain notice requirements are satisfied. The Star Articles of Incorporation
have been amended to eliminate the rights of the Star shareholders to vote
cumulatively in the election of directors.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS
COMBINATIONS. Section 203 of the Delaware Law provides generally that any
person who acquires 15% or more of a corporation's voting stock (thereby
becoming an "interested stockholder") may not engage in a wide range of
"business combinations" with the corporation for a period of three years
following the date the person became an interested stockholder, unless (i) the
board of directors of the corporation has approved, prior to that acquisition
date, either the business combination or the transaction that resulted in the
person becoming an interested stockholder, (ii) upon consummation of the
transaction that resulted in the person becoming an interested stockholder, that
person owns at least 85% of the corporation's voting stock outstanding at the
time the transaction commenced (excluding shares owned by persons who are
directors and also officers and shares owned by employee stock plans in which
participants do not have the right to determine confidentially whether shares
will be tendered in a tender or exchange offer), or (iii) the business
combination is approved by the board of directors and authorized by the
affirmative vote (at an annual or special meeting and not by written consent) of
at least 66 2/3% of the outstanding voting stock not owned by the interested
stockholder.
These restrictions on interested stockholders do not apply under certain
circumstances, including, but not limited to, the following (i) if the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203 of the Delaware Law, or
(ii) if the corporation, by action of its stockholders, adopts an amendment to
its by-laws or certificate of incorporation expressly electing not to be
governed by such section. Neither the Great Financial Certificate of
Incorporation nor the Great Financial By-laws contain a provision electing not
to be governed by such section.
Like Section 203 of the Delaware Law, Chapter 1704 of the Ohio Law prohibits
an interested shareholder from engaging in a wide range of "business
combinations" similar to those prohibited by Section 203 of the Delaware Law.
However, in contrast to Section 203 of the Delaware Law, under Chapter 1704 of
the Ohio Law an interested shareholder includes a shareholder who, directly or
indirectly, exercises or directs the exercise of 10% or more of the voting power
of the corporation. Chapter 1704 of the Ohio Law restrictions does not apply
under certain circumstances, including, but not limited to, the following: (i)
if directors of the corporation have approved the transactions or the interested
shareholder's acquisition of shares of the corporation prior to the date the
interested shareholder became a shareholder of the corporation, and (ii) if the
corporation, by action of its shareholders holding at least 66 2/3% of the
voting power of the corporation, adopts an amendment to its articles of
incorporation specifying that Chapter 1704 of the Ohio Law shall not be
applicable to the corporation.
Under Section 1701.831 of the Ohio Law, unless the articles of incorporation
or code of regulations of a corporation otherwise provide, any control share
acquisition of an "Issuing Public Corporation" can only be made with the prior
approval of the corporation's shareholders. A "control share acquisition" is
defined as any acquisition of shares of a corporation that, when added to all
other shares of that corporation owned by the acquiring person, would enable
that person to exercise levels of voting power in any of the following ranges:
at least 20% but less than 33 1/3%; at least 33 1/3% but less than 50%; or 50%
or more.
The Great Financial Certificate of Incorporation contains a provision
limiting the ability of a beneficial owner of more than 10% of the then
outstanding Great Financial Common Stock ("Over Limit
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Holder") to vote its shares. Pursuant to Article Fourth, Section C, an Over
Limit Holder may not vote any shares held by such Over Limit Holder which exceed
10% of the then outstanding Great Financial Common Stock.
FAIR PRICE PROVISIONS. The Star Articles of Incorporation also include a
"fair price" provision that is designed to provide reasonable assurances to
shareholders that, in the event any shareholder or group of shareholders
acquires 20% or more of outstanding Star Common Stock (the "Acquiror") and then
seeks to acquire all or part of the remaining voting stock through a merger or
other transaction which would force a change or termination of the other
shareholders' ownership interests (a "Business Combination"), such other
shareholders must receive consideration not less than the greater of (i) the
highest price paid by the Acquiror in acquiring any of its 20% stock interest
and (ii) an amount which bears the same or a greater percentage relationship to
the market price of Star Common Stock immediately prior to the announcement of
such business combination as the highest per share price determined in clause
(i) above bears to the market price of Star Common Stock immediately prior to
the commencement of acquisition of Star Common Stock by such related person,
unless the Business Combination is approved either (a) by a majority of
directors, if prior to such acquisition, or by 75% of the directors, if after
such acquisition, or (b) by the affirmative vote of 80% of all the votes
entitled to be cast by all outstanding Star Common Stock 50% of the votes
entitled to be cast by all holders of Star Common Stock held by shareholders
other than the Acquiror (the "Special Shareholder Vote").
This provision operates by requiring that, after an Acquiror emerges, any
Business Combination which has the effect of requiring shareholders to surrender
their shares must satisfy one of the following conditions:
(i) Fair Consideration to Shareholders. The terms of the Business
Combination must provide for payment of consideration which is the greater of
(i) the highest price paid to other shareholders by the Acquiror in acquiring
any of its 20% stock position and (ii) an amount which bears the same or a
greater percentage relationship to the market price of Star Common Stock
immediately prior to the announcement of such business combination as the
highest per share price determined in clause (i) above bears to the market price
of Star Common Stock immediately prior to the commencement of acquisition of
Star Common Stock by such related person, and must be approved by shareholders
as otherwise required by applicable law; or
(ii) Unrelated Director Approval. The Business Combination must be approved
as fair to shareholders by a majority of the directors who are not affiliated
with the Acquiror, if prior to such acquisition, 75% of the directors who were
directors before the Acquiror acquired its 20% stock position or who were
nominated or elected to succeed such directors by the other unaffiliated
directors and must be approved by shareholders as otherwise required by
applicable law, if after such acquisition; or
(iii) Special Shareholder Vote. The Business Combination must be approved by
the Special Shareholder Vote.
Article Seventh of the Star Articles of Incorporation, which contains this
provision, may be amended by a vote of 80% of the votes entitled to be cast by
all holders of voting stock; PROVIDED, HOWEVER, that such vote must include at
least 50% of the outstanding Star Common Stock not owned by a "related person."
Chapter 1704 of the Ohio Law is similar to the "fair price" provision
contained in the Star Articles of Incorporation. The Ohio Law prohibits an
Issuing Public Corporation from engaging in a Chapter 1704 Transaction (as
defined herein) with an Interested Shareholder (as defined herein) for a period
of three years following the date on which the person becomes an Interested
Shareholder unless, prior to such date, the directors of the Issuing Public
Corporation approve either the Chapter 1704 Transaction or the acquisition of
shares pursuant to which such person became an Interested Shareholder. After the
initial three-year moratorium has expired, an Issuing Public Corporation may
engage in a Chapter 1704 Transaction if (i) the acquisition of shares pursuant
to which the person became an Interested Shareholder
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received the prior approval of the board of directors of the Issuing Public
Corporation, (ii) the Chapter 1704 Transaction is approved by the affirmative
vote of the holders of shares representing at least two-thirds of the voting
power of the Issuing Public Corporation and by the holders of at least a
majority of voting shares which are not beneficially owned by an Interested
Shareholder or an affiliate or associate of an Interested Shareholder or (iii)
the Chapter 1704 Transaction meets certain statutory tests designed to ensure
that it be economically fair to all shareholders.
For this purpose, an "Issuing Public Corporation" is any Ohio corporation
with 50 or more shareholders that has its principal place of business, principal
executive offices or substantial assets within the State of Ohio. Star currently
is an Issuing Public Corporation. An "Interested Shareholder" is any person who
is the beneficial owner of a sufficient number of shares to allow such person,
directly or indirectly, alone or with others, including affiliates and
associates, to exercise or direct the exercise of 10% of the voting power of the
Issuing Public Corporation. A "Chapter 1704 Transaction" includes any merger,
consolidation, combination or majority share acquisition (as defined herein)
between or involving an Issuing Public Corporation and an Interested Shareholder
or an affiliate or associate of an Interested Shareholder. A Chapter 1704
Transaction also includes certain transfers of property, dividends and issuance
or transfers of shares, from or by an Issuing Public Corporation or a subsidiary
of an Issuing Public Corporation to, with or for the benefit of an Interested
Shareholder or an affiliate or associate of an Interested Shareholder unless
such transaction is in the ordinary course of business of the Issuing Public
Corporation on terms no more favorable to the Interested Shareholder than those
acceptable to third parties as demonstrated by contemporaneous transactions.
Finally, Chapter 1704 Transactions include certain transactions which (i)
increase the proportionate share ownership of an Interested Shareholder, (ii)
result in the adoption of a plan or proposal for the dissolution, winding up of
the affairs or liquidation of the Issuing Public Corporation if such plan is
proposed by or on behalf of the Interested Shareholder or (iii) pledge or extend
the credit or financial resources of the Issuing Public Corporation to or for
the benefit of the Interested Shareholder.
Although the Delaware Law has no comparable provision, Article Eighth of the
Great Financial Certificate of Incorporation contains a "fair price" provision.
Under this provision, in the event any stockholder or group of stockholders
acquires 10% or more of Great Financial's voting stock and then seeks to acquire
all or part of the remaining voting stock through a merger or other transaction
which would force a change or termination of the other stockholders' ownership
interests (a "GFC Business Combination"), (i) the GFC Business Combination must
be approved by a majority of directors who are unrelated to such 10% holder and
who were directors prior to the time such 10% holder acquired such 10% ownership
or (ii) such other holders of Great Financial Common Stock must receive
consideration at least equivalent to the higher of (a) the highest price paid by
such 10% holder in the higher of the price paid in the two-years preceding the
public announcement of the GFC Business Combination and the transaction in which
such 10% holder became a 10% holder and (b) the highest closing sales price of
Great Financial Common Stock on NASDAQ during the 30-day period immediately
preceding either the announcement of the GFC Business Combination or the date on
which such 10% holder became a 10% holder.
This provision operates by requiring that, after a 10% holder emerges, any
GFC Business Combination which has the effect of requiring shareholders to
surrender their shares must satisfy one of the following conditions:
(i) Fair Consideration to Shareholders. Such other holders of Great
Financial Common Stock must receive consideration at least equivalent to the
higher of (a) the highest price paid by such 10% holder in the higher of the
price paid in the two-years preceding the public announcement of the GFC
Business Combination and the transaction in which such 10% holder became a 10%
holder and (b) the highest closing sales price of Great Financial Common Stock
on NASDAQ during the 30-day period immediately preceding either the announcement
of the GFC Business Combination or the date on which such 10% holder became a
10% holder.
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(ii) Unrelated Director Approval. The GFC Business Combination must be
approved as fair to stockholders by a majority of the directors who are not
affiliated with such 10% holder and who were directors before such 10% holder
acquired its 10% stock position or who were nominated or elected to succeed such
directors by the other unaffiliated directors and must be approved by
stockholders as otherwise required by applicable law.
Article Eighth of the Great Financial Certificate of Incorporation, which
contains this provision, may be amended by a vote of 80% of the votes entitled
to be cast by all holders of voting stock.
MERGERS, ACQUISITIONS AND CERTAIN OTHER TRANSACTIONS. The Delaware Law
requires approval of mergers, consolidations and dispositions of all or
substantially all of a corporation's assets (other than so-called
"parent-subsidiary" mergers) by a majority of the voting power of the
corporation, unless the certificate of incorporation specifies a different
percentage. The Great Financial Certificate of Incorporation does not provide
for a different percentage. The Delaware Law does not require stockholder
approval for majority share acquisitions or for combinations involving the
issuance of less than 20% of the voting power of the corporation, except for
"business combinations" subject to Section 203 of the Delaware Law.
Under the Ohio Law, a merger or consolidation by an Ohio corporation
generally requires the affirmative vote of holders of shares representing at
least two-thirds of the shareholder voting power of the corporation unless the
corporation's articles of incorporation provide for approval by a different
proportion not less than a majority. The Star Articles of Incorporation
generally require only approval of a majority of the outstanding shares for such
transactions.
CONSTITUENCIES PROVISIONS. Section 1701.59 of the Ohio Law permits a
director, in determining what such director reasonably believes to be in the
best interests of the corporation, to consider, in addition to the interests of
the corporation's shareholders, any of the following (i) the interests of the
corporation's employees, suppliers, creditors, and customers, (ii) the economy
of the state and nation, (iii) community and societal considerations and (iv)
the long-term as well as short-term interests of the corporation and its
shareholders, including the possibility that these interests may be best served
by the continued independence of the corporation. The Delaware Law contains no
comparable provision. The Great Financial Certificate of Incorporation contains
a provision allowing the Great Financial Board, when considering such a
proposal, to consider, among other things, the social and economic effect such a
proposal would have on present and future customers and employees as well as on
the communities which Great Financial and its subsidiaries operate or are
located.
RIGHTS OF DISSENTING SHAREHOLDERS. Under the Delaware Law, appraisal rights
are available to dissenting stockholders in connection with certain mergers or
consolidations. However, unless the certificate of incorporation otherwise
provides, the Delaware Law does not provide for appraisal rights (i) if the
shares of the corporation are listed on a national securities exchange or
designated as a national market systems security on an interdealer quotations
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 stockholders (as long as the stockholders receive in the
merger only shares of the surviving corporation or of any other corporation the
shares of which are listed on a national securities exchange or designated as a
national market systems security on an interdealer quotations system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 stockholders with cash permitted in lieu of fractional shares) or (ii) if
the corporation is the surviving corporation and no vote of its stockholders is
required for the merger. The Great Financial Certificate of Incorporation does
not provide otherwise. See "THE MERGER--Appraisal Rights." The Delaware Law does
not provide appraisal rights to stockholders who dissent from the sale of all or
substantially all of a corporation's assets or an amendment to the corporation's
certificate of incorporation, although a corporation's certificate of
incorporation may so provide.
Under the Ohio Law, dissenting shareholders are entitled to appraisal rights
in connection with the lease, sale, exchange, transfer or other disposition of
all or substantially all of the assets of a corporation
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and in connection with certain amendments to the corporation's articles of
incorporation. Shareholders of an Ohio corporation being merged into or
consolidated with another corporation are also entitled to appraisal rights. In
addition, shareholders of an acquiring corporation are entitled to appraisal
rights in any merger, combination or majority share acquisition in which such
shareholders are entitled to voting rights. The Ohio Law provides shareholders
of an acquiring corporation with voting rights if the acquisition (a "majority
share acquisition") involves the transfer of shares of the acquiring corporation
entitling the recipients thereof to exercise one-sixth or more of the voting
power of such acquiring corporation immediately after the consummation of the
transaction.
Under the Delaware Law, among other procedural requirements, a stockholder's
written demand for appraisal of shares must be received before the taking of the
vote on the matter giving rise to appraisal rights. Under the Ohio Law, a
shareholder's written demand must be delivered to the corporation not later than
ten days after the taking of the vote on the matter giving rise to appraisal
rights.
DIVIDENDS. Both the Delaware Law and the Ohio Law provide that dividends
may be paid in cash, property or shares of a corporation's capital stock. The
Delaware Law provides that a corporation may pay dividends out of any surplus,
and, if it has no surplus, out of any net profits for the fiscal year in which
the dividend was declared or for the preceding fiscal year (PROVIDED that such
payment will not reduce capital below the amount of capital represented by all
classes of shares having a preference upon the distribution of assets). The Ohio
Law provides that a corporation may pay dividends out of surplus and must notify
its shareholders if a dividend is paid out of capital surplus.
PREEMPTIVE RIGHTS OF SHAREHOLDERS. The Delaware Law provides that no
stockholder shall have any preemptive rights to purchase additional securities
of the corporation unless the certificate of incorporation expressly grants such
rights. The Great Financial Certificate of Incorporation does not provide for
preemptive rights.
The Ohio Law provides that, subject to certain limitations and conditions
contained in the Ohio Law and unless the articles of incorporation provide
otherwise, shareholders shall have preemptive rights to purchase additional
securities of the corporation. The Star Articles of Incorporation expressly
eliminate any preemptive rights.
DIRECTOR LIABILITY AND INDEMNIFICATION. The Delaware Law allows a Delaware
corporation to include in its certificate of incorporation, and the Great
Financial Certificate of Incorporation contains, a provision eliminating the
liability of a director for monetary damages for a breach of such director's
fiduciary duties as a director, except liability (i) for any breach of the
director's duty of loyalty to Great Financial or Great Financial stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) under Section 174 of the Delaware
Law (which deals generally with unlawful payments of dividends, stock
repurchases and redemptions), and (iv) for any transaction from which the
director derived an improper personal benefit.
The Great Financial Certificate of Incorporation provides for
indemnification of persons (including Great Financial directors) whom it shall
have power to indemnify under and to the fullest extent permitted by the
Delaware Law. The Delaware Law permits a Delaware corporation to indemnify
directors, officers, employees and agents under certain circumstances and
mandates indemnification under certain circumstances. The Delaware Law permits a
corporation to indemnify an officer, director, employee or agent for fines,
judgments or settlements, as well as for expenses in the context of actions
other than derivative actions if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the corporation. Indemnification against expenses incurred by a director,
officer, employee or agent in connection with a proceeding against such person
for actions in such capacity is mandatory to the extent that such person has
been successful on the merits. If a director, officer, employee or agent is
determined to be liable to the corporation, indemnification for expenses is not
allowable, subject to limited exceptions when a court deems the award of
expenses appropriate. The
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Delaware Law grants express power to a Delaware corporation to purchase
liability insurance for its directors, officers, employees and agents,
regardless of whether any such person is otherwise eligible for indemnification
by the corporation. Advancement of expenses is permitted, but a person receiving
such advances must repay those expenses if it is ultimately determined that such
person is not entitled to indemnification.
There is no comparable provision under the Ohio Law limiting the liability
of officers, employees or agents of the corporation, and the Star Articles of
Incorporation contain no such provision. However, Ohio Law has codified the
traditional business judgment rule. Ohio Law provides that the business judgment
presumption of good faith may only be overcome by clear and convincing evidence
that an action or failure to act was undertaken with deliberate intent to cause
injury to the corporation or with reckless disregard for the best interests of
the corporation. Further, Ohio Law provides specific statutory authority for
directors to consider, in addition to the interests of the corporation's
shareholders, other factors such as the interests of the corporation's
employees, suppliers, creditors and customers; the economy of the state and
nation; community and societal considerations; the long-term and short-term
interests of the corporation and its shareholders; and the possibility that
these interests may be best served by the continued independence of the
corporation.
Under the Ohio Law, Ohio corporations are permitted to indemnify directors,
officers, employees and agents within prescribed limits and must indemnify them
under certain circumstances. The Ohio Law does not authorize payment by a
corporation of judgments against a director, officer, employee or agent after a
finding of negligence or misconduct in a derivative suit absent a court order.
Indemnification is required, however, to the extent such person succeeds on the
merits. In all other cases, if it is determined that a director, officer,
employee or agent acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation,
indemnification is discretionary, except as otherwise provided by a
corporation's articles of incorporation, code of regulations or by contract,
except with respect to the advancement of expenses of directors (as discussed in
the next paragraph). The statutory right to indemnification is not exclusive in
Ohio, and Ohio corporations may, among other things, purchase insurance to
indemnify those persons.
The Ohio Law provides that a director (but not an officer, employee, or
agent) is entitled to mandatory advancement of expenses, including attorneys'
fees, incurred in defending any action, including derivative actions, brought
against the director, provided that the director agrees to cooperate with the
corporation concerning the matter and to repay the amount advanced if it is
proved by clear and convincing evidence that such director's act or failure to
act was done with deliberate intent to cause injury to the corporation or with
reckless disregard for the corporation's best interests.
The Star Regulations provide that Star shall indemnify directors, officers,
employees and agents to the fullest extent permitted by law against costs
incurred in connection with any threatened, pending or completed claim, action,
suit or proceeding because of such person's service as a director, officer,
employee or agent of Star.
SHAREHOLDER RIGHTS PLANS. Star has implemented a shareholder rights plan,
while Great Financial has not implemented such a plan. See "--Description of
Star Common Stock and Attached Preferred Share Purchase Rights."
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SUPERVISION AND REGULATION
GENERAL
As a bank holding company, Star is subject to regulation under the BHCA and
its examination and reporting requirements. Under the BHCA, a bank holding
company may not, directly or indirectly, acquire the ownership or control of
more than 5% of the voting shares or substantially all of the assets of any
company, including a bank or savings and loan association, without the prior
approval of (or, in the case of certain non-bank companies, prior notice to) the
Federal Reserve Board. In addition, bank holding companies are generally
prohibited under the BHCA from engaging in nonbanking activities, subject to
certain exceptions.
Great Financial is a registered unitary savings and loan holding company
under Home Owners' Loan Act, as amended, and, because Great Financial is not a
bank holding company, it is not subject to the BHCA. Upon completion of the
Merger, Star will not be a savings and loan holding company because, under
applicable U.S. federal law, a bank holding company is not considered to be a
savings and loan holding company. GFB will however continue to be regulated by
the Office of Thrift Supervision.
Star and its banking subsidiary are subject to supervision and examination
by applicable United States federal and state banking and other agencies. The
earnings of Star's banking subsidiary, and therefore the earnings of Star, are
affected by general economic conditions, management policies and the legislative
and governmental actions of various Regulatory Authorities, including the
Federal Reserve Board, the FDIC, the Comptroller of the Currency (the
"Comptroller") and various state financial institution regulatory agencies. In
addition, there are numerous governmental requirements and regulations that
affect the activities of Star and its banking subsidiary, Star Bank, N.A.
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which a bank holding
company, such as Star and certain of its nonbank subsidiaries, can borrow or
otherwise obtain credit from its bank subsidiaries. In general, these
restrictions require that any such extensions of credit must be on
non-preferential terms and secured by designated amounts of specified collateral
and be limited, as to any one of the holding company or such nonbank
subsidiaries, to 10% of the lending bank's capital stock and surplus, and as to
the holding company and all such nonbank subsidiaries in the aggregate, to 20%
of such capital stock and surplus.
PAYMENT OF DIVIDENDS
Star is a legal entity separate and distinct from its wholly-owned financial
institution and other subsidiaries. The principal source of Star's revenues is
dividends from its banking subsidiary. Various United States federal and state
statutory provisions limit the amount of dividends the banking subsidiary can
pay to Star without regulatory approval. The approval of United States federal
bank regulatory agencies, as appropriate, is required for any dividend if the
total of all dividends declared in any calendar year would exceed the total of
the institution's net profits, as defined by regulatory agencies, for such year
combined with its retained net profits for the preceding two years. In addition,
a national bank may not pay a dividend in an amount greater than its net profits
then on hand. The payment of dividends by Star Bank, N.A. may also be affected
by other factors, such as the maintenance of adequate capital.
In addition, if, in opinion of the applicable United States federal bank
regulatory agency, a depository institution under its jurisdiction is engaged in
or is about to engage in an unsafe and unsound practice (which, depending on the
financial condition of the institution, could include the payment of dividends),
such agency may require, after notice and hearing, that the institution in
question cease and desist from such practice. The Comptroller has indicated that
paying dividends that would deplete a depository institution's capital base to
an inadequate level would be an unsafe and unsound practice. Moreover, an
insured depository institution may not pay any dividends if such payment would
cause it to become undercapitalized or once it is undercapitalized. See
"--Capital Adequacy." Also, the United States federal
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bank regulatory agencies have issued policy statements which provide that
depository institutions and their holding companies should generally pay
dividends only out of current operating earnings.
CAPITAL ADEQUACY
The Federal Reserve Board has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to provide
risk-responsive capital guidelines and to incorporate a consistent framework for
use by financial institutions operating in major international financial
markets. The banking regulators have issued standards for banks that are similar
to, but not identical with, the standards for bank holding companies.
In general, the risk-related standards require financial institutions and
financial institution holding companies to maintain certain capital levels based
on "risk-adjusted" assets, so that categories of assets with potentially higher
credit risk will require more capital backing than categories with lower credit
risk. In addition, banks and bank holding companies are required to maintain
capital to support off-balance-sheet activities such as loan commitments.
Under the risk-based capital standard, the minimum consolidated ratio of
total capital to risk-adjusted assets (including certain off-balance sheet
items, such as standby letters of credits) required by the Federal Reserve Board
for bank holding companies is currently 8%. At least one-half of the total
capital must be comprised of common equity, retained earnings, qualifying
noncumulative perpetual preferred stock, a limited amount of qualifying
cumulative perpetual preferred stock and minority interest in the equity
accounts of consolidated subsidiaries, less certain items such as goodwill and
certain other intangible assets ("Tier I Capital"). The remainder may consist of
qualifying hybrid capital instruments, perpetual debt, mandatory convertible
debt securities, a limited amount of subordinated debt, preferred stock that
does not qualify as Tier I Capital, and a limited amount of loan and lease loss
reserves. As of September 30, 1997, Star's Tier I Capital and total capital to
risk adjusted assets ratios were 8.74% and 12.67%, respectively. At September
30, 1997, on a pro forma combined basis after giving effect to the Merger,
Star's estimated consolidated Tier I Capital and total capital to risk-adjusted
assets ratios would be 8.20% and 11.77%, respectively.
In addition to the risk-based standard, the Federal Reserve Board has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to adjusted average
total assets less goodwill and certain other intangibles (the "Leverage Ratio")
of 3% for bank holding companies that meet certain specified criteria, including
having the highest regulatory rating. Other bank holding companies generally are
required to maintain a Leverage Ratio of at least 4% to 5%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above minimum supervisory levels, without significant reliance on intangible
assets.
The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels without significant
reliance on intangible assets. Furthermore, the Federal Reserve Board has
indicated that it will consider a "tangible Tier I Capital Leverage Ratio"
(deducting all intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
As of September 30, 1997, Star's Leverage Ratio was 7.90%. At September 30,
1997, on a pro forma combined basis after giving effect to the Merger, Star's
estimated consolidated Leverage Ratio would be 6.64%.
SUPPORT OF SUBSIDIARY BANK
Under Federal Reserve Board policy, Star is expected to act as a source of
financial strength to Star Bank, N.A. and to commit resources to support each of
the subsidiaries in circumstances where it may not choose to do so absent such a
policy. This support may be required at times when Star may not find itself
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able to provide it. In addition, any capital loans by Star to any of its
subsidiaries would also be subordinate in right of payment to deposits and
certain other indebtedness of such subsidiary.
Consistent with the policy regarding bank holding companies serving as a
source of financial strength for their subsidiary banks, the Federal Reserve
Board has stated that, as a matter of prudent banking, a bank holding company
generally should not maintain a rate of cash dividends unless its net income
available to common shareholders has been sufficient to fully fund the
dividends, and the prospective rate of earnings retention appears consistent
with the bank holding company's capital needs, asset quality and overall
financial condition.
FIRREA AND FDICIA
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains a cross-guarantee provision which could result, if Star were
to own an insured depository in addition to Star Bank, N.A., in insured
depository institutions owned by Star being assessed for losses incurred by the
FDIC in connection with assistance provided to, or the failure of, any other
insured depository institution owned by Star. Under FIRREA, failure to meet the
capital guidelines could subject a banking institution to a variety of
enforcement remedies available to United States federal regulatory authorities,
including the termination of deposit insurance by the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
made extensive changes to the federal banking laws. FDICIA instituted certain
changes to the supervisory process, including provisions that mandate certain
regulatory agency actions against undercapitalized institutions within specified
time limits. FDICIA contains various other provisions that may affect the
operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the United States
federal banking regulators to assign each insured institution to one of five
capital categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under FDICIA,
capital requirements would include a leverage limit, a risk-based capital
requirement and any other measure of capital deemed appropriate by the United
States federal banking regulators for measuring the capital adequacy of an
insured depository institution. All institutions, regardless of their capital
levels, are restricted from making any capital distribution or paying any
management fees that would cause the institution to fail to satisfy the minimum
levels for any relevant capital measure.
The FDIC and the Federal Reserve Board adopted capital-related regulations
under FDICIA. Under those regulations, a bank will be well capitalized if it:
(i) has a risk-based capital ratio of 10% or greater; (ii) has a ratio of Tier I
Capital to risk-adjusted assets of 6% or greater; (iii) has a ratio of Tier I
Capital to average assets of 5% or greater; and (iv) was not subject to an
order, written agreement, capital directive, or prompt corrective action
directive to meet and maintain a specific capital level for any capital measure.
An institution will be adequately capitalized if it was not well capitalized
and: (i) has a risk-based capital ratio of 8% or greater; (ii) has a ratio of
Tier I Capital to risk-adjusted assets of 4% or greater; and (iii) has a ratio
of Tier I Capital to average assets of 4% or greater (except that certain
associations rated "Composite 1" under the United States federal banking
agencies' CAMEL rating system may be adequately capitalized if their ratios of
core capital to average assets were 3% or greater). As previously discussed,
Star's subsidiary bank as of September 30, 1997 was categorized as well
capitalized.
FDICIA makes extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full scope
examinations by each bank's primary United States federal regulatory. It also
imposes new responsibilities on management, the independent audit committee and
outside accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance-sheet liabilities and
assets.
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DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference for deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution in the liquidation or other resolution of such an
institution by any receiver. Such obligations would be afforded priority over
other general unsecured claims against such an institution, including federal
funds and letters of credit, as well as any obligation to shareholders of such
an institution in their capacity as such.
FDIC INSURANCE ASSESSMENTS
The Star Bank, N.A. is subject to FDIC deposit insurance assessments. The
FDIC has adopted a risk-based premium schedule. Each financial institution is
assigned to one of three capital groups--well capitalized, adequately
capitalized or undercapitalized--and further assigned to one of three subgroups
within a capital group on the basis of supervisory evaluations by the
institution's primary United States federal and, if applicable, state
supervisors, and on the basis of other information relevant to the institution's
financial condition and the risk posed to the applicable insurance fund. The
actual assessment rate applicable to a particular institution will, therefore,
depend, in part, upon the risk assessment classification so assigned to the
institution by the FDIC. See "--FIRREA and FDICIA."
FIRREA, adopted in August 1989 to provide for the resolution of insolvent
savings associations, required the FDIC to establish separate deposit insurance
funds--the Bank Insurance Fund (the "BIF") for banks and the Savings Association
Insurance Fund (the "SAIF") for savings associations. FIRREA also required the
FDIC to set deposit insurance assessments at such levels as would cause the BIF
and the SAIF to reach their "designated reserve ratios" of 1.25% of the deposits
insured by them within a reasonable period of time. Due to low costs of
resolving bank insolvencies in the last few years, BIF reached its designated
reserve ratio in May 1995. As a result, effective January 1, 1996, the FDIC
eliminated deposit insurance assessments (except for the minimum $2,000 payment
required by law) for banks that are well capitalized and well managed and
reduced the deposit insurance assessments for all other banks. As of January 1,
1996, the SAIF had not reached the designated reserve ratio. Star, which has
acquired substantial amounts of SAIF-insured deposits during the years from 1989
to the present, is required to pay the SAIF deposit insurance premiums on these
SAIF-insured deposits. SAIF insured deposit premiums will continue to apply to
GFB's deposits following the Merger, even if it is combined with Star Bank, N.A.
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted as part
of the Omnibus Appropriations Bill on September 30, 1996, required the FDIC to
take immediate steps to recapitalize the SAIF and to change the basis on which
funds are raised to make the scheduled payments on the FICO bonds issued in 1987
to replenish the Federal Savings and Loan Insurance Corporation. The new
legislation, combined with regulations issued by the FDIC immediately after
enactment of the Funds Act, provided for a special assessment in the amount of
65.7 basis points on SAIF-insured deposits held by depository institutions on
March 31, 1995 (the special assessment was required by the Funds Act to
recapitalize the SAIF to the designated reserve ratio of 1.25% of the deposits
insured by SAIF). Payments of this assessment were made in November 1996, but
were accrued by financial institutions in the third calendar quarter of 1996.
Institutions, such as Star, that have deposits insured by both the BIF and the
SAIF ("Oakar Banks") were required to pay the special assessment on 80% of their
"adjusted attributable deposit amounts ("AADA"). In addition, for purposes of
future regular deposit insurance assessments, the AADA, on which Oakar Banks pay
assessments to the SAIF, was also reduced by 20%. Commencing January 1, 1997,
BIF-insured institutions will be responsible for a portion of the annual
carrying costs of the FICO bonds. Such institutions will be assessed at 80% of
the rate applicable to SAIF-insured institutions until December 31, 1999.
Effective January 1, 1997, the Funds Act also reduced ongoing SAIF deposit
insurance assessment rates to a range from $.064 to $.23 (from previous rates of
$.23 to $.31) per $100 of insured deposits and increased ongoing BIF deposit
insurance assessment rates to a range from $0 to $.013 per $100 of insured
deposits. Additionally, pursuant to the Funds Act, if the reserves in BIF at the
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end of any semiannual assessment period exceed 1.25% of insured deposits, the
FDIC is required to refund the excess to the BIF-insured institutions.
The Funds Act contemplates the merger of the SAIF and the BIF by 1999,
provided the consolidation/ merger of federal bank and thrift charters under
applicable law and regulation has been achieved by that time. Until such time,
however, depository institutions will continue to be prohibited from shifting
deposits from SAIF insurance coverage to BIF insurance coverage in an attempt to
avoid the higher SAIF assessments. The FDIC is required to issue regulations to
guard against the shifting of deposits from the SAIF to the BIF.
As of December 31, 1996, approximately 17.1% of Star Bank, N.A. deposits
were insured by the SAIF. On a pro forma combined basis, approximately 34.5% of
Star's banking subsidiaries' deposits would be insured by the SAIF.
INTERSTATE BANKING AND OTHER RECENT LEGISLATION
In September 1994, legislation was enacted that is expected to have a
significant effect in restructuring the banking industry in the United States.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") facilitates the interstate expansion and consolidation of
banking organizations by permitting (i) bank holding companies that are
adequately capitalized and managed, one year after enactment of the legislation,
to acquire banks located in states outside their home states regardless of
whether such acquisitions are authorized under the law of the host state, (ii)
the interstate merger of banks after June 1, 1997, subject to the right of
individual states to "opt in" or to "opt out" of this authority before that
date, (iii) banks to establish new branches on an interstate basis provided that
such action is specifically authorized by the law of the host state, (iv)
foreign banks to establish, with approval of the regulators in the United
States, branches outside their home states to the same extent that national or
state banks located in the home state would be authorized to do so, and (v)
banks to receive deposits, renew time deposits, close loans, service loans and
receive payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same state or a different
state. One effect of Riegle-Neal is to permit Star to acquire banks located in
any state and to permit bank holding companies located in any state to acquire
banks and bank holding companies in Ohio, including Star. Overall, Riegle-Neal
may have the effect of increasing competition and promoting geographic
diversification in the banking industry.
In addition, the Funds Act contains a variety of regulatory relief measures
affecting banks and thrifts, including provisions modifying some of the more
onerous requirements imposed under federal banking laws passed in the late 1980s
and early 1990s. Among the measures are provisions reducing certain regulatory
burdens imposed upon bank holding companies. For example, the Funds Act
eliminates the requirement that a bank holding company seeking to acquire
control of a thrift must file an application with the OTS and for approval to
become a unitary savings and loan holding company as a result of such
acquisition. The Funds Act also provides that a bank holding company owning or
controlling a thrift will no longer be subject to the supervision and regulation
of the OTS. The OTS will continue to regulate and supervise all thrifts acquired
in such transactions.
There also have been a number of recent legislative and regulatory proposals
designed to strengthen the United States federal deposit insurance system and to
improve the overall financial stability of the United States banking system, and
to provide for other changes in the bank regulatory structure, including
proposals to reduce regulatory burdens on banking organizations and to expand
the nature of products and services banks and bank holding companies may offer.
It is not possible to predict whether or in what form these proposals may be
adopted in the future, and, if adopted, what their effect will be on Star.
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LEGAL MATTERS
The validity of the Star Common Stock to be issued in the Merger will be
passed upon by Jennie Carlson, Esq., General Counsel and Secretary of Star who,
as of the Record Date, beneficially owned 6,194 shares of Star Common Stock and
held options to acquire additional shares of Star Common Stock.
EXPERTS
The audited consolidated financial statements and schedules of Star as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, included in its Annual Report on Form 10-K, which statements
and schedules are incorporated by reference in this Joint Proxy
Statement/Prospectus, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated by their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The consolidated financial statements of Great Financial, incorporated in
this Proxy Statement-Prospectus by reference from the Annual Report on Form 10-K
of Great Financial for the year ended December 31, 1996, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
Special Meeting, Stockholders of Great Financial will have the opportunity to
make a statement if they so desire and will be available to respond to
appropriate questions.
OTHER MATTERS
The Great Financial Board, at the date hereof, is not aware of any business
to be presented at the Special Meeting other than that referred to in the Notice
of Special Meeting of Stockholders and discussed herein. If any other matter
should properly come before the Special Meeting, the persons named as proxies
will have discretionary authority to vote the shares represented by proxies in
accordance with their discretion and judgment as to the best interests of Great
Financial.
SHAREHOLDER PROPOSALS
If the Merger is consummated, stockholders of Great Financial who receive
Star Common Stock will become shareholders of Star at the Effective Time. Star
shareholders may submit to Star proposals for formal consideration at Star's
1998 Annual Meeting of Shareholders and inclusion in Star's Proxy Statement and
proxy for such meeting. All such proposals must be received in writing by the
Corporate Secretary at Star Banc Corporation, 425 Walnut Street, Cincinnati,
Ohio 45202 by October 31, 1997 in order to be considered for inclusion in Star's
Proxy Statement and proxy for Star's 1998 Annual Meeting of Stockholders.
In the event the Merger is not consummated, in order to be eligible for
inclusion in Great Financial's proxy materials for Great Financial's next Annual
Meeting of Stockholders, any stockholder proposal to take action at such meeting
must be in writing and received at Great Financial's main office, 329 W. Main
Street, Louisville, Kentucky 40202, no later than December 1, 1997. Any such
proposals shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
BY ORDER OF THE BOARD OF DIRECTORS
Paul M. Baker
Chairman of the Board, President
and Chief Executive Officer
Louisville, Kentucky
December 11, 1997
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ANNEX A
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AGREEMENT AND PLAN OF MERGER
BETWEEN
STAR BANC CORPORATION
AS BUYER,
AND
GREAT FINANCIAL CORPORATION
AS SELLER
------------------
DATED SEPTEMBER 15, 1997
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
Section 1.01. The Merger................................................................................. 1
Section 1.02. Closing.................................................................................... 1
Section 1.03. Effective Time............................................................................. 1
Section 1.04. Additional Actions......................................................................... 2
Section 1.05. Articles of Incorporation and Bylaws....................................................... 2
Section 1.06. Boards of Directors and Officers........................................................... 2
Section 1.07. Conversion of Securities................................................................... 2
Section 1.08. Election Procedures........................................................................ 2
Section 1.09. Allocation Procedures...................................................................... 3
(a) Stock Elections Less Than Stock Amount................................................. 4
(b) Stock Elections More Than Stock Amount................................................. 4
(c) Stock Elections Equal to Stock Amount.................................................. 4
(d) Stock Elections and No Elections Equal to Stock Amount................................. 4
Section 1.10. Exchange Procedures........................................................................ 4
Section 1.11. Dissenting Shares.......................................................................... 5
Section 1.12. No Fractional Shares....................................................................... 6
Section 1.13. Anti-Dilution Adjustments.................................................................. 6
Section 1.14. Reservation of Right to Revise Transaction................................................. 6
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Section 2.01. Organization and Authority................................................................. 6
Section 2.02. Subsidiaries............................................................................... 7
Section 2.03. Capitalization............................................................................. 7
Section 2.04. Authorization.............................................................................. 7
Section 2.05. Seller Financial Statements................................................................ 8
Section 2.06. Seller Reports............................................................................. 8
Section 2.07. Properties and Leases...................................................................... 9
Section 2.08. Taxes...................................................................................... 9
Section 2.09. Material Adverse Change.................................................................... 9
Section 2.10. Commitments and Contracts.................................................................. 9
Section 2.11. Litigation and Other Proceedings........................................................... 10
Section 2.12. Insurance.................................................................................. 10
Section 2.13. Compliance with Laws....................................................................... 10
Section 2.14. Labor...................................................................................... 11
Section 2.15. Material Interests of Certain Persons...................................................... 12
Section 2.16. Allowance for Loan and Lease Losses; Nonperforming Assets.................................. 12
Section 2.17. Employee Benefit Plans..................................................................... 12
Section 2.18. Conduct of Seller to Date.................................................................. 14
Section 2.19. Proxy Statement, etc....................................................................... 14
Section 2.20. Registration Obligations................................................................... 15
Section 2.21. State Takeover Statutes; Seller's Certificate of Incorporation............................. 15
Section 2.22. Accounting, Tax and Regulatory Matters..................................................... 15
Section 2.23. Brokers and Finders........................................................................ 15
Section 2.24. Other Activities........................................................................... 15
Section 2.25. Interest Rate Risk Management Instruments.................................................. 15
Section 2.26. Accuracy of Information.................................................................... 16
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Section 3.01. Organization and Authority................................................................. 16
Section 3.02. Capitalization of Buyer.................................................................... 16
Section 3.03. Authorization.............................................................................. 17
Section 3.04. Buyer Financial Statements................................................................. 17
Section 3.05. Buyer Reports.............................................................................. 18
Section 3.06. Material Adverse Change.................................................................... 18
Section 3.07. Compliance with Laws....................................................................... 18
Section 3.08. Registration Statement, etc................................................................ 18
Section 3.09. Brokers and Finders........................................................................ 19
Section 3.10. Litigation and Other Proceedings........................................................... 19
Section 3.11. Taxes...................................................................................... 19
Section 3.12. Accounting, Tax and Regulatory Matters..................................................... 19
Section 3.13. Accuracy of Information.................................................................... 19
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
Section 4.01. Conduct of Businesses Prior to the Effective Time.......................................... 19
Section 4.02. Forbearances............................................................................... 20
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Access and Information..................................................................... 21
Section 5.02. Registration Statement; Regulatory Matters................................................. 22
Section 5.03. Stockholder Approval....................................................................... 22
Section 5.04. Current Information........................................................................ 22
Section 5.05. Agreements of Affiliates................................................................... 22
Section 5.06. Expenses................................................................................... 23
Section 5.07. Securities Act and Exchange Act Filings.................................................... 23
Section 5.08. Miscellaneous Agreements and Consents...................................................... 23
Section 5.09. Employee Benefits.......................................................................... 23
Section 5.10. Seller Stock Options....................................................................... 24
Section 5.11. Seller Employee Stock Ownership Plan....................................................... 25
Section 5.12. D&O Indemnification........................................................................ 25
Section 5.13. Press Releases............................................................................. 25
Section 5.14. State Takeover Statutes; Seller's Certificate of Incorporation............................. 25
Section 5.15. Best Efforts............................................................................... 25
Section 5.16. Insurance.................................................................................. 26
Section 5.17. Conforming Entries......................................................................... 26
ARTICLE VI
CONDITIONS
Section 6.01. Conditions to Each Party's Obligation To Effect the Merger................................. 27
Section 6.02. Conditions to Obligations of Seller To Effect the Merger................................... 27
(a) Representations and Warranties......................................................... 27
(b) Performance of Obligations............................................................. 27
Section 6.03. Conditions to Obligations of Buyer To Effect the Merger.................................... 27
(a) Representations and Warranties......................................................... 27
(b) Performance of Obligations............................................................. 28
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.01. Termination................................................................................ 28
Section 7.02. Effect of Termination...................................................................... 28
Section 7.03. Amendment.................................................................................. 28
Section 7.04. Severability............................................................................... 29
Section 7.05. Waiver..................................................................................... 29
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Non-Survival of Representations, Warranties and Agreements................................. 29
Section 8.02. Notices.................................................................................... 29
Section 8.03. Miscellaneous.............................................................................. 30
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ANNEX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into on September 15, 1997 by and between Star Banc Corporation, an Ohio
corporation ("Buyer"), and Great Financial Corporation, a Delaware corporation
("Seller").
W I T N E S S E T H:
WHEREAS, Buyer is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"); and
WHEREAS, Seller is a registered unitary savings and loan holding company
under Home Owners' Loan Act, as amended ("HOLA"); and
WHEREAS, the Board of Directors of Seller and the Executive Committee of the
Board of Directors of Buyer have approved the merger (the "Merger") of Seller
with and into Buyer pursuant to the terms and subject to the conditions of this
Agreement; and
WHEREAS, as a condition to, and immediately prior to execution of this
Agreement, Buyer and Seller will enter into a stock option agreement (the "Stock
Option Agreement") in the form attached hereto as Exhibit A; and
WHEREAS, the parties desire to provide for certain undertakings, conditions,
representations, warranties and covenants in connection with the transactions
contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
1.01. THE MERGER. Subject to the terms and conditions of this Agreement,
Seller shall be merged with and into Buyer in accordance with the Delaware
General Corporation Law (the "DGCL") and the Ohio General Corporation Law (the
"OGCL") and the separate corporate existence of Seller shall cease. Buyer shall
be the surviving corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Ohio.
1.02. CLOSING. The closing (the "Closing") of the Merger shall take place at
10:00 a.m., local time, on the date that the Effective Time (as defined in
Section 1.03) occurs, or at such other time, and at such place, as Buyer and
Seller shall agree (the "Closing Date").
1.03. EFFECTIVE TIME. The Merger shall become effective on the date and at
the time (the "Effective Time") on which appropriate documents in respect of the
Merger are filed with the Secretaries of State of the States of Ohio and
Delaware in such form as required by, and in accordance with, the relevant
provisions of the DGCL and OGCL. Subject to the terms and conditions of this
Agreement, the Effective Time shall occur on any such date on or after January
2, 1998 as Buyer shall notify Seller in writing (such notice to be at least five
business days in advance of the Effective Time) but (i) not earlier than the
satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b) (the
"Approval Date") and (ii) subject to clause (i), not later than the first
business day of the first full calendar month commencing at least five business
days after the Approval Date. As soon as practicable following the Effective
Time, Buyer and Seller shall cause a certificate or plan of merger reflecting
the terms of this Agreement to be delivered for filing and recordation with
other appropriate state or local officials in the States of Ohio and Delaware in
accordance with the OGCL and the DGCL, respectively.
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1.04. ADDITIONAL ACTIONS. If, at any time after the Effective Time, Buyer or
the Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances or any other acts are necessary or desirable to (a)
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation
its right, title or interest in, to or under any of the rights, properties or
assets of Seller or Buyer or (b) otherwise carry out the purposes of this
Agreement, Seller and Buyer and each of their respective officers and directors,
shall be deemed to have granted to the Surviving Corporation an irrevocable
power of attorney to execute and deliver all such deeds, assignments or
assurances and to do all acts necessary or desirable to vest, perfect or confirm
title and possession to such rights, properties or assets in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement, and the
officers and directors of the Surviving Corporation are authorized in the name
of Seller or otherwise to take any and all such action.
1.05. ARTICLES OF INCORPORATION AND REGULATIONS. The Articles of
Incorporation and Regulations of Buyer in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Regulations of the
Surviving Corporation following the Merger until otherwise amended or repealed.
1.06. BOARDS OF DIRECTORS AND OFFICERS. At the Effective Time, the directors
and officers of Buyer immediately prior to the Effective Time shall be directors
and officers, respectively, of the Surviving Corporation following the Merger;
such directors and officers shall hold office in accordance with the Surviving
Corporation's Articles of Incorporation and Regulations and applicable law.
1.07. CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any action on the part of Buyer, Seller or the holder of any
of the following securities:
(i) Each share of the common stock, par value $5.00 per share, of Buyer
("Buyer Common Stock") that is issued and outstanding immediately prior to
the Effective Time shall remain outstanding and shall be unchanged after the
Merger and thereafter shall together with shares of Buyer Common Stock
issued in the Merger constitute all of the issued and outstanding capital
stock of the Surviving Corporation; and
(ii) Each share of the common stock, par value $.01 per share, of Seller
("Seller Common Stock") issued and outstanding immediately prior to the
Effective Time shall cease to be outstanding and, other than any Dissenting
Shares (as defined in Section 1.11), shall be converted into and become the
right to receive, at the election of the holder thereof as provided in
Section 1.08:
(1) 0.949 (the "Exchange Ratio") shares of Buyer Common Stock (the
"Per Share Stock Consideration"), or
(2) $44.00 in cash (the "Per Share Cash Consideration").
The aggregate number of shares of Buyer Common Stock that shall be issued in the
Merger (the "Stock Amount") shall equal as nearly as practicable (a) seventy
percent (70%), times (b) the Exchange Ratio, times (c) the number of shares of
Seller Common Stock outstanding as of the Effective Time; provided however that
in the event that (x) the Stock Amount times (y) the closing price of a share of
Buyer Common Stock on the New York Stock Exchange, Inc. ("NYSE") composite tape
on the last trading day prior to the Effective Time (the "Closing Price") is
less than (q) fifty percent (50%) times (r) the number of shares of Seller
Common Stock outstanding as of the Effective Time times (s) the closing price of
a share of Seller Common Stock on the Nasdaq National Market System on the last
trading day prior to the Effective Time, then the Stock Amount shall equal (j)
fifty percent (50%) times (k) the number of shares of Seller Common Stock
outstanding as of the Effective Time times (l) the closing price of a share of
Seller Common Stock on the Nasdaq National Market System on the last trading day
prior to the Effective Time, divided by (m) the Closing Price.
1.08. ELECTION PROCEDURES. An election form and other appropriate and
customary transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates
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theretofore representing Seller Common Stock shall pass, only upon proper
delivery of such certificates to an exchange agent designated by Buyer and
reasonably acceptable to Seller (the "Exchange Agent")) in such form as Buyer
and Seller shall mutually agree ("Election Form") shall be mailed approximately
25 days prior to the anticipated Effective Time or on such other date as Buyer
and Seller shall mutually agree ("Mailing Date") to each holder of record of
Seller Common Stock as of five business days prior to the Mailing Date
("Election Form Record Date"). Buyer shall determine the anticipated Effective
Time (the "Anticipated Effective Time") in its sole discretion and the failure
of the Effective Time to occur at the Anticipated Effective Time for purposes of
this Section 1.08 shall not affect the time periods which are established for
purposes of these election procedures; provided that the Effective Time occurs
no later than 45 days following the Mailing Date. All Election Forms will become
revocable if the Effective Time has not occurred within 45 days of the Mailing
Date.
Each Election Form shall permit the holder (or the beneficial owner through
appropriate and customary documentation and instructions) to elect to receive
Buyer Common Stock with respect to some or all of such holder's Seller Common
Stock ("Stock Election Shares"), to elect to receive cash with respect to some
or all of such holder's Seller Common Stock ("Cash Election Shares") or to
indicate that such holder makes no election ("No Election Shares"). For purposes
of this Section 1.08, Dissenting Shares shall be treated as Cash Election Shares
for purposes of this Section 1.08 but shall not be converted into the Per Share
Stock Consideration or the Per Share Cash consideration except as provided in
Section 1.11.
Any Seller Common Stock with respect to which the holder (or the beneficial
owner, as the case may be) shall not have submitted to the Exchange Agent an
effective, properly completed Election Form on or before 5:00 p.m. on the 20th
day following the Mailing Date (or such other time and date as Buyer and Seller
may mutually agree) (the "Election Deadline") shall be deemed to be "No Election
Shares."
Buyer shall make available one or more Election Forms as may be reasonably
requested by all persons who become holders (or beneficial owners) of Seller
Common Stock between the Election Form Record Date and close of business on the
business day prior to the Election Deadline, and Seller shall provide to the
Exchange Agent all information reasonably necessary for it to perform as
specified herein.
Any such election shall have been properly made only if the Exchange Agent
shall have actually received a properly completed Election Form by the Election
Deadline. An Election Form shall be deemed properly completed only if
accompanied by one or more certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all shares of Seller
Common Stock covered by such Election Form, together with duly executed
transmittal materials included in the Election Form. Any Election Form may be
revoked or changed by the person submitting such Election Form (i) at or prior
to the Election Deadline and (ii) so long as prior to the Effective Time, at any
time 45 days following the Mailing Date. In the event an Election Form is
revoked prior to the Election Deadline, the shares of Seller Common Stock
represented by such Election Form shall become No Election Shares and Buyer
shall cause the certificates representing Seller Common Stock to be promptly
returned without charge to the person submitting the Election Form upon written
request to that effect from the person who submitted the Election Form, which
person may then submit a new Election Form. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall have reasonable
discretion to determine whether any election, revocation or change has been
properly or timely made and to disregard immaterial defects in the Election
Forms, and any good faith decisions of the Exchange Agent regarding such matters
shall be binding and conclusive. Neither Buyer nor the Exchange Agent shall be
under any obligation to notify any person of any defect in an Election Form.
1.09. ALLOCATION PROCEDURES. Within ten business days after the Election
Deadline, unless the Effective Time has not yet occurred, in which case as soon
after the Effective Time as practicable, Buyer shall cause
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the Exchange Agent to effect the allocation among the holders of Seller Common
Stock of rights to receive Buyer Common Stock and/or cash in the Merger in
accordance with the Election Forms as follows:
(a) STOCK ELECTIONS LESS THAN STOCK AMOUNT. If the number of shares of
Buyer Common Stock that would be issued upon conversion in the Merger of the
Stock Election Shares is less than the Stock Amount, then:
(i) all Stock Election Shares shall be converted into the right to
receive Buyer Common Stock,
(ii) the Exchange Agent shall allocate pro rata first from among the
holders of No Election Shares and then (if necessary) pro rata from among
the Cash Election Shares, a sufficient number of shares ("Stock
Designated Shares") such that the number of shares of Buyer Common Stock
that will be issued in the Merger equals as closely as practicable the
Stock Amount, and all Stock Designated Shares shall be converted into the
right to receive Buyer Common Stock, and
(iii) the Cash Election Shares and the No Election Shares which are
not Stock Designated Shares shall be converted into the right to receive
cash;
(b) STOCK ELECTIONS MORE THAN STOCK AMOUNT. If the number of shares of
Buyer Common Stock that would be issued upon the conversion into Buyer
Common Stock of the Stock Election Shares is greater than the Stock Amount,
then:
(i) all Cash Election Shares and No Election Shares shall be
converted into the right to receive cash,
(ii) the Exchange Agent shall allocate pro rata from among the Stock
Election Shares, a sufficient number of shares ("Cash Designated Shares")
such that the number of shares of Buyer Common Stock that will be issued
in the Merger equals as closely as practicable the Stock Amount, and all
Cash Designated Shares shall be converted into the right to receive cash,
and
(iii) the Stock Election Shares which are not Cash Designated Shares
shall be converted into the right to receive Buyer Common Stock; or
(c) STOCK ELECTIONS EQUAL TO STOCK AMOUNT. If the number of shares of
Buyer Common Stock that would be issued upon conversion into Buyer Common
Stock of the Stock Election Shares is equal as nearly as practicable (as
determined by the Exchange Agent) to the Stock Amount, then subparagraphs
(a) and (b) above and subparagraph (d) below shall not apply and all Stock
Election Shares shall be converted into the right to receive Buyer Common
Stock and all Cash Election Shares and No Election Shares shall be converted
into the right to receive cash; or
(d) STOCK ELECTIONS AND NO ELECTIONS EQUAL TO STOCK AMOUNT. If the
number of shares of Buyer Common Stock that would be issued upon the
conversion into Buyer Common Stock of the Stock Election Shares and No
Election Shares would equal as nearly as practicable (as determined by the
Exchange Agent) the Stock Amount, then subparagraphs (a), (b) and (c) above
shall not apply and all Cash Election Shares shall be converted into the
right to receive cash and all Stock Election Shares and No Election Shares
shall be converted into the right to receive Buyer Common Stock.
1.10. EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, Buyer
shall deposit with the Exchange Agent for the benefit of holders of certificates
the Merger Consideration (as defined below) (the Merger Consideration so
deposited with the Exchange Agent being the "Exchange Fund").
(b) Holders of record of certificates formerly representing shares of Seller
Common Stock (the "Certificates") who have not previously delivered the
Certificates to the Exchange Agent shall be instructed to tender such
Certificates to Buyer pursuant to a letter of transmittal that Buyer shall
deliver or cause to be delivered to such holders. Holders of Certificates who
have previously delivered the Certificates to the Exchange Agent shall deliver a
completed letter of transmittal. Buyer in consultation with
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Seller shall have the option of including within the election forms distributed
pursuant to Section 1.08 a form of letter of transmittal to be used for this
purpose. Such letters of transmittal shall specify that risk of loss and title
to Certificates shall pass only upon delivery of such Certificates to Buyer.
(c) Subject to Section 1.12, after the Effective Time, each previous holder
of a Certificate that surrenders such Certificate with a duly executed exchange
form or letter of transmittal, as applicable, to the Exchange Agent will be
entitled to a certificate or certificates representing the number of full shares
of Buyer Common Stock or cash, as the case may be, into which the Certificate so
surrendered shall have been converted pursuant to this Agreement and any
distribution theretofore declared and not yet paid with respect to such shares
of Buyer Common Stock, without interest.
(d) Buyer or the Exchange Agent shall accept Certificates upon compliance
with such reasonable terms and conditions as Buyer or the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with customary
exchange practices. Certificates shall be appropriately endorsed or accompanied
by such instruments of transfer as Buyer or the Exchange Agent may require.
(e) Each outstanding Certificate shall until duly surrendered to Buyer or
the Exchange Agent be deemed to evidence ownership of the consideration into
which the stock previously represented by such Certificate shall have been
converted pursuant to this Agreement.
(f) Any portion of the Exchange Fund which remains undistributed to the
holders of Certificates for six months after the Effective Time shall be
delivered to Buyer, upon demand, and any holders of Certificates who have not
theretofore complied with this Section 1.10 shall thereafter look only to Buyer
for payment of their claim for the Per Share Cash Consideration or Buyer Common
Stock.
(g) After the Effective Time, holders of Certificates shall cease to have
rights with respect to the stock previously represented by such Certificates,
and their sole rights shall be to exchange such Certificates for the
consideration provided for in this Agreement. After the Effective Time, there
shall be no further transfer on the records of Seller of Certificates, and if
such Certificates are presented to Seller for transfer, they shall be cancelled
against delivery of the consideration provided therefor in this Agreement. Buyer
shall not be obligated to deliver the consideration to which any former holder
of Seller Common Stock is entitled as a result of the Merger until such holder
surrenders the Certificates as provided herein. No dividends declared will be
remitted to any person entitled to receive Buyer Common Stock under this
Agreement until such person surrenders the Certificate representing the right to
receive such Buyer Common Stock, at which time such dividends shall be remitted
to such person, without interest and less any taxes that may have been imposed
thereon. Certificates surrendered for exchange by any person constituting an
"affiliate" of Seller for purposes of Rule 145 of the Securities Act of 1933, as
amended (together with the rules and regulations thereunder, the "Securities
Act"), shall not be exchanged for certificates representing Buyer Common Stock
until Buyer has received a written agreement from such person in the form
attached as Exhibit B. Neither the Exchange Agent nor any party to this
Agreement nor any affiliate thereof shall be liable to any holder of stock
represented by any Certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or similar laws. Buyer and
the Exchange Agent shall be entitled to rely upon the stock transfer books of
Seller to establish the identity of those persons entitled to receive
consideration specified in this Agreement, which books shall be conclusive with
respect thereto. In the event of a dispute with respect to ownership of stock
represented by any Certificate, Buyer and the Exchange Agent shall be entitled
to deposit any consideration represented thereby in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
1.11. DISSENTING SHARES. (a) "Dissenting Shares" means any shares held by
any holder who becomes entitled to payment of the fair value of such shares
under the DGCL. Any holders of Dissenting Shares shall be entitled to payment
for such shares only to the extent permitted by and in accordance with the
provisions of the DGCL; PROVIDED, HOWEVER, that if, in accordance with the DGCL,
any holder of Dissenting Shares shall forfeit such right to payment of the fair
value of such shares, such shares shall thereupon be
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deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the consideration provided in this
Article I.
(b) Seller shall give Buyer (i) prompt notice of any written objections to
the Merger and any written demands for the payment of the fair value of any
shares, withdrawals of such demands, and any other instruments served pursuant
to the DGCL received by Seller and (ii) the opportunity to direct all
negotiations and proceedings with respect to such demands under the DGCL. Seller
shall not voluntarily make any payment with respect to any demands for payment
of fair value and shall not, except with the prior written consent of Buyer,
settle or offer to settle any such demands.
1.12. NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Buyer Common
Stock shall be issued in the Merger. Each holder who otherwise would have been
entitled to a fraction of a share of Buyer Common Stock shall receive in lieu
thereof cash (without interest) in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the Closing Price. No such holder shall be entitled to dividends, voting rights
or any other rights in respect of any fractional share.
1.13. ANTI-DILUTION ADJUSTMENTS. If prior to the Effective Time Buyer shall
declare a stock dividend or make distributions upon or subdivide, split up,
reclassify or combine or make similar changes to Buyer Common Stock or exchange
Buyer Common Stock for a different number or kind of shares or securities or
declare a dividend or make a distribution on Buyer Common Stock or on any
security convertible into Buyer Common Stock, or is involved in any transaction
resulting in any of the foregoing (including any exchange of Buyer Common Stock
for a different number or kind of shares or securities), appropriate adjustment
or adjustments will be made to the Exchange Ratio.
1.14. RESERVATION OF RIGHT TO REVISE TRANSACTION. Buyer may with Seller's
consent (which will not be unreasonably withheld) at any time change the method
of effecting the acquisition of Seller or Seller's Subsidiaries by Buyer and
Seller shall cooperate in such efforts (including without limitation (a)
modifying the provisions of this Article I and (b) causing the merger of Great
Financial Bank, F.S.B. a federally chartered savings bank and wholly owned
subsidiary of Seller ("Seller Bank") and/or any of the Banks (as defined herein)
with any depository institution which is a Subsidiary of Buyer (any such merger
together with the Merger being referred to herein as the "Transactions")) if and
to the extent it deems such change to be desirable, including without limitation
to provide for a merger of Seller into a wholly-owned subsidiary of Buyer, in
which such subsidiary of Buyer is the surviving corporation, PROVIDED, HOWEVER,
that no such change shall (A) alter or change the amount or kind of
consideration to be issued to holders of Seller Common Stock as provided for in
this Agreement (the "Merger Consideration"), (B) adversely affect the tax
treatment to Seller's stockholders as a result of receiving the Merger
Consideration, or (C) materially impede or delay the consummation of the
transactions contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to and covenants with Buyer as follows:
2.01. ORGANIZATION AND AUTHORITY. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and has corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted.
Seller is registered as a unitary savings and loan holding company with the
Office of Thrift Supervision (the "OTS") under HOLA. True and complete copies of
the Certificate of Incorporation and the Bylaws of Seller and, to the extent
requested in writing by Buyer, of the articles of incorporation and bylaws of
the Seller Subsidiaries (as defined in Section 2.02), each as in effect on the
date of this Agreement, have been provided to Buyer.
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2.02. SUBSIDIARIES. Schedule 2.02 sets forth, among other things, a complete
and correct list of all of Seller's Subsidiaries (each a "Seller Subsidiary" and
collectively the "Seller Subsidiaries"), all outstanding Equity Securities of
each of which, except as set forth on Schedule 2.02, are owned directly or
indirectly by Seller. "Equity Securities" of an issuer means capital stock or
other equity securities of such issuer, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, shares of any capital stock or other
Equity Securities of such issuer, or contracts, commitments, understandings or
arrangements by which such issuer is or may become bound to issue additional
shares of its capital stock or other Equity Securities of such issuer, or
options, warrants, scrip or rights to purchase, acquire, subscribe to, calls on
or commitments for any shares of its capital stock or other Equity Securities.
Except as set forth on Schedule 2.02, all of the outstanding shares of capital
stock of the Seller Subsidiaries are validly issued, fully paid and
nonassessable, and those shares owned by Seller are owned free and clear of any
lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security
interest or restriction (a "Lien") with respect thereto. Each of the Seller
Subsidiaries is a corporation or association duly incorporated or organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation or organization, and has corporate power and authority to own or
lease its properties and assets and to carry on its business as it is now being
conducted. Except as disclosed in Schedule 2.02, each of the Seller Subsidiaries
is duly qualified to do business in each jurisdiction where its ownership or
leasing of property or the conduct of its business requires it so to be
qualified, except where the failure to so qualify would not have a material
adverse effect on the financial condition, results of operations or business
(collectively, the "Condition") of Seller and its Subsidiaries, taken as a
whole. Except for the Equity Securities of Seller Bank of which Seller owns 100%
and except as set forth on Schedule 2.02, Seller does not own beneficially,
directly or indirectly, any shares of any class of Equity Securities or similar
interests of any corporation, bank, business trust, association or similar
organization. Seller Bank is chartered by the OTS. The deposits of Seller Bank
are insured by the Savings Association Insurance Fund ("SAIF"). Except as set
forth on Schedule 2.02, neither Seller nor any Seller Subsidiary holds any
interest in a partnership or joint venture of any kind.
2.03. CAPITALIZATION. The authorized capital stock of Seller consists of (i)
24,000,000 shares of Seller Common Stock, of which, as of August 29, 1997,
13,804,439 shares were issued and outstanding and (ii) 1,000,000 shares of
preferred stock, $1.00 par value ("Seller Preferred Stock"), of which, as of
August 29, 1997, no shares were issued or outstanding. As of August 29, 1997,
Seller had reserved 1,523,182 shares of Seller Common Stock for issuance under
Seller's stock option and incentive plans, a list of which is set forth on
Schedule 2.03 (the "Seller Stock Plans"), pursuant to which options ("Seller
Stock Options") covering 1,484,631 shares of Seller Common Stock were
outstanding as of August 29, 1997. Since August 29, 1997, no Equity Securities
of Seller have been issued other than shares of Seller Common Stock which may
have been issued upon the exercise of Seller Stock Options. Except as set forth
above, there are no other Equity Securities of Seller outstanding. All of the
issued and outstanding shares of Seller Common Stock are validly issued, fully
paid, and nonassessable, and have not been issued in violation of any preemptive
right of any stockholder of Seller. Seller maintains a dividend reinvestment
plan or similar plan. Seller has not entered into a shareholders rights plan or
similar plan.
2.04. AUTHORIZATION. (a) Seller has the corporate power and authority to
enter into this Agreement and, subject to the approval of this Agreement by the
stockholders of Seller, to carry out its obligations hereunder. The only
stockholder vote required for Seller to approve this Agreement is the
affirmative vote of the holders of at least a majority of the shares of Seller
Common Stock entitled to vote at a meeting called for such purpose. The
execution, delivery and performance of this Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Seller. Subject to approval by the
stockholders of Seller, this Agreement is a valid and binding obligation of
Seller enforceable against Seller in accordance with its terms.
(b) Except as set forth on Schedule 2.04B, neither the execution nor
delivery nor performance by Seller of this Agreement, nor the consummation by
Seller of the transactions contemplated hereby, nor
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compliance by Seller with any of the provisions hereof, will (i) violate,
conflict with, or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of, any material Lien upon any of the material
properties or assets of Seller or any Seller Subsidiary under any of the terms,
conditions or provisions of (x) its articles or certificate of incorporation or
bylaws or (y) any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Seller or
any Seller Subsidiary is a party or by which it may be bound, or to which Seller
or any Seller Subsidiary or any of the material properties or assets of Seller
or any Seller Subsidiary may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in paragraph (c) of this Section 2.04, to
the best knowledge of Seller, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Seller or any
Seller Subsidiary or any of their respective material properties or assets.
(c) Other than in connection or compliance with the provisions of the DGCL,
the OGCL, the Securities Act, the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act"), the securities or
blue sky laws of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the Holding Company Act,
and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), or
any required approvals or filings pursuant to any state statutes or regulations
applicable to the Banks with respect to the transactions contemplated by this
Agreement, no notice to, filing with, exemption or review by, or authorization,
consent or approval of, any public body or authority is necessary for the
consummation by Seller of the transactions contemplated by this Agreement.
2.05. SELLER FINANCIAL STATEMENTS. The consolidated balance sheets of Seller
and its Subsidiaries as of December 31, 1996, 1995 and 1994 and related
consolidated statements of income, cash flows and changes in stockholders'
equity for each of the three years in the three-year period ended December 31,
1996, together with the notes thereto, audited by Deloitte & Touche LLP and
included in an annual report on Form 10-K as filed with the Securities and
Exchange Commission (the "SEC"), and the unaudited consolidated balance sheets
of Seller and its Subsidiaries as of March 31 and June 30, 1997 and the related
unaudited consolidated statements of income and cash flows for the periods then
ended included in
quarterly reports on Form 10-Q (each a "Seller Form 10-Q") as filed with the SEC
(collectively, the "Seller Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis ("GAAP"), present fairly the consolidated financial position of Seller and
its Subsidiaries at the dates and the consolidated results of operations, cash
flows and changes in stockholders' equity of Seller and its Subsidiaries for the
periods stated therein and are derived from the books and records of Seller and
its Subsidiaries, which are complete and accurate in all material respects and
have been maintained in all material respects in accordance with applicable laws
and regulations. Neither Seller nor any of its Subsidiaries has any material
contingent liabilities that are not described in the financial statements
described above.
2.06. SELLER REPORTS. Except as set forth in Schedule 2.06, since January 1,
1994 each of Seller and the Seller Subsidiaries has filed all material reports,
registrations and statements, together with any required material amendments
thereto, that it was required to file with (i) the SEC, including, but not
limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the
OTS, (iii) the FDIC, and (iv) any other federal, state, municipal, local or
foreign government, securities, banking, savings and loan, insurance and other
governmental or regulatory authority and the agencies and staffs thereof (the
entities in the foregoing clauses (i) through (iv) being referred to herein
collectively as the "Regulatory Authorities" and individually as a "Regulatory
Authority"). All such reports and statements filed with any such Regulatory
Authority are collectively referred to herein as the "Seller Reports." As of its
respective date, each Seller Report complied in all material respects with all
the rules and regulations promulgated by the applicable Regulatory Authority and
did not contain any untrue statement of a material fact or omit to state a
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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.
2.07. PROPERTIES AND LEASES. Except as may be reflected in the Seller
Financial Statements, except for any Lien for current taxes not yet delinquent
and except with respect to assets classified as real estate owned, Seller and
its Subsidiaries have good title free and clear of any material Lien to all the
real and personal property reflected in Seller's consolidated balance sheet as
of June 30, 1997 included in the most recent Seller Form 10-Q and, in each case,
all real and personal property acquired since such date, except such real and
personal property as has been disposed of in the ordinary course of business.
All leases material to Seller or any Seller Subsidiary pursuant to which Seller
or any Seller Subsidiary, as lessee, leases real or personal property, are valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any material existing default by Seller or any Seller
Subsidiary or any event which, with notice or lapse of time or both, would
constitute such a material default. Substantially all of Seller's and Seller
Subsidiaries' buildings, structures and equipment in regular use have been well
maintained and are in good and serviceable condition, normal wear and tear
excepted.
2.08. TAXES. Except as previously disclosed to Buyer, Seller and each Seller
Subsidiary have timely filed or will timely (including extensions) file all
material tax returns required to be filed at or prior to the Closing Date
("Seller Returns"). Each of Seller and its Subsidiaries has paid, or set up
adequate reserves on the Seller Financial Statements for the payment of, all
taxes required to be paid in respect of the periods covered by such returns and
has set up adequate reserves on the most recent financial statements Seller has
filed under the Exchange Act for the payment of all taxes anticipated to be
payable in respect of all periods up to and including the latest period covered
by such financial statements. To the knowledge of Seller, neither Seller nor any
Seller Subsidiary will have any liability material to the Condition of Seller
and the Seller Subsidiaries, taken as a whole, for any such taxes in excess of
the amounts so paid or reserves so established and no material deficiencies for
any tax, assessment or governmental charge have been proposed, asserted or
assessed (tentatively or definitely) against any of Seller or any Seller
Subsidiary which would not be covered by existing reserves. Neither Seller nor
any Seller Subsidiary is delinquent in the payment of any material tax,
assessment or governmental charge, nor, except as previously disclosed, has it
requested any extension of time within which to file any tax returns in respect
of any fiscal year which have not since been filed and no requests for waivers
of the time to assess any tax are pending. The federal and state income tax
returns of Seller and the Seller Subsidiaries have been audited and finally
settled by the Internal Revenue Service (the "IRS") or appropriate state tax
authorities or the relevant statute of limitations has expired for all periods
ended through December 31, 1993. There is no deficiency or refund litigation or
matter in controversy with respect to Seller Returns. Neither Seller nor any
Seller Subsidiary has extended or waived any statute of limitations on the
assessment of any tax due that is currently in effect.
2.09. MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has been no
material adverse change in the Condition of Seller and its Subsidiaries, taken
as a whole, except as may have resulted or may result from changes to laws and
regulations or changes in economic conditions applicable to banking or thrift
institutions generally or in general levels of interest rates affecting banking
or thrift institutions generally.
2.10. COMMITMENTS AND CONTRACTS. (a) Except as set forth on Schedule 2.10A,
neither Seller nor any Seller Subsidiary is a party or subject to any of the
following (whether written or oral, express or implied):
(i) any material agreement, arrangement or commitment (A) not made in
the ordinary course of business or (B) pursuant to which Seller or any of
its Subsidiaries is or may become obligated to invest in or contribute
capital to any Seller Subsidiary;
(ii) any agreement, indenture or other instrument not disclosed in the
Seller Financial Statements relating to the borrowing of money by Seller or
any Seller Subsidiary or the guarantee by Seller or any Seller Subsidiary of
any such obligation (other than trade payables or instruments related to
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transactions entered into in the ordinary course of business by any Seller
Subsidiary, such as deposits and Fed Funds or similar borrowings);
(iii) any contract, agreement or understanding with any labor union or
collective bargaining organization;
(iv) any contract containing covenants which limit the ability of Seller
or any Seller Subsidiary to compete in any line of business or with any
person or which involve any restriction of the geographical area in which,
or method by which, Seller or any Seller Subsidiary may carry on its
business (other than as may be required by law or any applicable Regulatory
Authority);
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K promulgated by the
SEC and which is not listed in Seller's SEC
Reports; or
(vi) any lease with annual rental payments aggregating $500,000 or more.
(b) Neither Seller nor any Seller Subsidiary is in violation of its charter
documents or bylaws or in default under any material agreement, commitment,
arrangement, lease, insurance policy, or other instrument, whether entered into
in the ordinary course of business or otherwise and whether written or oral, and
there has not occurred any event that, with the lapse of time or giving of
notice or both, would constitute such a default, except, in all cases, where
such default would not have a material adverse effect on the Condition of Seller
and its Subsidiaries, taken as a whole.
2.11. LITIGATION AND OTHER PROCEEDINGS. Except as set forth on Schedule
2.11, neither Seller nor any Seller Subsidiary is a party to any pending or, to
the best knowledge of Seller, threatened claim, action, suit, investigation or
proceeding, or is subject to any order, judgment or decree, except for matters
which, in the aggregate, will not have, or reasonably could not be expected to
have, a material adverse effect on the Condition of Seller and its Subsidiaries,
taken as a whole, or which purports or seeks to enjoin or restrain the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, there are no actions, suits, or proceedings pending or, to the
best knowledge of Seller, threatened against Seller or any Seller Subsidiary or
any of their respective officers or directors by any stockholder of Seller or
any Seller Subsidiary (or any former stockholder of Seller or any Seller
Subsidiary) or involving claims under the Securities Act, the Exchange Act, the
Community Reinvestment Act of 1977, as amended, or the fair lending laws.
2.12. INSURANCE. Each of Seller and its Subsidiaries has taken all requisite
action (including without limitation the making of claims and the giving of
notices) pursuant to its directors' and officers' liability insurance policy or
policies in order to preserve all rights thereunder with respect to all matters
(other than matters arising in connection with this Agreement and the
transactions contemplated hereby) occurring prior to the Effective Time that are
known to Seller, except for such matters which, individually or in the
aggregate, will not have and reasonably could not be expected to have a material
adverse effect on the Condition of Seller and its Subsidiaries, taken as a
whole.
2.13. COMPLIANCE WITH LAWS. (a) Except as disclosed in Schedule 2.13A,
Seller and each of its Subsidiaries have all permits, licenses, authorizations,
orders and approvals of, and have made all filings, applications and
registrations with, all Regulatory Authorities that are required in order to
permit them to own or lease their properties and assets and to carry on their
business as presently conducted and that are material to the business of Seller
and its Subsidiaries; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the best knowledge of
Seller, no suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current.
(b) Except for failures to comply or defaults which individually or in the
aggregate would not have a material adverse effect on the Condition of Seller
and its Subsidiaries, taken as a whole, (i) each of Seller and its Subsidiaries
has complied with all laws, regulations and orders (including without limitation
zoning
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ordinances, building codes, the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and securities, tax, environmental, civil rights, and
occupational health and safety laws and regulations and including without
limitation in the case of any Seller Subsidiary that is a bank or savings
association, banking organization, banking corporation or trust company, 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 them and to the conduct of
their business, and (ii) neither Seller nor any Seller Subsidiary is in default
under, and no event has occurred which, with the lapse of time or notice or
both, could result in the default under, the terms of any judgment, order, writ,
decree, permit, or license of any Regulatory Authority or court, whether
federal, state, municipal, or local and whether at law or in equity. Except as
set forth in Schedule 2.13(b), neither Seller nor any Seller Subsidiary is
subject to or reasonably likely to incur a liability as a result of its
ownership, operation, or use of any Property (as defined below) of Seller
(whether directly or, to the best knowledge of Seller, as a consequence of such
Property being part of the investment portfolio of Seller or any Seller
Subsidiary) (A) that is contaminated by or contains any hazardous waste, toxic
substance, or related materials, including without limitation asbestos, PCBs,
pesticides, herbicides, and any other substance or waste that is hazardous to
human health or the environment (collectively, a "Toxic Substance"), or (B) on
which any Toxic Substance has been stored, disposed of, placed, or used in the
construction thereof. "Property" of a person shall include all property (real or
personal, tangible or intangible) owned or controlled by such person, including
without limitation property under foreclosure, property held by such person or
any Subsidiary of such person in its capacity as a trustee and property in which
any venture capital or similar unit of such person or any Subsidiary of such
person has an interest. Except as set forth in Schedule 2.13(b), no claim,
action, suit, or proceeding is pending against Seller or any Seller Subsidiary
relating to Property of Seller before any court or other Regulatory Authority or
arbitration tribunal relating to hazardous substances, pollution, or the
environment, and there is no outstanding judgment, order, writ, injunction,
decree, or award against or affecting Seller or any Seller Subsidiary with
respect to the same. Except for statutory or regulatory restrictions of general
application or as disclosed in Schedule 2.13(b), no Regulatory Authority has
placed any restriction on the business of Seller or any Seller Subsidiary which
reasonably could be expected to have a material adverse effect on the Condition
of Seller and its Subsidiaries, taken as a whole.
(c) From and after January 1, 1994, neither Seller nor any Seller Subsidiary
has received any notification or communication which has not been resolved from
any Regulatory Authority (i) asserting that any Seller or any Subsidiary of
Seller, is not in substantial compliance with any of the statutes, regulations
or ordinances that such Regulatory Authority enforces, except with respect to
matters which (A) are set forth on Schedule 2.13C or in any writing previously
furnished to Buyer and (B) reasonably could not be expected to have a material
adverse effect on the Condition of Seller and its Subsidiaries, taken as a
whole, (ii) threatening to revoke any license, franchise, permit or governmental
authorization that is material to the Condition of Seller and its Subsidiaries,
taken as a whole, including without limitation such company's status as an
insured depositary institution under the Federal Deposit Insurance Act, or (iii)
requiring or threatening to require Seller or any of its Subsidiaries, or
indicating that Seller or any of its Subsidiaries may be required, to enter into
a cease and desist order, agreement or memorandum of understanding or any other
agreement restricting or limiting or purporting to direct, restrict or limit in
any manner the operations of Seller or any of its Subsidiaries, including
without limitation any restriction on the payment of dividends. No such cease
and desist order, agreement or memorandum of understanding or other agreement is
currently in effect.
(d) Neither Seller nor any Seller Subsidiary is required by Section 32 of
the Federal Deposit Insurance Act to give prior notice to any federal banking
agency of the proposed addition of an individual to its board of directors or
the employment of an individual as a senior executive officer.
2.14. LABOR. No work stoppage involving Seller or any Seller Subsidiary, is
pending or, to the best knowledge of Seller, threatened. Neither Seller nor any
Seller Subsidiary is involved in, or, to the best
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knowledge of Seller, threatened with or affected by, any labor dispute,
arbitration, lawsuit or administrative proceeding which reasonably could be
expected to have a material adverse affect on the Condition of Seller and its
Subsidiaries, taken as a whole. Employees of neither Seller nor any Seller
Subsidiary, are represented by any labor union or any collective bargaining
organization.
2.15. MATERIAL INTERESTS OF CERTAIN PERSONS. (a) Except as set forth in
Seller's Proxy Statement for its 1997 Annual Meeting of Stockholders, to the
best knowledge of Seller, no officer or director of Seller or any Subsidiary of
Seller, or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any material interest in any
material contract or property (real or personal, tangible or intangible), used
in, or pertaining to the business of, Seller or any Subsidiary of Seller, which
in the case of Seller is required to be disclosed by Item 404 of Regulation S-K
promulgated by the SEC or in the case of any such Subsidiary would be required
to be so disclosed if such Subsidiary had a class of securities registered under
Section 12 of the Exchange Act.
(b) Each outstanding loan from Seller or any Seller Subsidiary to any
present officer, director, employee or any associate or related interest of any
such person which was or would be required under any rule or regulation to be
approved by or reported to Seller's or Seller Subsidiary's Board of Directors
("Insider Loans") was approved by or reported to the appropriate board of
directors in accordance with applicable law and regulations. Except as set forth
on Schedule 2.15B, no Insider Loan has a principal balance as of the date hereof
in excess of $250,000 or a line of credit in excess of $100,000.
2.16. ALLOWANCE FOR LOAN AND LEASE LOSSES; NONPERFORMING ASSETS. (a) The
allowances for loan and lease losses contained in the Seller Financial
Statements were established in accordance with the past practices and
experiences of Seller and its Subsidiaries, and the allowance for loan losses
shown on the consolidated condensed balance sheet of Seller and its Subsidiaries
contained in the most recent Seller Form 10-Q is adequate in all material
respects under the requirements of GAAP to provide for possible losses on loans
(including without limitation accrued interest receivable) and credit
commitments (including without limitation stand-by letters of credit)
outstanding as of the date of such balance sheet.
(b) The aggregate amount of all Nonperforming Assets (as defined below) on
the books of Seller and its Subsidiaries did not exceed $95,000,000 as of June
30, 1997. "Nonperforming Assets" shall mean (i) all loans and leases (A) that
are contractually past due 90 days or more in the payment of principal and/or
interest, (B) that are on nonaccrual status, and (C) where the interest rate
terms have been reduced and/or the maturity dates have been extended and/or
otherwise restructured by Seller's Subsidiary subsequent to the agreement under
which the loan was originally created due to concerns regarding the borrower's
ability to pay in accordance with such initial terms, and (ii) all assets
classified as real estate acquired through foreclosure or repossession and other
assets acquired through foreclosure or repossession.
2.17. EMPLOYEE BENEFIT PLANS. (a) Except as set forth in Schedule 2.17A,
neither Seller nor any Seller Subsidiary is a party to any existing employment,
management, consulting, deferred compensation, change-in-control or other
similar contract. Schedule 2.17A lists all pension, retirement, supplemental
retirement, savings, profit sharing, stock option, stock purchase, stock
ownership, stock appreciation right, deferred compensation, consulting, bonus,
medical, disability, workers' compensation, vacation, group insurance, severance
and other material employee benefit, incentive and welfare policies, contracts,
plans and arrangements, and all trust agreements related thereto, maintained
(currently or at any time in the last five years) by or contributed to by Seller
or any Seller Subsidiary in respect of any of the present or former directors,
officers, or other employees of and/or consultants to Seller or any Seller
Subsidiary (collectively, "Seller Employee Plans"). Seller has furnished Buyer
with the following documents with respect to each Seller Employee Plan: (i) a
true and complete copy of all written documents comprising such Seller Employee
Plan (including amendments and individual agreements relating thereto) or, if
there is no such written document, an accurate and complete description of the
Seller Employee Plan; (ii) the most recent Form 5500 or Form 5500-C (including
all schedules thereto), if applicable; (iii) the most recent financial
statements and actuarial reports, if any; (iv) the summary plan description
currently in effect and all
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material modifications thereof, if any; and (v) the most recent Internal Revenue
Service determination letter, if any. Without limiting the generality of the
foregoing, Seller has furnished Buyer with true and complete copies of each form
of stock option grant or stock option agreement that is outstanding under any
stock option plan of Seller or any Seller Subsidiary.
(b) All Seller Employee Plans have been maintained and operated materially
in accordance with their terms and with the material requirements of all
applicable statutes, orders, rules and final regulations, including without
limitation ERISA and the Internal Revenue Code. All contributions required to be
made to Seller Employee Plans have been made.
(c) With respect to each of the Seller Employee Plans which is a pension
plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each
Pension Plan which is intended to be "qualified" within the meaning of Section
401(a) of the Internal Revenue Code has been determined to be so qualified by
the Internal Revenue Service and, to the knowledge of Seller, such determination
letter may still be relied upon, except as disclosed in Schedule 2.17A, and each
related trust is exempt from taxation under Section 501(a) of the Internal
Revenue Code; (ii)the present value of all benefits vested and all benefits
accrued under each Pension Plan which is subject to Title IV of ERISA, valued
using the assumptions in the most recent actuarial report, did not, in each
case, as of the last applicable annual valuation date (as indicated on Schedule
2.17A), exceed the value of the assets of the Pension Plan allocable to such
vested or accrued benefits;(iii) to the best knowledge of Seller, there has been
no "prohibited transaction," as such term is defined in Section 4975 of the
Internal Revenue Code or Section 406 of ERISA, which could subject any Pension
Plan or associated trust, or the Seller or any Seller Subsidiary, to any
material tax or penalty;(iv) except as set forth on Schedule 2.17C, no Pension
Plan or any trust created thereunder has been terminated, nor have there been
any "reportable events" with respect to any Pension Plan, as that term is
defined in Section 4043 of ERISA on or after January 1, 1985; and (v) no Pension
Plan or any trust created thereunder has incurred any "accumulated funding
deficiency", as such term is defined in Section 302 of ERISA (whether or not
waived), except as disclosed in Schedule 2.17A. No Pension Plan is a
"multiemployer plan" as that term is defined in Section 3(37) of ERISA. With
respect to each Pension Plan that is described in Section 4063(a) of ERISA (a
"Multiple Employer Pension Plan"): (i) neither Seller nor any Seller Subsidiary
would have any liability or obligation to post a bond under Section 4063 of
ERISA if Seller and all Seller Subsidiaries were to withdraw from such Multiple
Employer Pension Plan; and (ii) neither Seller nor any Seller Subsidiary would
have any liability under Section 4064 of ERISA if such Multiple Employer Pension
Plan were to terminate.
(d) Except as disclosed in Schedule 2.17D, neither Seller nor any Seller
Subsidiary has any liability for any post-retirement health, medical or similar
benefit of any kind whatsoever, except as required by statute or regulation.
(e) Neither Seller nor any Seller Subsidiary has any material liability
under ERISA or the Internal Revenue Code as a result of its being a member of a
group described in Sections 414(b), (c), (m) or (o) of the Internal Revenue
Code.
(f) Except as set forth on Schedule 2.17F, neither the execution nor
delivery of this Agreement, nor the consummation of any of the transactions
contemplated hereby, will (i) result in any material payment (including without
limitation severance, unemployment compensation or golden parachute payment)
becoming due to any director or employee of Seller or any Seller Subsidiary from
any of such entities, (ii) materially increase any benefit otherwise payable
under any of the Seller Employee Plans or (iii) result in the acceleration of
the time of payment of any such benefit. No holder of an option to acquire stock
of Seller has or will have at any time through the Effective Time the right to
receive any cash or other payment (other than the issuance of stock of Seller)
in exchange for or with respect to all or any portion of such option, except as
provided for herein and in connection with "Limited Rights" under Seller's
Officers and Employee Incentive Stock Option Plan and grants thereunder. Seller
shall use its best efforts to insure that no amounts paid or payable by Seller,
Seller Subsidiaries or Buyer to or with respect to any employee
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or former employee of Seller or any Seller Subsidiary will fail to be deductible
for federal income tax purposes by reason of Section 280G of the Internal
Revenue Code. No Seller Stock Option has an associated "Additional Option Right"
or similar "re-load" feature.
2.18. CONDUCT OF SELLER TO DATE. From and after January 1, 1997 through the
date of this Agreement, except as set forth on Schedule 2.18 or in Seller
Financial Statements: (i) Seller and the Seller Subsidiaries have conducted
their respective businesses in the ordinary and usual course consistent with
past practices; (ii) Seller has not issued, sold, granted, conferred or awarded
any of its Equity Securities (except shares of Seller Common Stock upon exercise
of Seller Stock Options), or any corporate debt securities which would be
classified under GAAP as long-term debt on the balance sheets of Seller; (iii)
Seller has not effected any stock split or adjusted, combined, reclassified or
otherwise changed its capitalization; (iv) Seller has not declared, set aside or
paid any dividend (other than its regular quarterly or regular semi-annual
common dividends) or other distribution in respect of its capital stock, or
purchased, redeemed, retired, repurchased, or exchanged, or otherwise acquired
or disposed of, directly or indirectly, any of its Equity Securities, whether
pursuant to the terms of such Equity Securities or otherwise; (v) neither Seller
nor any Seller Subsidiary has incurred any material obligation or liability
(absolute or contingent), except normal trade or business obligations or
liabilities incurred in the ordinary course of business, or subjected to Lien
any of its assets or properties other than in the ordinary course of business
consistent with past practice; (vi) neither Seller nor any Seller Subsidiary has
discharged or satisfied any material Lien or paid any material obligation or
liability (absolute or contingent), other than in the ordinary course of
business; (vii) neither Seller nor any Seller Subsidiary has sold, assigned,
transferred, leased, exchanged, or otherwise disposed of any of its properties
or assets other than for a fair consideration in the ordinary course of
business; (viii) except as required by contract or law, neither Seller nor any
Seller Subsidiary has (A) increased the rate of compensation of, or paid any
bonus to, any of its directors, officers, or other employees, except merit or
promotion increases in accordance with existing policy, (B) entered into any
new, or amended or supplemented any existing, employment, management,
consulting, deferred compensation, severance, or other similar contract, (C)
entered into, terminated, or substantially modified any of the Seller Employee
Plans or (D) agreed to do any of the foregoing; (ix) neither Seller nor any
Seller Subsidiary has suffered any material damage, destruction, or loss,
whether as the result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any Regulatory Authority, flood,
windstorm, embargo, riot, act of God or the enemy, or other casualty or event,
and whether or not covered by insurance; (x) neither Seller nor any Seller
Subsidiary has cancelled or compromised any debt, except for debts charged off
or compromised in accordance with the past practice of Seller and its
Subsidiaries, and (xi) neither Seller nor any Seller Subsidiary has entered into
any material transaction, contract or commitment outside the ordinary course of
its business.
2.19. PROXY STATEMENT, ETC. None of the information regarding Seller or any
Seller Subsidiary supplied or to be supplied by Seller for inclusion in (i) the
registration statement on Form S-4 to be filed with the SEC by Buyer for the
purpose of registering the shares of Buyer Common Stock to be exchanged for
shares of Seller Common Stock pursuant to the provisions of this Agreement (the
"Registration Statement"), (ii) the proxy or information statement (the "Proxy
Statement") to be mailed to Seller's stockholders in connection with the
transactions contemplated by this Agreement or (iii) any other documents to be
filed with any Regulatory Authority in connection with the transactions
contemplated hereby will, at the respective times such documents are filed with
any Regulatory Authority and, in the case of the Registration Statement, when it
becomes effective and, with respect to the Proxy Statement, when mailed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the meeting of Seller's stockholders referred to in
Section 5.03 (the "Meeting") (or, if no Meeting is held, at the time the Proxy
Statement is first furnished to Seller's stockholders), be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Meeting. All documents which Seller or any
Seller Subsidiary is responsible
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for filing with any Regulatory Authority in connection with the Merger will
comply as to form in all material respects with the provisions of applicable
law.
2.20. REGISTRATION OBLIGATIONS. Neither Seller nor any Seller Subsidiary is
under any obligation, contingent or otherwise to register any of its securities
under the Securities Act.
2.21. STATE TAKEOVER STATUTES; SELLER'S CERTIFICATE OF INCORPORATION.
(a) The transactions contemplated by this Agreement are not subject to any
applicable state law which purports to limit or restrict business combinations
or the ability to acquire or to vote shares.
(b) The transactions contemplated by this Agreement and the agreements
contemplated hereby are not, and will not be, prohibited by, or subject to,
Section C of Article FOURTH or Article EIGHTH or 12 of the Seller's Certificate
of Incorporation.
2.22. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither Seller nor any Seller
Subsidiary has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code or (ii) materially impede or delay receipt of any approval
referred to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
2.23. BROKERS AND FINDERS. Except for Sandler O'Neill, neither Seller nor
any Seller Subsidiary nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
broker or finder has acted directly or indirectly for Seller or any Seller
Subsidiary in connection with this Agreement
or the transactions contemplated hereby. Seller has furnished Buyer with a copy
of any written contractual arrangement with Sandler O'Neill.
2.24. OTHER ACTIVITIES. (a) Except as disclosed in Schedule 2.24A, neither
Seller nor any of its Subsidiaries engages in any insurance activities other
than acting as a principal, agent or broker for insurance that is directly
related to an extension of credit by Seller or any of its Subsidiaries and
limited to assuring the repayment of the balance due on the extension of credit
in the event of the death, disability or involuntary unemployment of the debtor.
(b) To the knowledge of Seller's management: each Subsidiary that is a
federal savings bank that performs personal trust, corporate trust and other
fiduciary activities ("Trust Activities") is doing so with requisite authority
under applicable law of Regulatory Authorities and in material accordance with
the agreements and instruments governing such Trust Activities, sound fiduciary
principles and applicable law and regulation (specifically including but not
limited to Section 9 of Title 12 of the Code of Federal Regulations); there is
no investigation or inquiry by any governmental entity pending or threatened
against Seller or any of its Subsidiaries thereof relating to the compliance by
Seller or any of its Subsidiaries with sound fiduciary principles and applicable
law and regulations; and each employee of any such bank had the authority to act
in the capacity in which such employee acted with respect to Trust Activities in
each case in which such employee was held out as a representative of such bank;
and such bank has established policies and procedures for the purpose of
complying with applicable laws of governmental entities relating to Trust
Activities, has followed such policies and procedures in all material respects
and has performed appropriate internal audit reviews of Trust Activities, which
audits have disclosed no material violations of applicable laws of governmental
entities or such policies and procedures.
2.25. INTEREST RATE RISK MANAGEMENT INSTRUMENTS. (a) Set forth on Schedule
2.25A is a list of all interest rate swaps, caps, floors, and option agreements
to which Seller or any of its Subsidiaries is a party or by which any of their
properties or assets may be bound.
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(b) All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements to which Seller or any of its
Subsidiaries is a party or by which any of their properties or assets may be
bound were entered into in the ordinary course of business and in accordance
with prudent banking practice and applicable rules, regulations and policies of
Regulatory Authorities and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations and are in
full force and effect. Seller and each of its Subsidiaries has duly performed in
all material respects all of its obligations thereunder to the extent that such
obligations to perform have accrued, and there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
2.26. ACCURACY OF INFORMATION. The statements of Seller contained in this
Agreement, the Schedules and any other written document executed and delivered
by or on behalf of Seller pursuant to the terms of this Agreement are true and
correct in all material respects, and such statements and documents do not omit
any material fact necessary to make the statements contained therein not
misleading.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents, and warrants to and covenants with Seller as follows:
3.01. ORGANIZATION AND AUTHORITY. Buyer and each of its Subsidiaries is a
corporation, bank, trust company or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of
organization, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and has corporate power and authority to
own its properties and assets and to carry on its business as it is now being
conducted, except, in the case of the Buyer Subsidiaries, where the failure to
be so qualified would not have a material adverse effect on the Condition of
Buyer and its Subsidiaries, taken as a whole. Buyer is registered as a bank
holding company with the Board under the Holding Company Act. True and complete
copies of the Articles of Incorporation and Regulations of Buyer, each in effect
on the date of this Agreement, have been provided to Seller.
3.02. CAPITALIZATION OF BUYER. The authorized capital stock of Buyer
consists of (i) 100,000,000 shares of Buyer Common Stock, of which, as of August
1, 1997, 85,701,777 shares were issued and outstanding and (ii) 1,000,000 shares
of preferred stock, no par value ("Buyer Preferred Stock"), issuable in series,
none of which, as of September, 1997, is issued or outstanding. Buyer has
designated (i) 500,000 shares of Buyer Preferred Stock as "Series A Preferred
Stock" and has reserved such shares for issuance upon exercise of Preferred
Stock Purchase Rights under a Rights Agreement dated October 27, 1989 (the
"Buyer Rights Agreement"), between Buyer and Star Bank, N.A., as Rights Agent
and (ii) 218,000 shares of Buyer Preferred Stock as "Series B Cumulative
Preferred Stock." Pursuant to the Buyer Rights Agreement, each certificate
representing one share of Buyer Common Stock also represents one Rights (as
defined in the Buyer Rights Agreement). As of December 31, 1996 Buyer had
options outstanding for 7,739,304 shares of Buyer Common Stock for issuance
under various employee stock option and incentive plans ("Buyer Stock Options").
From August 1, 1997 through the date of this Agreement, no shares of Buyer
Common Stock or other Equity Securities of Buyer have been issued excluding any
such shares which may have been issued pursuant to stock-based employee benefit
or incentive plans and programs. Buyer continually evaluates possible
acquisitions and may prior to the Effective Time enter into one or more
agreements providing for, and may consummate, the acquisition by it of another
bank, association, bank holding company, savings and loan holding company or
other company (or the assets thereof) for consideration that may include equity
securities. In addition, prior to the Effective Time, Buyer may, depending on
market conditions and other factors, otherwise determine to issue equity,
equity-linked or other securities for financing purposes. Notwithstanding the
foregoing, Buyer will not take any action that would (i) prevent the
transactions contemplated hereby from qualifying as a reorganization within the
meaning of Section 368(a) of the
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Internal Revenue Code or (ii) materially impede or delay receipt of any approval
referred to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement. Except as set forth above and except pursuant to
the Buyer Rights Agreement, there are no other Equity Securities of Buyer
outstanding. All of the issued and outstanding shares of Buyer Common Stock are
validly issued, fully paid, and nonassessable, and have not been issued in
violation of any preemptive right of any stockholder of Buyer. At the Effective
Time, the Buyer Common Stock, including associated Rights, to be issued in the
Merger will be duly authorized, validly issued, fully paid and non-assessable,
and will not be issued in violation of any preemptive right of any stockholder
of Buyer.
3.03. AUTHORIZATION. (a) Buyer has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. No
stockholder vote is required for Buyer to approve this Agreement. The execution,
delivery and performance of this Agreement by Buyer and the consummation by
Buyer of the transactions contemplated hereby have been duly authorized by all
requisite corporate action of Buyer. This Agreement is a valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms.
(b) Neither the execution, delivery and performance by Buyer of this
Agreement, nor the consummation by Buyer of the transactions contemplated
hereby, nor compliance by Buyer with any of the provisions hereof, will (i)
violate, conflict with or result in a breach of any provisions of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of, any Lien upon any of the material properties or
assets of Buyer or any Buyer Subsidiary under any of the terms, conditions or
provisions of (x) its articles or certificate of incorporation or bylaws, or (y)
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Buyer or any of the
material properties or assets of Buyer is a party or by which it may be bound,
or to which Buyer may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in paragraph (c) of this Section 3.03, to
the best knowledge of Buyer, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer or any of
its Subsidiaries or any of their respective material properties or assets.
(c) Other than in connection with or in compliance with the provisions of
the DGCL, the OGCL, the Securities Act, the Exchange Act, the securities or blue
sky laws of the various states or filings, consents, reviews, authorizations,
approvals or exemptions required under the Holding Company Act, and the HSR Act,
or any required approvals of any other Regulatory Authority, no notice to,
filing with, exemption or review by, or authorization, consent or approval of,
any public body or authority is necessary for the consummation by Buyer of the
transactions contemplated by this Agreement.
3.04. BUYER FINANCIAL STATEMENTS. The supplemental consolidated and parent
company only balance sheets of Buyer and its Subsidiaries as of December 31,
1996, 1995 and 1994 and related supplemental consolidated and parent company
only statements of income, cash flows and changes in stockholders' equity for
each of the three years in the three-year period ended December 31, 1996,
together with the notes thereto, audited by Arthur Andersen LLP ("Buyer
Auditors"), and the unaudited consolidated balance sheets of Buyer and its
Subsidiaries as of March 31 and June 30, 1997 and the related unaudited
consolidated statements of income and cash flows for the periods then ended
included in quarterly reports on Form 10-Q as filed with the SEC (collectively,
the "Buyer Financial Statements"), have been prepared in accordance with GAAP,
present fairly the consolidated financial position of Buyer and its Subsidiaries
at the dates and the consolidated results of operations, changes in
stockholders' equity and cash flows of Buyer and its Subsidiaries for the
periods stated therein and are derived from the books and records of Buyer and
its Subsidiaries, which are complete and accurate in all material respects and
have been maintained in all material respects in accordance with applicable laws
and regulations. Neither Buyer nor any of its Subsidiaries has any material
contingent liabilities that are not described in the financial statements
described above.
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3.05. BUYER REPORTS. Since January 1, 1994, each of Buyer and the Buyer
Subsidiaries has filed all material reports, registrations and statements,
together with any required material amendments thereto, that it was required to
file with any Regulatory Authority. All such reports and statements filed with
any such Regulatory Authority are collectively referred to herein as the "Buyer
Reports." As of its respective date, each Buyer Report complied in all material
respects with all the rules and regulations promulgated by the applicable
Regulatory Authority and did not contain any untrue statement of a material fact
or omit to state a 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.
3.06. MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has been no
material adverse change in the Condition of Buyer and its Subsidiaries, taken as
a whole, except as may have resulted or may result from changes to laws and
regulations or changes in economic conditions applicable to banking institutions
generally or in general levels of interest rates affecting banking institutions
generally.
3.07. COMPLIANCE WITH LAWS. Each of Buyer and its Subsidiaries has complied
with all laws, regulations, and orders (including without limitation zoning
ordinances, building codes, ERISA, and securities, tax, environmental, civil
rights, and occupational health and safety laws and regulations and including
without limitation in the case of any Buyer Subsidiary that is a bank, banking
organization, banking corporation or trust company, all statutes, rules and
regulations, pertaining to the conduct of a banking, deposit-taking or lending
or related business or to the exercise of trust powers) and governing
instruments applicable to them and to the conduct of their business, and to the
knowledge of Buyer all applicable listing requirements and policies of the NYSE,
except where such failure to comply would not have a material adverse effect on
the Condition of Buyer and its Subsidiaries, taken as a whole, and (ii) neither
Buyer nor any Buyer Subsidiary is in default under, and no event has occurred
which, with the lapse of time or notice or both, could result in the default
under, the terms of any judgment, order, writ, decree, permit, or license of any
Regulatory Authority or court, whether federal, state, municipal, or local and
whether at law or in equity, except where such default would not have a material
adverse effect on the Condition of Buyer and its Subsidiaries, taken as a whole.
Neither Buyer nor any Buyer Subsidiary is subject to or reasonably likely to
incur a liability as a result of its ownership, operation, or use of any
Property of Buyer (whether directly or, to the best knowledge of Buyer, as a
consequence of such Property being part of the investment portfolio of Buyer or
any Buyer Subsidiary) (A) that is contaminated by or contains any Toxic
Substance, or (B) on which any Toxic Substance has been stored, disposed of,
placed, or used in the construction thereof; and which, in each case, reasonably
could be expected to have a material adverse effect on the Condition of Buyer
and its Subsidiaries, taken as a whole. Except for statutory or regulatory
restrictions of general application, no Regulatory Authority has placed any
restriction on the business of Buyer or any Buyer Subsidiary which reasonably
could be expected to have a material adverse effect on the Condition of Buyer
and its Subsidiaries, taken as a whole.
3.08. REGISTRATION STATEMENT, ETC. None of the information regarding Buyer
or any of its Subsidiaries supplied or to be supplied by Buyer for inclusion or
included in (i) the Registration Statement, (ii) the Proxy Statement, or (iii)
any other documents to be filed with any Regulatory Authority in connection with
the transactions contemplated hereby will, at the respective times such
documents are filed with any Regulatory Authority and, in the case of the
Registration Statement, when it becomes effective and, with respect to the Proxy
Statement, when mailed (or furnished to stockholders of Seller), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the case
of the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Meeting, be false or misleading with respect to any material fact,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Meeting. All documents which Buyer or any of its Subsidiaries are responsible
for filing with any Regulatory Authority in connection with the Merger will
comply as to form in all material respects with the provisions of applicable
law.
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3.09. BROKERS AND FINDERS. Except for Credit Suisse First Boston, neither
Buyer nor any of its Subsidiaries nor any of their respective officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Buyer or any of its Subsidiaries in connection with this Agreement or the
transactions contemplated hereby.
3.10. LITIGATION AND OTHER PROCEEDINGS. Neither Buyer nor any Buyer
Subsidiary is a party to any pending or, to the best knowledge of Buyer,
threatened claim, action, suit, investigation or proceeding, or is subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or reasonably could not be expected to have, a material adverse effect
on the Condition of Buyer and its Subsidiaries, taken as a whole. Without
limiting the generality of the foregoing, as of the date of this Agreement,
there are no actions, suits, or proceedings pending or, to the best knowledge of
Buyer, threatened against Buyer or any Buyer Subsidiary or any of their
respective officers or directors by any stockholder of Buyer or any Buyer
Subsidiary (or any former stockholder of Buyer or any Buyer Subsidiary) or
involving claims under the Securities Act, the Exchange Act, the Community
Reinvestment Act of 1977, as amended, or the fair lending laws or which purport
or seek to enjoin or restrain the transactions contemplated by this Agreement.
3.11. TAXES. Buyer and each Buyer Subsidiary have timely filed or will
timely file (including extensions) all material tax returns required to be filed
at or prior to the Closing Date ("Buyer Returns"). Each of Buyer and its
Subsidiaries has paid, or set up adequate reserves on the Buyer Financial
Statements for the payment of, all taxes required to be paid in respect of the
periods covered by the Buyer Financial Statements and has paid or set up
adequate reserves on the most recent financial statements Buyer has filed under
the Exchange Act for the payment of, all taxes anticipated to be payable in
respect of the periods covered by such financial statements. No material
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed in writing by any governmental or taxing authority against
any of Buyer or any Buyer Subsidiary which have not been settled or would not be
covered by existing reserves. To the knowledge of Buyer, neither Buyer nor any
Buyer Subsidiary is delinquent in the payment of any material tax, assessment or
governmental charge shown to be due on any Buyer Return (taking into account
extensions properly obtained), and no waiver of the time to assess any tax
granted in writing by Buyer or any Buyer Subsidiary is pending. The federal and
state income tax returns of Buyer and the Buyer Subsidiaries have been audited
and finally settled by the IRS or appropriate state tax authorities or the
relevant statute of limitations has expired for all periods ended through
December 31, 1991, or the period for assessment of taxes in respect of such
periods has expired.
3.12. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither Buyer nor any Buyer
Subsidiary has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code or (ii) materially impede or delay receipt of any approval
referred to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
3.13. ACCURACY OF INFORMATION. The statements of Buyer contained in this
Agreement, the Schedules and in any other written document executed and
delivered by or on behalf of Buyer pursuant to the terms of this Agreement are
true and correct in all material respects, and such statements and documents do
not omit any material fact necessary to make the statements contained herein or
therein not misleading. Section 2.4.
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME. During the period
from the date of this Agreement to the Effective Time, each of Buyer and Seller
shall, and shall cause each of their respective Subsidiaries to, conduct its
business according to the ordinary and usual course consistent with past
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practices and shall, and shall cause each such Subsidiary to, use its best
efforts to maintain and preserve its business organization, employees and
advantageous business relationships and retain the services of its officers and
key employees.
4.02. FORBEARANCES. Except as set forth on Schedule 4.02 or as otherwise
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, Seller shall not and shall not permit any of
its Subsidiaries to, without the prior written consent of Buyer:
(a) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
dividends from a Subsidiary of Seller to Seller or another Subsidiary of
Seller), except that Seller may declare and pay cash dividends on the Seller
Common Stock of not more than $.15 per share per quarterly period; provided,
that Seller shall not declare any dividends on Seller Common Stock or Seller
Preferred Stock during any quarter in which its stockholders will be
entitled to receive any regular quarterly dividend on the shares of Buyer
Common Stock to be issued in the Merger; or
(b) enter into or amend any employment, severance or similar agreement
or arrangement with any director or officer or employee, or materially
modify any of the Seller Employee Plans or grant any salary or wage increase
or materially increase any employee benefit (including incentive or bonus
payments), except normal individual increases in compensation to employees
consistent with past practice, or as required by law or contract; or
(c) authorize, recommend, propose or announce an intention to authorize,
so recommend or propose, or enter into an agreement in principle with
respect to, any merger, consolidation or business combination (other than
the Merger), any acquisition or disposition of a material amount of assets
(except in the usual course of business consistent with past practices)
including mortgage servicing rights, loans or securities as well as any
release or relinquishment of any material contract rights; or
(d) propose or adopt any amendments to its articles of incorporation,
association or other charter document or bylaws; or
(e) issue, sell, grant, confer or award any of its Equity Securities
(except shares of Seller Common Stock issued upon exercise of Seller Stock
Options outstanding on the date of this Agreement) or effect any stock split
or adjust, combine, reclassify or otherwise change its capitalization as it
existed on the date of this Agreement; or
(f) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity Securities,
whether pursuant to the terms of such Equity Securities or otherwise; or
(g) without first consulting with Buyer, (i) enter into, renew or
increase any loan or credit commitment (including stand-by letters of
credit) to, or invest or agree to invest in any person or entity or modify
any of the material provisions or renew or otherwise extend the maturity
date of any existing loan or credit commitment (collectively, "Lend to") in
an amount in excess of $1,000,000 or in an amount which, or when aggregated
with any and all loans or credit commitments to such person or entity, would
be in excess of $1,000,000; (ii) Lend to any person other than in accordance
with lending policies as in effect on the date hereof; PROVIDED that in the
case of clause (i) Seller or any Seller Subsidiary may make any such loan in
the event (A) Seller or any Seller Subsidiary has delivered to Buyer or its
designated representative a notice of its intention to make such loan and
such information as Buyer or its designated representative may reasonably
require in respect thereof and (B) Buyer or its designated representative
shall not have reasonably objected to such loan by giving written or
facsimile notice of such objection within two business days following the
delivery to Buyer of the notice of intention and information as aforesaid;
or (iii) Lend to any person or entity any of the loans or other extensions
of credit to which or investments in which are on a "watch list" or similar
internal report of Seller or any Seller Subsidiary (except those denoted
"pass" thereon), in an amount in
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excess of $100,000; PROVIDED, HOWEVER, that nothing in this paragraph shall
prohibit Seller or any Seller Subsidiary from honoring any contractual
obligation in existence on the date of this Agreement. Notwithstanding the
provisions of clause (i) of this Section 4.02(g), Seller shall be authorized
to increase the aggregate amount of any credit facilities theretofore
established in favor of any person or entity (each a "Pre-Existing
Facility"), provided that the aggregate amount of any and all such increases
with respect to any Pre-Existing Facility shall not be in excess of the
lesser of five percent (5%) of such Pre-Existing Facility or $50,000; or
(h) directly or indirectly (including through its officers, directors,
employees or other representatives) initiate, solicit or encourage any
discussions, inquiries or proposals with any third party relating to the
disposition of any significant portion of the business or assets of Seller
or any Seller Subsidiary or the acquisition of Equity Securities of Seller
or any Seller Subsidiary or the merger of Seller or any Seller Subsidiary
with any person (other than Buyer) or any similar transaction (each such
transaction being referred to herein as an "Acquisition Transaction"), or
provide any such person with information or assistance or negotiate with any
such person with respect to an Acquisition Transaction, and Seller shall
notify Buyer orally of all the relevant details relating to all inquiries,
indications of interest and proposals which it may receive with respect to
any Acquisition Transaction within 24 hours of the receipt of any such
inquiry, indication, or proposal; or
(i) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Buyer or Seller to obtain any approval of any Regulatory
Authority required for the transactions contemplated by this Agreement or to
perform its covenants and agreements under this Agreement or (B) prevent the
transactions contemplated hereby from qualifying as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code; or
(j) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity; or
(k) materially restructure or materially change its investment
securities portfolio, through purchases, sales or otherwise, or the manner
in which the portfolio is classified or reported as of the date of the
Agreement; or
(l) agree in writing or otherwise to take any of the foregoing actions
or engage in any activity, enter into any transaction or take or omit to
take any other act which would make any of the representations and
warranties in Article II of this Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering into
such transaction, or taking or omitting such other act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. ACCESS AND INFORMATION. Buyer and its Subsidiaries, on the one hand,
and Seller and its Subsidiaries, on the other hand, shall each afford to each
other, and to the other's accountants, counsel and other representatives, full
access during normal business hours, during the period prior to the Effective
Time, to all their respective properties, books, contracts, commitments and
records and, during such period, each shall furnish promptly to the other (i) a
copy of each report, schedule and other document filed or received by it during
such period pursuant to the requirements of federal and state securities laws
and (ii) all other existing or regularly produced information concerning its
business, properties and personnel as such other party may reasonably request.
Each party hereto shall, and shall cause its advisors and representatives to,
(A) hold confidential all information obtained in connection with any
transaction contemplated hereby with respect to the other party which is not
otherwise public
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knowledge, (B) return all documents (including copies thereof) obtained
hereunder from the other party to such other party and (C) use its reasonable
best efforts to cause all information obtained pursuant to this Agreement or in
connection with the negotiation of this Agreement to be treated as confidential
and not use, or knowingly permit others to use, any such information unless such
information becomes generally available to the public without breach of either
party's confidentiality obligation.
5.02. REGISTRATION STATEMENT; REGULATORY MATTERS. (a) Buyer shall prepare
and, subject to the review and consent of Seller with respect to matters
relating to Seller, file with the SEC as soon as is reasonably practicable the
Registration Statement (or the equivalent in the form of preliminary proxy
material) with respect to the shares of Buyer Common Stock to be issued in the
Merger and shall apply to the NYSE to list the shares of Buyer Common Stock to
be issued in connection with the transactions contemplated by this Agreement.
Buyer shall prepare and file a notice with the Board of Governors of the Federal
Reserve System (the "Board") as soon as reasonably practicable. Buyer shall use
all reasonable efforts to cause the Registration Statement to become effective.
Buyer shall also take any action required to be taken under any applicable state
blue sky or securities laws in connection with the issuance of such shares, and
Seller and its Subsidiaries shall furnish Buyer all information concerning
Seller and its Subsidiaries and the stockholders thereof as Buyer may reasonably
request in connection with any such action.
(b) Seller and Buyer shall cooperate and use their respective best efforts
to prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and Regulatory
Authorities necessary to consummate the transactions contemplated by this
Agreement and, as and if directed by Buyer, to consummate such other mergers,
consolidations or asset transfers or other transactions by and among Buyer's
Subsidiaries and Seller's Subsidiaries concurrently with or following the
Effective Time.
5.03. STOCKHOLDER APPROVAL. Seller shall call a meeting of its stockholders
to be held as soon as practicable after the Registration Statement is declared
effective for the purpose of voting upon the Merger or take other action for
stockholders to authorize the Merger. In connection therewith, Buyer shall
prepare the Proxy Statement and, with the approval of each of Buyer and Seller,
the Proxy Statement shall be filed with the SEC and mailed to the stockholders
of Seller. The Board of Directors of Seller shall submit for approval of
Seller's stockholders the matters to be voted upon in order to authorize the
Merger. The Board of Directors of Seller hereby does and (subject to the
fiduciary duty of Seller's Board of Directors, as advised in writing by outside
counsel) will recommend this Agreement and the transactions contemplated hereby
to stockholders of Seller and will use its best efforts to obtain any vote of
Seller's stockholders that is necessary for the approval and adoption of this
Agreement and consummation of the transactions contemplated hereby.
5.04. CURRENT INFORMATION. During the period from the date of this Agreement
to the Effective Time, each party shall promptly furnish the other with copies
of all monthly and other interim financial statements as the same become
available and shall cause one or more of its designated representatives to
confer on a regular and frequent basis with representatives of the other party.
Each party shall promptly notify the other party of any material change in its
business or operations and of any governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated), or
the institution or the threat of material litigation involving such party, and
shall keep the other party fully informed of such events.
5.05. AGREEMENTS OF AFFILIATES. As soon as practicable after the date of
this Agreement, Seller shall deliver to Buyer a letter identifying all persons
whom Seller believes to be, at the time this Agreement is submitted to a vote of
the stockholders of Seller, "affiliates" of Seller for purposes of Rule 145
under the Securities Act. Seller shall use its best efforts to cause each person
who is so identified as an "affiliate" to deliver to Buyer as soon as
practicable thereafter, and in any event no later than the publication of notice
in the Federal Register of Buyer's notice to the Board referred to in Section
5.02, a written agreement providing that from the Effective Time each such
person will agree not to sell, pledge, transfer or otherwise
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dispose of any shares of Buyer Common Stock to be received by such person in the
Merger except in compliance with the applicable provisions of the Securities
Act. Prior to the Effective Time, Seller shall amend and supplement such letter
and use its best efforts to cause each additional person who is identified as an
"affiliate" to execute a written agreement as set forth in this Section 5.05.
5.06. EXPENSES. Each party hereto shall bear its own expenses incident to
preparing, entering into and carrying out this Agreement and to consummating the
Merger.
5.07. SECURITIES ACT AND EXCHANGE ACT FILINGS. Buyer shall make all filings
with the SEC that are described in Section (c) of Rule 144 under the Securities
Act for a period of two years following the Effective Time. Buyer shall within
30 days after the Effective Time file a registration statement on Form S-3 or
Form S-8, as the case may be (or any successor or other appropriate forms), with
respect to the shares of Buyer Common Stock subject to the options issued
pursuant to Section 5.10 and shall use its reasonable efforts to maintain the
effectiveness of such registration statements (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as such option
remain outstanding.
5.08. MISCELLANEOUS AGREEMENTS AND CONSENTS. (a) Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
respective reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as expeditiously as possible,
including without limitation using its respective best efforts to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby.
Each party shall, and shall cause each of its respective subsidiaries to, use
its reasonable best efforts to obtain consents of all third parties and
Regulatory Authorities necessary or, in the opinion of Buyer, desirable for the
consummation of the transactions contemplated by this Agreement.
(b) Seller, prior to the Effective Time, shall (i) consult and cooperate
with Buyer regarding the implementation of those policies and procedures
established by Buyer for its governance and that of its Subsidiaries and not
otherwise referenced in Section 5.17 hereof, including, without limitation,
policies and procedures pertaining to the accounting, asset/liability
management, audit, credit, human resources, treasury and legal functions, and
(ii) at the request of Buyer, effective not later than the Effective Time
conform Seller's existing policies and procedures in respect of such matters to
Buyer's policies and procedures or, in the absence of any existing Seller policy
or procedure regarding any such function, introduce Buyer's policies or
procedures in respect thereof, unless to do so would cause Seller or any of the
Seller Subsidiaries to be in violation of any law, rule or regulation of any
Regulatory Authority having jurisdiction over Seller and/or the Seller
Subsidiary affected thereby.
5.09. EMPLOYEE BENEFITS. (a) Subject to Section 5.10, the provisions of the
Seller Stock Plans and of any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the capital stock of
Seller or any Seller Subsidiary shall be deleted and terminated as of the
Effective Time, and Seller shall ensure that following the Effective Time no
holder of Seller Stock Options or any participant in any Seller Stock Plan shall
have any right thereunder to acquire any securities of Seller or any Seller
Subsidiary.
(b) Buyer shall take such steps as are necessary or required to integrate
the employees of Seller and the Seller Subsidiaries in Buyer's employee benefit
plans available to other employees of Buyer and Buyer Subsidiaries as soon as
practicable after the Effective Time, (i) with full credit for prior service
with Seller or any of the Seller Subsidiaries for all purposes other than
determining the amount of benefit accruals under any defined benefit plan, (ii)
without any waiting periods, evidence of insurability, or application of any
pre-existing condition limitation, and (iii) with full credit for claims arising
prior to the Effective Time for purposes of deductibles, out-of-pocket maximums,
benefit maximums, and all other similar limitations for the applicable plan year
during which the Merger is consummated. Each of Buyer and Seller shall use all
reasonable efforts to insure that no amounts paid or payable by Seller, Seller
Subsidiaries or Buyer to or
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with respect to any employee or former employee of Seller or any Seller
Subsidiary will fail to be deductible for federal income tax purposes by reason
of Section 280G of the Internal Revenue Code.
(c) The Employment Agreements of the Seller Bank with the eight individuals
listed on Schedule 2.17A shall each be terminated by the Seller Bank on the day
before the Effective Time and the Seller Bank shall make the payments to such
persons payable to them under Section 8.5 of such agreements due to the change
in control effected pursuant to the transactions contemplated hereby (which
change in control, termination and payments Seller, Seller Bank and Buyer
expressly hereby acknowledge and approve).
(d) Buyer shall abide by the terms of Seller's or Seller Bank's Severance
Compensation Plan for officers who are Vice Presidents and above as of the
Closing Date.
(e) With respect to employees of Seller, Seller Bank or any of its
Subsidiaries, Buyer will provide severance payments in the minimum amount of one
week for each year of employment by Seller, Seller Bank, Seller Bank's
Subsidiaries or predecessor corporations up to a maximum of 26 weeks of total
severance compensation.
(f) Buyer agrees to a continuation of COBRA health benefits pursuant to the
existing Seller Bank Plan for employees who are terminated subsequent to the
Closing, said COBRA benefits to continue for a seven-year period.
(g) Buyer agrees that Seller Bank may allocate the remaining shares of
Seller Common Stock in the Recognition and Retention Plan for Outside Directors
and Recognition and Retention Plan for Officers and Employees (the "RRP Plans")
in such manner as Seller Bank deems appropriate; Seller Bank may take any
actions prior to the Effective Time reasonably required to vest and distribute
Plan Shares (as defined in the RRP Plans) awarded to the participants in the RRP
Plans prior to the Effective Time, including without limitation adopting a
resolution to the effect that a Change in Control of Seller or Seller Bank has
taken place prior to the Effective Time for purposes of accelerating vesting of
Plan Shares.
(h) Buyer agrees to establish a Rabbi Trust for those amounts necessary to
actuarially fund retirement payments pursuant to the Great Financial Federal
Restated Directors Retirement Plan effective January 1, 1992 (the "Board of
Directors Retirement Plan") and to fund the Rabbi Trust to purchase split dollar
life insurance for those members of the Board of Directors who have waived their
rights under the Board of Directors Retirement Plan; provided, however, that
Buyer shall not be required to fund any such plans to an extent beyond the
amounts presently reserved on the books of Seller Bank.
(i) Buyer agrees to enter into a Consulting Agreement with Paul M. Baker in
the form previously provided to Seller.
5.10. SELLER STOCK OPTIONS. At the Effective Time, all rights with respect
to Seller Common Stock pursuant to Seller Stock Options which immediately prior
to the Effective Time, constitute incentive stock options within the meaning of
Section 422 of the Internal Revenue Code ("Incentive Seller Stock Options") that
are outstanding at the Effective Time, whether or not then exercisable, shall be
converted into and become rights with respect to Buyer Common Stock, and Buyer
shall assume each Incentive Seller Stock Option in accordance with the terms of
the stock option plan governing outstanding Buyer employee stock options, or, at
the election of each holder of such option shall be deemed to be exercised at
the Effective Time. From and after the Effective Time, (i) each Incentive Seller
Stock Option assumed by Buyer shall be exercised solely for shares of Buyer
Common Stock, (ii) the number of shares of Buyer Common Stock subject to each
Incentive Seller Stock Option shall be equal to the number of shares of Seller
Common Stock subject to such Seller Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole share of Buyer Common Stock and (iii) the per share exercise price under
each Incentive Seller Stock Option shall be adjusted by dividing the per share
exercise price under such Seller Stock Option by the Exchange Ratio and rounding
up to the nearest cent; PROVIDED, HOWEVER, that the terms of each Seller Stock
Option shall, in accordance with its
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terms, be subject to further adjustment as appropriate to reflect any stock
split, stock dividend, recapitalization or other similar transaction subsequent
to the Effective Time. The foregoing assumption shall be undertaken by Buyer in
a manner that will comply with Section 424(a) of the Internal Revenue Code, as
to any Seller Stock Option that is an "incentive stock option."
Prior to the Effective Time, Seller shall use its best efforts to cancel
each Seller Stock Option which (i) is not an Incentive Seller Stock Option and
(ii) is not exercised prior to the Effective Time, by paying to the holder
thereof an amount of cash equal to the product of (x) the amount by which the
Per Share Cash Consideration exceeds the exercise price of such option and (y)
the number of shares of Seller Common Stock subject to such option.
5.11. SELLER EMPLOYEE STOCK OWNERSHIP PLAN. Seller may cause the Employee
Stock Ownership Plan of Seller Bank (first effective January 1, 1994) (the
"Seller ESOP") to allocate, prior to the Effective Time, to participants in the
Seller ESOP the maximum number of currently unallocated shares of Seller Common
Stock allowable under Section 415 of the Internal Revenue Code. Except as
provided in the following paragraph, Seller shall not take any action which
would cause the Seller ESOP to be disqualified under Section 401(a) of the
Internal Revenue Code or to lose its status as an employee stock ownership plan
under Section 4975 of the Internal Revenue Code.
On or before the Effective Time, Seller will take steps reasonably necessary
to cause the Seller ESOP to be terminated as of the Effective Time. Any
indebtedness of the ESOP shall be repaid from the Trust associated with the
Seller ESOP. A final allocation will be prepared, and a request for a favorable
determination letter on the termination of the Seller ESOP will be filed with
the Internal Revenue Service. To the maximum extent permitted by the rules and
regulations of the Internal Revenue Service, upon receipt of the favorable
determination letter, the assets of the Seller ESOP will be distributed to the
participants in due course. At and after the Effective Time, no additional
employees will become eligible to participate in the Seller ESOP and the assets
of the Seller ESOP will be applied in accordance with its terms and the rules
and regulations of the Internal Revenue Service and the Department of Labor.
5.12. D&O INDEMNIFICATION. Buyer agrees that the Merger shall not affect or
diminish any of Seller's duties and obligations of indemnification existing as
of the Effective Time in favor of employees, agents, directors or officers of
Seller or its Subsidiaries arising by virtue of its Certificate of Incorporation
or Bylaws in the form in effect at the date of this Agreement or arising by
operation of law or arising by virtue of any contract, resolution or other
agreement or document existing at the date of this Agreement, and such duties
and obligations shall continue in full force and effect and be honored by Buyer
for so long as they would (but for the Merger) otherwise survive and continue in
full force and effect. Buyer will provide, or cause to be provided, for a period
of not less than two years from the Effective Time, a "tail" insurance and
indemnification policy that provides the officers and directors of Seller
Subsidiaries immediately prior to the Effective Time coverage no less favorable
than as currently provided by Buyer to its officers and directors.
5.13. PRESS RELEASES. Except as may be required by law, Seller and Buyer
shall consult and agree with each other as to the form and substance of any
proposed press release relating to this Agreement or any of the transactions
contemplated hereby.
5.14. STATE TAKEOVER STATUTES; SELLER'S CERTIFICATE OF INCORPORATION. (a)
Seller will take all steps necessary to exempt the transactions contemplated by
this Agreement and any agreement contemplated hereby from, and if necessary
challenge the validity of, any applicable state takeover law.
(b) Seller will take all steps necessary to exempt the transactions
contemplated by this Agreement and any agreement contemplated hereby from the
provisions of Section C of Article FOURTH and Article EIGHTH of Seller's
Certificate of Incorporation.
5.15. BEST EFFORTS. Each of Buyer and Seller undertakes and agrees to use
its best efforts to cause the Merger (i) to qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue
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Code (including, if necessary, to take reasonable steps to restructure the
transactions contemplated by this Agreement to so qualify) and (ii) to occur as
soon as practicable. Each of Buyer and Seller agrees to not take any action that
would materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Buyer or Seller to obtain any
approval of any Regulatory Authority required for the transactions contemplated
by this Agreement or to perform its covenants and agreements under this
Agreement.
5.16. INSURANCE. As soon as practicable following the date hereof, Seller
shall, and Seller shall cause its Subsidiaries to, use its best efforts to
maintain its existing insurance.
5.17. CONFORMING ENTRIES. (a) Notwithstanding that Seller believes that
Seller and the Seller Subsidiaries have established all reserves and taken all
provisions for possible loan losses required by GAAP and applicable laws, rules
and regulations, Seller recognizes that Buyer may have adopted different loan,
accrual and reserve policies (including loan classifications and levels of
reserves for possible loan losses). From and after the date of this Agreement,
Seller and Buyer shall consult and cooperate with each other with respect to
conforming the loan, accrual and reserve policies of Seller and the Seller
Subsidiaries to those policies of Buyer, as specified in each case in writing to
Seller, based upon such consultation and as hereinafter provided.
(b) In addition, from and after the date of this Agreement to the Effective
Time, Seller and Buyer shall consult and cooperate with each other with respect
to determining appropriate Seller accruals, reserves and charges to establish
and take in respect of excess equipment write-off or write-down of various
assets and other appropriate charges and accounting adjustments taking into
account the parties' business plans following the Merger, as specified in each
case in writing to Seller, based upon such consultation and as hereinafter
provided.
(c) Seller and Buyer shall consult and cooperate with each other with
respect to determining, as specified in a written notice from Buyer to Seller,
based upon such consultation and as hereinafter provided, the amount and the
timing for recognizing for financial accounting purposes Seller's expenses of
the Merger and the restructuring charges relating to or to be incurred in
connection with the Merger.
(d) To the extent permissible under applicable laws, regulations, and
requirements of Regulatory Authorities, and provided further, that Seller shall
not be required to take any such action that, in the opinion of Seller's
independent auditors, is not consistent with GAAP and regulatory accounting
principles, Seller shall (i) establish and take such reserves and accruals at
such time as Buyer shall reasonably request to conform Seller's loan, accrual
and reserve policies to Buyer's policies, and (ii) establish and take such
accruals, reserves and charges in order to implement such policies in respect of
excess facilities and equipment capacity, severance costs, litigation matters,
write-off or write-down of various assets and other appropriate accounting
adjustments, and to recognize for financial accounting purposes such expenses of
the Merger and restructuring charges related to or to be incurred in connection
with the Merger, in each case at such times as are reasonably requested by
Buyer; PROVIDED, HOWEVER, that on the date such reserves, accruals and charges
are to be taken, Buyer shall certify to Seller that Buyer's representations and
warranties are true and correct as of such date, that the approval conditions to
its obligations contemplated by Section 6.01(b) have been satisfied or waived
(except to the extent that any waiting period associated therewith may then have
commenced but not expired) and that Buyer is otherwise in compliance with this
Agreement and is prepared to proceed with the Closing; and provided, further,
that Seller shall not be required to take any such action that is not consistent
with GAAP and regulatory accounting principles.
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ARTICLE VI
CONDITIONS
6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Effective Time of the following
conditions:
(a) This Agreement shall have received the requisite approval of
stockholders of Seller.
(b) All requisite approvals of this Agreement and the transactions
contemplated hereby shall have been received from the Board and any other
Regulatory Authority.
(c) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order.
(d) Neither Seller nor Buyer shall be subject to any order, decree or
injunction, and there shall be no pending or threatened order, decree or
injunction, of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of any of the Transactions.
(e) There shall be no legislative, statutory or regulatory action
(whether federal or state) pending which prohibits or threatens to prohibit
consummation of the Transactions or which otherwise materially adverse
affect the Transactions.
(f) Each of Buyer and Seller shall have received, from counsel
reasonably satisfactory to it, an opinion reasonably satisfactory in form
and substance to it to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code and that no gain or loss will be recognized by the stockholders of
Seller who receive solely Buyer Common Stock in exchange for shares of
Seller Common Stock, except with respect to cash received in lieu of
fractional shares of Buyer Common Stock.
(g) The shares of Buyer Common Stock which shall be issued to the
holders of Seller Common Stock (and where applicable, Seller Stock Options)
upon consummation of the Merger shall have been authorized for listing on
the NYSE, subject to official notice of issuance.
6.02. CONDITIONS TO OBLIGATIONS OF SELLER TO EFFECT THE MERGER. The
obligations of Seller to effect the Merger shall be subject to the fulfillment
or waiver at or prior to the Effective Time of the following additional
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer set forth in Article III of this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Effective Time (as though made on and as of the Effective Time except
(i) to the extent such representations and warranties are by their express
provisions made as of a specified date or period and (ii) for the effect of
transactions contemplated by this Agreement) and Seller shall have received
a certificate of the chief financial officer of Buyer to that effect.
(b) PERFORMANCE OF OBLIGATIONS. Buyer shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Seller shall have received a
certificate of the chief financial officer of Buyer to that effect.
6.03. CONDITIONS TO OBLIGATIONS OF BUYER TO EFFECT THE MERGER. The
obligations of Buyer to effect the Merger shall be subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller set forth in Article II of this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Effective Time (as though made on and as of the Effective Time except
(i) to the extent such representations and warranties are by their express
provisions made as of a specific
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date or period and (ii) for the effect of transactions contemplated by this
Agreement) and Buyer shall have received a certificate of the chairman of
Seller to that effect.
(b) PERFORMANCE OF OBLIGATIONS. Seller shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Buyer shall have received a
certificate of the chairman of Seller to that effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after any requisite stockholder approval:
(a) by mutual consent by the Executive Committee of the Board of
Directors of Buyer and the Board of Directors of Seller;
(b) by the Executive Committee of the Board of Directors of Buyer or the
Board of Directors of Seller at any time after the date that is twelve
months after the date of this Agreement if the Merger shall not theretofore
have been consummated (provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other agreement
contained herein which has resulted in the delay in performance of this
Agreement.);
(c) by the Executive Committee of the Board of Directors of Buyer or the
Board of Directors of Seller if (i) the Board has denied approval of the
Merger and such denial has become final and nonappealable or (ii)
stockholders of Seller shall not have approved this Agreement at the Meeting
provided that Seller has not breached its obligation under Section 5.03;
(d) by the Executive Committee of the Board of Directors of Buyer in the
event of a material breach by Seller of any representation, warranty,
covenant or other agreement contained in this Agreement, which breach is not
cured within 30 days after written notice thereof to Seller by Buyer;
(e) by the Board of Directors of Seller in the event of a material
breach by Buyer of any representation, warranty, covenant or other agreement
contained in this Agreement, which breach is not cured within 30 days after
written notice thereof is given to Buyer by Seller; or
(f) by the Board of Directors of the Seller, upon prompt written notice
to Buyer at any time during the three-day period commencing two days after
the Determination Date (as defined below), if the average closing price of a
share of Buyer Common Stock on the Composite Tape on the Determination Date
for the ten NYSE trading days preceding the Determination Date shall be less
$37.00; provided that if the Seller gives notice of its intent to exercise
its termination right pursuant to this Section 7.01(f), (i) Seller shall
negotiate no Acquisition Transaction for a period of ten business days after
receipt of such notice and during such ten business day period shall
negotiate exclusively with Buyer for a mutually acceptable amendment to
Section 1.07(ii) of this Agreement (ii) the termination pursuant to this
Section 7.01(f) shall not be effective until the end of such ten business
day period or if Seller breaches its obligation to conduct such
negotiations. Determination Date shall mean the date five days before the
scheduled Closing Date.
7.02. EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Sections 7.01(a) through 7.01(c) and Section 7.01(f) above, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Buyer or Seller or their respective officers or
directors except as set forth in the second sentence of Section 5.01 and in
Section 5.06.
7.03. AMENDMENT. This Agreement and the Schedules hereto may be amended by
the parties hereto, by action taken by or on behalf of their respective Boards
of Directors, at any time before or after approval of this Agreement by the
stockholders of Seller; PROVIDED, HOWEVER, that after any such approval by
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the stockholders of Seller no such modification shall alter or change the amount
or kind of consideration to be received by holders of Seller Common Stock as
provided in this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of Buyer and Seller.
7.04. SEVERABILITY. Any term, provision, covenant or restriction contained
in this Agreement held by a court or a Regulatory Authority of competent
jurisdiction or the Board to be invalid, void or unenforceable, shall be
ineffective to the extent of such invalidity, voidness or unenforceability, but
neither the remaining terms, provisions, covenants or restrictions contained in
this Agreement nor the validity or enforceability thereof in any other
jurisdiction shall be affected or impaired thereby. Any term, provision,
covenant or restriction contained in this Agreement that is so found to be so
broad as to be unenforceable shall be interpreted to be as broad as is
enforceable.
7.05. WAIVER. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is, or whose stockholders are,
entitled to the benefits thereof.
ARTICLE VIII
GENERAL PROVISIONS
8.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. No
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are contained herein and
each such representation and warranty shall survive such investigation. Except
as set forth below in this Section 8.01, all representations, warranties and
agreements in this Agreement of Buyer and Seller or in any instrument delivered
by Buyer or Seller pursuant to or in connection with this Agreement shall expire
at the Effective Time or upon termination of this Agreement in accordance with
its terms or, in the case of any other such instrument, in accordance with the
terms of such instrument. In the event of consummation of the Merger, the
agreements contained in or referred to in Sections 5.02(b), 5.07, 5.09, 5.10,
5.11 and 5.12 shall survive the Effective Time. In the event of termination of
this Agreement in accordance with Sections 7.01(a), 7.01(b), 7.01(c) or 7.01(f),
the agreements contained in or referred to in the second sentence of Section
5.01, Section 5.06 and Section 7.02 shall survive such termination.
8.02. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to be duly received (i) on the date given if
delivered personally or (ii) upon confirmation of receipt, if by facsimile
transmission or (iii) on the date received if mailed by registered or certified
mail (return receipt requested), or (iv) on the business date after being
delivered to a reputable overnight delivery service, if by such service, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
<TABLE>
<S> <C>
(i) if to Buyer:
Star Banc Corporation
425 Walnut Street
Cincinnati, Ohio 45202
Attention: David Moffett
Telecopy: (513) 632-4279
</TABLE>
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<TABLE>
<S> <C>
Copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Telecopy: (212) 403-2000
(ii) if to Seller:
Great Financial Corporation
329 W. Main Street
19th Floor
Louisville, Kentucky 40202
Attention: Paul Baker
Telecopy: (502) 568-1936
Copies to:
Lynch, Cox, Gilman & Mahan, P.S.C.
500 Meidinger Tower
Louisville, Kentucky 40202
Attention: Donald Cox
Telecopy: (502) 589-4994
</TABLE>
8.03. MISCELLANEOUS. This Agreement (including the Schedules and other
written documents referred to herein or provided hereunder) (i) constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof, including any confidentiality agreement between the
parties hereto, (ii) is not intended to confer upon any person not a party
hereto any rights or remedies hereunder, (iii) shall not be assigned by
operation of law or otherwise and (iv) shall be governed in all respects by the
laws of the State of Ohio, except as otherwise specifically provided herein or
required by the DGCL. This Agreement may be executed in counterparts which
together shall constitute a single agreement and may be delivered by facsimile.
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IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be signed
as of the date first written above.
<TABLE>
<S> <C> <C>
STAR BANC CORPORATION
By: /s/ JERRY A. GRUNDHOFER
-----------------------------------------
Name: Jerry A. Grundhofer
Title: Chairman, President and
Chief Executive Officer
GREAT FINANCIAL CORPORATION
By: /s/ PAUL M. BAKER
-----------------------------------------
Name: Paul M. Baker
Title: Chairman, President and
Chief Executive Officer
</TABLE>
A-31
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT, dated September 15, 1997, between Great Financial
Corporation, a Delaware corporation ("Issuer"), and Star Banc Corporation, an
Ohio corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 2,747,083 fully
paid and nonassessable shares of Issuer's Common Stock, par value $0.01 per
share ("Common Stock"), at a price of $36.00 per share (the "Option Price");
PROVIDED, HOWEVER, that in no event shall the number of shares of Common Stock
for which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding shares of Common Stock without giving effect to any shares subject
to or issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either (i)
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement or as permitted under the terms of the Merger
Agreement) or (ii) redeemed, repurchased, retired or otherwise cease to be
outstanding after the date of the Agreement, the number of shares of Common
Stock subject to the Option shall be increased or decreased, as appropriate, so
that, after such issuance, such number equals 19.9% of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. Nothing contained in this Section 1(b)
or elsewhere in this Agreement shall be deemed to authorize Issuer or Grantee to
breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), PROVIDED that the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an "Exercise Termination Event": (i) the Effective Time
(as defined in the Merger Agreement) of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Grantee pursuant to Section 7.01(d) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional); or (iii) the passage of 12 months after termination of the
Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a termination by Grantee pursuant to Section 7.01(d) of
the Merger Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional) (PROVIDED that if an Initial Triggering Event
continues or occurs beyond such termination and prior to the passage of such
12-month period, the Exercise Termination Event shall be 12 months from the
expiration of the Last Triggering Event but in no event more than 18 months
after such termination). The "Last Triggering Event" shall mean the last Initial
Triggering Event to expire. The term "Holder" shall mean the holder or holders
of the Option.
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<PAGE>
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered
into an agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules
and regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")) of Issuer, (x) a purchase, lease or other
acquisition or assumption of all or a substantial portion of the assets or
deposits of Issuer or any Significant Subsidiary of Issuer, (y) a purchase
or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of the voting
power of Issuer, or (z) any substantially similar transaction; PROVIDED,
HOWEVER, that in no event shall any merger, consolidation, purchase or
similar transaction involving only the Issuer and one or more of its
Subsidiaries or involving only any two or more of such Subsidiaries, be
deemed to be an Acquisition Transaction, provided that any such transaction
is not entered into in violation of the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to
engage in an Acquisition Transaction with any person other than Grantee or a
Grantee Subsidiary, or the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its intention to withdraw or
modify, in any manner adverse to Grantee, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement in anticipation of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee or a trustee holding on behalf of an
employee benefit plan of the Issuer, any Grantee Subsidiary or any Issuer
Subsidiary acting in a fiduciary capacity in the ordinary course of its
business shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares of Common
Stock (the term "beneficial ownership" for purposes of this Agreement having
the meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules
and regulations thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall have
made a BONA FIDE proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Federal
Reserve Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
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<PAGE>
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20% or more
of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event of which it has notice
(together, a "Triggering Event"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to exercise
the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); PROVIDED that if prior
notification to or approval of the Federal Reserve Board or any other regulatory
agency is required in connection with such purchase, the Holder shall promptly
file the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, PROVIDED that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act; (ii) the reference to the provisions to
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement
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and under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federal
Reserve Board or to any state regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board or such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto; and (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable, without
expense, at the option of the Holder, upon presentation and surrender of this
Agreement at the principal office of Issuer, for other Agreements providing for
Options of different denominations entitling the holder thereof to purchase, on
the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, option
exercise, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Merger Agreement, or the
like, the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be
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appropriately adjusted in such manner as shall fully preserve the economic
benefits provided hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for such proper adjustment and the
full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the 1933 Act covering
this Option and any shares issued and issuable pursuant to this Option and shall
use its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and PROVIDED, HOWEVER, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and PROVIDED FURTHER, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto) shall repurchase
the Option from the Holder at a price (the "Option Repurchase Price") equal to
the amount by which (A) the Market/Offer Price (as defined below) exceeds (B)
the Option Price, multiplied by the number of shares for which this Option may
then be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence (or such
later period as provided in Section 10), Issuer shall repurchase such number of
the Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the Market/Offer Price multiplied by
the number of Option Shares so designated. The term "Market/Offer Price" shall
mean the highest of (i) the price per share of Common Stock at which a tender
offer or exchange offer therefor has been made and not withdrawn prior to
acceptance of such shares, (ii) the price per share of Common Stock to be paid
by any third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the six-month period immediately
preceding the
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date the Holder gives notice of the required repurchase of this Option or the
Owner gives notice of the required repurchase of Option Shares, as the case may
be, or (iv) in the event of a sale of all or a substantial portion of Issuer's
assets, the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as the
case may be, and reasonably acceptable to the Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be, and reasonably acceptable to the
Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Within
the latter to occur of (x) five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be delivered
to the Holder the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price therefor or the portion thereof, if any, that Issuer is not
then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; PROVIDED, HOWEVER, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices, in each case as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a substantial portion of the assets of Issuer, other than any such
transaction which would not constitute an Acquisition Transaction pursuant to
the provisos to Section 2(b)(i) hereof or (ii) upon the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, provided that no such event shall constitute a Repurchase Event
unless a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this
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Section 7 shall not terminate upon the occurrence of an Exercise Termination
Event unless no Subsequent Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than Issuer),
(ii) Issuer in a merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or substantially all of Issuer's
assets.
(ii) "Substitute Common Stock" shall mean the common stock issued by the
issuer of the Substitute Option upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as defined in
Section 7.
(iv) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; PROVIDED that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed with respect to a
share of common stock issued by the person merging into Issuer or by any
company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option, PROVIDED,
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the Substitute Option
in substantially the same form as this Agreement, which shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the
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excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be, and reasonably acceptable to the
Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to (x) the amount by which (i) the Highest
Closing Price (as hereinafter defined) exceeds (ii) the exercise price of the
Substitute Option, multiplied by the number of shares of Substitute Common Stock
for which the Substitute Option may then be exercised plus (y) Grantee's
reasonable out-of-pocket expenses (to the extent not previously reimbursed), and
at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to (x) the Highest Closing Price multiplied by the
number of Substitute Shares so designated plus (y) Grantee's reasonable
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer following a
request for repurchase pursuant to this Section 9 shall immediately so notify
the Substitute Option Holder and/or the Substitute Share Owner and thereafter
deliver or cause to be delivered, from time to time, to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the portion of the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on which
the Substitute Option Issuer is no longer so prohibited; PROVIDED, HOWEVER, that
if the Substitute Option Issuer is at any time after delivery of a notice of
repurchase pursuant to subsection (b) of this Section 9 prohibited under
applicable law or regulation from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals, in each case as promptly as
practicable, in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute
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Option or the Substitute Shares either in whole or to the extent of the
prohibition, whereupon, in the latter case, the Substitute Option Issuer shall
promptly (i) deliver to the Substitute Option Holder or Substitute Share Owner,
as appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2, 6, 7
and 13 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
the Board of Directors of Issuer and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued,
fully paid, nonassessable, and except for limitations on voting rights
contained in the certificate of incorporation, will be delivered free and
clear of all claims, liens, encumbrance and security interests and not
subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); PROVIDED, HOWEVER, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire
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the shares of Common Stock subject to the Option, Grantee may not assign its
rights under the Option except in (i) a widely dispersed public distribution,
(ii) a private placement in which no one party acquires the right to purchase in
excess of 2% of the voting shares of Issuer, (iii) an assignment to a single
party (E.G., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts to make all filings
with, and to obtain consents of, all third parties and governmental authorities
necessary to the consummation of the transactions contemplated by this
Agreement, including without limitation making notification or application to
list the shares of Common Stock issuable hereunder on the Nasdaq National Market
System upon official notice of issuance and applying to the Federal Reserve
Board under the BHCA for approval to acquire the shares issuable hereunder, but
Grantee shall not be obligated to apply to state banking authorities for
approval to acquire the shares of Common Stock issuable hereunder until such
time, if ever, as it deems appropriate to do so.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
B-10
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<S> <C> <C>
STAR BANC CORPORATION
By: /s/ JERRY A. GRUNDHOFER
-----------------------------------------
Name: Jerry A. Grundhofer
Title: Chairman, President and
Chief Executive Officer
GREAT FINANCIAL CORPORATION
By: /s/ PAUL M. BAKER
-----------------------------------------
Name: Paul M. Baker
Title: Vice Chairman, President and
Chief Executive Officer
</TABLE>
B-11
<PAGE>
ANNEX C
APPRAISAL RIGHTS PROVISIONS UNDER THE
DELAWARE GENERAL CORPORATION LAW
Set forth below is the text of the statutory appraisal rights provisions
under Section 262 of the Delaware General Corporation Law.
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (OR DEPOSITORY RECEIPTS IN
RESPECT THEREOF) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security or an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
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<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such consituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of the mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the
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<PAGE>
secretary or assistant secretary or of the transfer agent of the corporation
that is required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion,
C-3
<PAGE>
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 120, L.
'97, eff. 7-1-97.)
C-4
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL & PARTNERS, L.P.]
ANNEX D
December 11, 1997
Board of Directors
Great Financial Corporation
329 West Main Street
Louisville, KY 40202
Ladies and Gentlemen:
Great Financial Corporation ("Great Financial") and Star Banc Corporation
("Star Banc") have entered into an Agreement and Plan of Merger, dated as of
September 15, 1997 (the "Agreement"), pursuant to which Great Financial will be
merged with and into Star Banc (the "Merger"). Upon consummation of the Merger,
each outstanding share of Great Financial common stock, par value $.01 per share
(the "Great Financial Shares"), issued and outstanding immediately prior to the
effective time of the Merger (other than Dissenting Shares) will be converted
into the right to receive, at the election of the holder thereof, either 0.949
of a share of common stock, par value $5.00 per share, of Star Banc (the "Star
Banc Shares") or $44.00 in cash, subject in each case to proration so that 70%
of the entire consideration payable by Star Banc will be common stock and 30%
will be cash, subject to adjustment as provided in the Agreement. The terms and
conditions of the Merger are more fully set forth in the Agreement. You have
requested our opinion as to the fairness, from a financial point of view, of the
consideration to be received by the holders of the Great Financial Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated as of September 15, 1997, between Great Financial and Star Banc; (iii)
Great Financial's audited consolidated financial statements and management's
discussion and analysis of financial condition and results of operations as
contained in its annual report to shareholders for the year ended December 31,
1996; (iv) Star Banc's audited consolidated financial statements and
management's discussion and analysis of financial condition and results of
operations as contained in its annual report to shareholders for the year ended
December 31, 1996; (v) Great Financial's unaudited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations contained in its Quarterly Report on Form 10-Q for the
quarters ended March 31, June 30, and September 30, 1997, respectively; (vi)
Star Banc's unaudited consolidated financial statements and management's
discussion and analysis of financial condition and results of operations
contained in its Quarterly Report on Form 10-Q for he quarters ended March 31,
June 30, and September 30, 1997, respectively; (vii) certain financial analyses
and forecasts of Great Financial prepared by and reviewed with management of
Great Financial and the views of senior management of Great Financial regarding
Great Financial's past and current business operations, results thereof,
financial condition and future prospects; (viii) certain financial analyses and
forecasts of Star Banc prepared by and reviewed with management of Star Banc and
the views of senior management of Star Banc regarding Star Banc's past and
current business operations, results thereof, financial condition and future
prospects; (ix) the pro forma impact of the Merger on Star Banc; (x) the
historical reported price and trading activity for Great Financial's and Star
Banc's common stock, including a comparison of certain financial and stock
market information for Great Financial and Star Banc with similar information
for certain other companies the securities of which are publicly traded; (xi)
the financial terms of recent business combinations in the savings institution
industry; (xii) the current market environment generally and the banking
environment in particular; and (xiii) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as we
considered relevant.
D-1
<PAGE>
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any liability or responsibility therefor. We did not make an independent
evaluation or appraisal of the specific assets, the collateral securing assets
or the liabilities of Great Financial or Star Banc or any of their subsidiaries,
or the collectibility of any such assets, nor have we been furnished with any
such evaluations or appraisals (relying, where relevant, on the analyses and
estimates of Great Financial and Star Banc). With respect to the financial
projections reviewed with management, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective managements of the respective future financial
performances of Great Financial and Star Banc and that such performances will be
achieved. We have also assumed that there has been no material change in Great
Financial's or Star Banc's assets, financial condition, results of operations,
business or prospects since September 30, 1997, the date of the most recent
financial statements noted above. We have assumed that Great Financial and Star
Banc will remain as going concerns for all periods relevant to our analyses and
that the conditions precedent in the Agreement are not waived.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof. We are expressing
no opinion herein as to what the value of Star Banc Shares will be when issued
to Great Financial's shareholders pursuant to the Agreement or the prices at
which the Great Financial Shares or the Star Banc Shares will trade at any time.
We have acted as Great Financial's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Great Financial and have received compensation
for such services.
In the ordinary course of our business, we may actively trade the equity
and/or debt securities of Great Financial and Star Banc for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
Our opinion is directed to the Board of Directors of Great Financial in
connection with its consideration of the Merger and does not constitute a
recommendation to any stockholder of Great Financial as to how such stockholder
should vote at any meeting of stockholders called to consider and vote upon the
Merger. Our opinion is not to be quoted or referred to, in whole or in part, in
a registration statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Sandler O'Neill's
prior written consent; provided, however, that we hereby consent to the
inclusion of this opinion as an appendix to the Proxy Statement/Prospectus of
Great Financial and Star Banc dated the date hereof.
Based upon and subject to the foregoing, it is our opinion that the
consideration to be received by the holders of the Great Financial Shares is
fair, from a financial point of view, to the holders of such shares.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is incorporated under the laws of Ohio. Section 1701.13 of
the Ohio General Corporation Law prescribes the conditions under which
indemnification may be obtained by a present or former director or officer of
the Registrant who incurs expenses or liability as a consequence of certain
proceedings arising out of his or her activities as a director or officer.
Article SIXTH of the Registrant's Articles of Incorporation and Article IV of
the Registrant's Regulations provide for indemnification of directors and
officers under certain circumstances. The Registrant has purchased a standard
liability policy, which, subject to any limitations set forth in the policy,
indemnifies the Registrant's directors and officers for damages that they become
legally obligated to pay as a result of any negligent act, error or omission
committed while serving in their official capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- ----------------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, by and between Great Financial Corporation and Star Banc Corporation,
dated as of August 29, 1997, included as Annex A to the accompanying Proxy Statement-Prospectus.
5.1 -- Opinion of Jennie Carlson Esq., Senior Vice President and General Counsel of Star Banc Corporation.
8.1 -- Opinion of Wachtell, Lipton, Rosen & Katz.
10.1 -- Consulting Agreement, dated as of September 15, 1997, by and between Star Banc Corporation and Paul
M. Baker.
23.1 -- Consent of Sandler, O'Neill Partners, LLC.
23.2 -- Consent of Jennie Carlson, Esq., Senior Vice President and General Counsel of Star Banc Corporation,
included in Exhibit 5.1 to this Registration Statement.
23.3 -- Consent of Wachtell, Lipton, Rosen & Katz, included in Exhibit 8.2 to this Registration Statement.
23.4 -- Consent of Arthur Andersen LLP.
23.5 -- Consent of Deloitte & Touche LLP.
24.1 -- Power of Attorney.
99.1 -- Stock Option Agreement, dated as of August 29, 1997, by and between Star Banc Corporation (as
issuer) and Great Financial Corporation (as grantee), included are Annex B to the Accompanying Proxy
Statement-Prospectus.
99.2 -- Consent of Paul M. Baker to the use of his name as a person about to become a director of Star Banc
Corporation.
99.3 -- Form of Proxy for Special Meeting of Shareholders of Great Financial Corporation.
</TABLE>
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<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change in such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(d) The undersigned Registrant hereby undertakes that every prospectus (i)
that is filed pursuant to paragraph (c) immediately preceding, or (ii) that
purports to meet the requirements of Sections 10(a)(3) of the Securities Act and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other that the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in
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<PAGE>
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cincinnati, State of
Ohio, this 11th day of December, 1997.
STAR BANC CORPORATION
(Registrant)
By: *
-----------------------------------------
Jerry A. Grundhofer
CHAIRMAN OF THE BOARD, PRESIDENT
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 on this 11th day of December, 1997.
SIGNATURE CAPACITY
- ------------------------------ ---------------------------
Chairman of the Board,
* President Chief Executive
- ------------------------------ Officer and Director
Jerry A. Grundhofer (Principal Executive
Officer)
Executive Vice President
* and Chief Financial
- ------------------------------ Officer (Principal
David M. Moffett Financial Officer)
* Senior Vice President
- ------------------------------ (Principal Accounting
James D. Hogan Officer)
Director
- ------------------------------
James R. Bridgeland
* Director
- ------------------------------
Laurence L. Browning, Jr.
* Director
- ------------------------------
Victoria B. Buyniski
* Director
- ------------------------------
Samuel M. Cassidy
Director
- ------------------------------
V. Anderson Coombe
* Director
- ------------------------------
John C. Dannemiller
* Director
- ------------------------------
J.P. Hayden, Jr.
* Director
- ------------------------------
Roger L. Howe
II-4
<PAGE>
SIGNATURE CAPACITY
- ------------------------------ ---------------------------
* Director
- ------------------------------
Thomas J. Klinedinst, Jr.
* Director
- ------------------------------
Charles S. Meeham, Jr.
* Director
- ------------------------------
Daniel J. Mayer
* Director
- ------------------------------
David B. O'Maley
Director
- ------------------------------
O'dell M. Owens
* Director
- ------------------------------
Thomas E. Petry
* Director
- ------------------------------
William C. Portman
* Director
- ------------------------------
Oliver W. Waddell
<TABLE>
<S> <C> <C>
*By: /s/ JERRY A. GRUNDHOFER
--------------------------------------
Jerry A. Grundhofer
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- --------------------------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, by and between Great Financial Corporation and Star Banc
Corporation, dated as of August 29, 1997, included as Annex A to the accompanying Proxy
Statement-Prospectus.
5.1 -- Opinion of Jennie Carlson Esq., Senior Vice President and General Counsel of Star Banc
Corporation.
8.1 -- Opinion of Wachtell, Lipton, Rosen & Katz.
10.1 -- Consulting Agreement, dated as of September 15, 1997, by and between Star Banc Corporation and
Paul M. Baker.
23.1 -- Consent of Sandler, O'Neill Partners, LLC.
23.2 -- Consent of Jennie Carlson, Esq., Senior Vice President and General Counsel of Star Banc
Corporation, included in Exhibit 5.1 to this Registration Statement.
23.3 -- Consent of Wachtell, Lipton, Rosen & Katz, included in Exhibit 8.2 to this Registration Statement.
23.4 -- Consent of Arthur Andersen LLP.
23.5 -- Consent of Deloitte & Touche LLP.
24.1 -- Power of Attorney.
99.1 -- Stock Option Agreement, dated as of August 29, 1997, by and between Star Banc Corporation (as
issuer) and Great Financial Corporation (as grantee), included as Annex B to the accompanying
Proxy Statement Prospectus.
99.2 -- Consent of Paul M. Baker to the use of his name as a person about to become a director of Star
Banc Corporation.
99.3 -- Form of Proxy for Special Meeting of Shareholders of Great Financial Corporation.
</TABLE>
<PAGE>
EXHIBIT 5.1
December 9, 1997
Star Banc Corporation
425 Walnut Street
Cincinnati, Ohio 45202
Re: Registration Statement on Form S-4 Related to the Acquisition of Great
Financial Corporation
Ladies and Gentlemen:
I and other members of my staff have acted as counsel to Star Banc
Corporation, an Ohio corporation (the "Corporation"), in connection with the
preparation and filing of a Registration Statement on Form S-4 (the
"Registration Statement") relating to the issuance of up to 9,170,288 shares of
the Corporation's Common Stock and (the "Common Stock") to be issued by the
Corporation in connection with the merger of Great Financial Corporation with
and into the Corporation.
In rendering this opinion, I have examined such corporate records and other
documents, and I have reviewed such matters of law, as I have deemed necessary
or appropriate. Based on the foregoing, I am of the opinion that the Common
Stock are legally authorized and, when the Registration Statement has been
declared effective by order of the Securities and Exchange Commission and the
Common Stock have been issued and paid for upon the terms and conditions set
forth in the Registration Statement, the Common Stock will be validly issued,
fully paid and nonassessable.
I hereby consent to be named in the Registration Statement and in the
related joint proxy statement-prospectus contained therein as the attorney who
passed upon the legality of the Securities, and to the filing of a copy of this
opinion as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Jennie Carlson
----------------------
JENNIE CARLSON
Senior Vice President
and General Counsel
<PAGE>
EXHIBIT 8.1
[Wachtell, Lipton, Rosen & Katz Letterhead]
December 11, 1997
Star Banc Corporation
425 Walnut Street
Cincinnati, Ohio 45202
Ladies/Gentlemen:
We have acted as special counsel to Star Banc Corporation, an Ohio
corporation ("Star"), in connection with the proposed merger (the "Merger") of
Great Financial Corporation, a Delaware corporation ("Great Financial"), with
and into Star, pursuant to the Agreement and Plan of Merger dated as of
September 15, 1997, between Star and Great Financial (the "Merger Agreement").
At your request, we are rendering our opinion concerning certain federal income
tax consequences of the Merger.
For purposes of the opinion set forth below, we have relied, with the
consent of Star and the consent of Great Financial, upon the accuracy and
completeness of the statements and representations (which statements and
representations we have neither investigated nor verified) contained,
respectively, in the certificates of the officers of Star and Great Financial
dated the date hereof, and have assumed that such statements and representations
will be complete and accurate as of the Effective Time. We have also relied
upon the accuracy of the Registration Statement on Form S-4 (the "Registration
Statement") and the Proxy Statement/Prospectus of Star and Great Financial (the
"Proxy Statement/Prospectus") filed with the Securities and Exchange Commission
in connection with the Merger. Any capitalized term used and not defined herein
has the meaning given to it in the Proxy Statement/Prospectus or the appendices
thereto (including the Agreement).
<PAGE>
Star Banc Corporation
December 11, 1997
Page 2
We have also assumed that (i) the transactions contemplated by the
Agreement will be consummated in accordance therewith and as described in the
Proxy Statement/Prospectus and (ii) the Merger will qualify as a statutory
merger under the applicable laws of the States of Ohio and Delaware.
Based upon and subject to the foregoing, except as otherwise indicated,
the discussion set forth in the Proxy Statement/Prospectus under the caption
"THE MERGER -- Certain Federal Income Tax Consequences of the Merger" represents
our opinion as to the material United States Federal income tax consequences of
the Merger under currently applicable law.
This opinion does not address all aspects of United States federal
taxation that may be relevant to particular Great Financial stockholders, and it
may not be applicable to Great Financial stockholders who, for United States
federal income tax purposes, are nonresident alien individuals, foreign
corporations, foreign partnerships, foreign trusts or foreign estates, or who
acquired their Great Financial Common Stock pursuant to the exercise of Great
Financial Stock Options or otherwise as compensation, or to persons who exercise
Appraisal Rights. This opinion does not address the effect of any applicable
state, local, or foreign tax laws or any United States federal tax laws other
than those pertaining to the income tax.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement, and to the
reference to this opinion under the caption "SUMMARY INFORMATION -- Federal
Income Tax Consequences in General," under the caption "THE MERGER -- Certain
Federal Income Tax Consequences of The Merger" and elsewhere in the Proxy
Statement/Prospectus. In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen & Katz
-2-
<PAGE>
EXHIBIT 10.1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), is made and entered into
on this 15th day of September, 1997, by and between Paul M. Baker
("Consultant"), and Star Banc Corporation, an Ohio corporation ("Star").
W I T N E S S E T H:
WHEREAS, Star, either directly or through certain of its subsidiaries
is merging with Great Financial Corporation, a Delaware corporation ("Great
Financial"); and
WHEREAS, Star desires to retain Consultant to provide certain
consulting services enumerated herein and to provide Consultant with certain
benefits enumerated herein and Consultant desires to provide such services.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
Section I. Consulting Services. Subject to the terms hereof, Star
hereby retains Consultant to serve as a Consultant to STAR during the Consulting
Term (as hereinafter defined), and Consultant hereby accepts such retention.
Consultant hereby covenants and agrees that during the Consulting Term,
Consultant shall provide such consulting services with respect to the business
of Star and its subsidiaries (as they may from time to time exist (the
"Consulting Services") as Star's Chairman shall reasonably request. Consultant
and Star hereby acknowledge and agree that Consultant's duties and
responsibilities under this Agreement shall be limited to Consulting Services.
Section II. Term. The term of this Agreement (the "Consulting Term")
shall commence as of the date of the Effective Time (as defined in the Agreement
and Plan of Merger by and between Star and Great Financial dated as of September
14, 1997, as may be amended from time to time) and shall continue in effect for
three years. Notwithstanding anything herein to the contrary, the Consulting
Term, this Agreement and all of
<PAGE>
STAR's and the Consultant's obligations hereunder may be terminated:
1. by Consultant in its sole discretion, with or without cause, upon
thirty (30) days' prior written notice to Star; or
2. by Star in the event the Consultant is terminated for "Cause." For
purposes of this Agreement, "Cause" for termination of this Agreement shall
exist if (i) Consultant is convicted of, pleads guilty to, confesses to or
enters a plea of nolo contendere to any felony or any act of fraud,
misrepresentation, misappropriation or embezzlement or (ii) Consultant has
engaged in a dishonest act that damages or prejudices Star or any affiliate
of Star, or in conduct or activities materially damaging to the property,
business or reputation of Star or any affiliate of Star.
Section III. Consulting Benefits.
A. Consulting Payments. To induce Consultant to enter into this
Agreement, Star agrees to pay Consultant $150,000 per annum, payable in equal
monthly installments, in arrears (the "Consulting Payments"), during the
Consulting Term.
B. Reasonable Expenses. Star shall reimburse Consultant for
reasonable travel and other business expenses incurred by Consultant in the
performance of its services hereunder.
C. Indemnification. Star hereby covenants and agrees to indemnify and
defend Consultant against any and all losses, liabilities, damages,
deficiencies, costs (including, without limitation, court costs), and expenses
(including, without limitation, attorneys' fees) incurred by Consultant and
arising out of or due to (i) any breach of any representation, warranty,
covenant or agreement of Star contained in this Agreement, or (ii) Consultant's
performance of the Consulting Services in accordance with this Agreement, except
for such losses, liabilities, damages, deficiencies, costs and expenses
resulting from the gross negligence, willful misconduct or bad faith of
Consultant.
D. Confidential Information. All confidential information which
Consultant currently has or may obtain during the period of consultancy relating
to the business of Star and
-2-
<PAGE>
its affiliates shall not be published, disclosed, or made accessible by
Consultant to any other person, firm, or corporation except in the business and
for the benefit of Star and its affiliates.
E. Covenant Not to Compete. Consultant shall not, during the
Consulting Term, for whatever reason, for itself, or on behalf of any other
person, firm, partnership, corporation, or other entity, directly or indirectly:
(i) engage in the management of a depositary institution or mortgage banking
operation which conducts business in any county or parish in which Star or its
affiliates conducts mortgage banking operations or maintains a bank branch or
(ii) solicit or hire, attempt to solicit or hire any employee of Star away from
Star's employ. For purposes of Subsection (i) of this Section, "to engage"
shall include Consultant's acting as an employee, material shareholder, paid
consultant, director or officer of or an owner of a material interest in an
entity so engaged.
Section IV. Miscellaneous.
A. Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon STAR and its respective successors and assigns.
B. Governing Law. This Agreement shall be deemed to be made in, and
in all respects shall be interpreted, construed and governed by and in
accordance with the laws of the State of Ohio.
C. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not constitute a part of
this Agreement, and shall not be deemed to affect in any way the meaning or
interpretation of this Agreement or the provisions hereof.
D. Notices. All notices, communications and deliveries hereunder
shall be in writing signed by the party making the same, shall specify the
Section hereunder pursuant to which it is given or being made, and shall be
deemed given or made on the date delivered: (i) if to Consultant, Paul M. Baker,
[Address], Telecopy No.: [NUMBER] and (ii) if to Star, Star Banc Corporation,
425 Walnut Street, Cincinnati, Ohio 45202, Attn.: Jerry Grundhofer,
Telecopy No.: [NUMBER].
E. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, and it shall not be necessary in
making proof of this Agreement or the terms hereof to produce or account for
more than one of such counterparts.
-3-
<PAGE>
F. Entire Agreement. This Agreement is intended by the parties hereto
to be the final expression of their agreement with respect to the subject matter
hereof and is the complete and exclusive statement of the terms thereof
notwithstanding any representations, statements or agreements to the contrary
heretofore made. This Agreement may be modified only by a written instrument
signed by each of the parties hereto.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PAUL M. BAKER
/s/ Paul M. Baker
-----------------------
Signature
STAR BANC CORPORATION
By: /s/ Jerry Grundhofer
--------------------------
Name: Jerry Grundhofer
Title: Chairman, President
and Chief Executive Officer
-5-
<PAGE>
EXHIBIT 23.1
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Great Financial Corporation (the "Company") as Appendix D to the
Proxy Statement/Prospectus relating to the proposed merger of the Company
with and into Star Banc Corporation contained in the Registration Statement
on Form S-4, as amended, and to the references to our firm and such opinion in
such Proxy Statement/Prospectus. In giving such consent, we do not admit that
we come within the category of persons whose consent is required under Section
7 of the Securities Act of 1933, as amended (the "Act"), or the rules and
regulations of the Securities and Exchange Commission thereunder (the
"Regulations"), nor do we admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as
used in the Act or the Regulations.
/s/ Sandler O'Neill & Partners, L.P.
December 11, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 13, 1997
incorporated by reference in Star Banc Corporations's Form 10-K for the year
ended December 31, 1996 and Form 8-K filed March 12, 1997, respectively, and
to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
December 10, 1997
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Star Banc Corporation on Form S-4 of our report, dated February 10, 1997,
relating to the financial statements of Great Financial Corporation,
incorporated by reference in the annual report on Form 10-K of Great
Financial Corporation for the year ended December 31, 1996, and to the
reference to us under the heading "Experts" in the prospectus, which is part
of such Registration Statement.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
December 9, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of Star Banc Corporation, and
the several undersigned Officers and Directors thereof whose signatures appear
below, hereby makes, constitutes and appoints Jerry A. Grundhofer and each of
them acting individually, its, his and her true and lawful attorneys with power
to act without any other and with full power of substitution, to execute,
deliver and file in its, his and her name and on its, his and her behalf, and in
each of the undersigned Officer's and Director's capacity or capacities as shown
below, (a) a Registration Statement of Star Banc Corporation on Form S-4 (or
other appropriate form) with respect to the registration under the Securities
Act of 1933, as amended, of a number of shares of common stock of Star Banc
Corporation to be issued in exchange for the outstanding shares of common stock,
on a fully-diluted basis, of Great Financial Corporation upon consummation of
the proposed merger of Great Financial Corporation with and into Star Banc
Corporation and any and all documents in support thereof or supplemental thereto
and any and all amendments, including any and all post-effective amendments, to
the foregoing (hereinafter called the "Registration Statement"), and (b) such
registration statements, petitions, applications, consents to service of process
or other instruments, any and all documents in support thereof or supplemental
thereto, and any and all amendments or supplements to the foregoing, as may be
necessary or advisable to qualify or register the securities covered by said
Registration Statement under such securities laws, regulations or requirements
as may be applicable; and each of Star Banc Corporation and said Officers and
Directors hereby grants to said attorneys, and to each of them, full power and
authority to do and perform each and every act and thing whatsoever as said
attorneys or attorney may deem necessary or advisable to carry out fully the
intent of this power of attorney to the same extent and with the same effect as
Star Banc Corporation might or could do, and as each of said Officers and
Directors might or could do personally in his or her capacity or capacities as
aforesaid, and each of Star Banc Corporation and said Officers and Directors
hereby ratifies and confirms all acts and things which said attorneys or
attorney might do or cause to be done by virtue of this power of attorney and
its, his or her signature as the same may be signed by said attorneys or
attorney, or any of them, to any or all of the following (and/or any and
<PAGE>
all amendments and supplements to any or all thereof): such Registration
Statement under the Securities Act of 1933, as amended, and all such
registration statements, petitions, applications, consents to service of process
and other instruments, and any and all documents in support thereof or
supplemental thereto, under such securities laws, regulations and requirements
as may be applicable.
IN WITNESS WHEREOF, Star Banc Corporation has caused this power of attorney
to be signed on its behalf, and each of the undersigned Officers and Directors
in the capacity or capacities noted has hereunto set his or her hand as of the
date indicated below.
STAR BANC CORPORATION
By: /s/ Jerry A. Grundhofer
-------------------------
Name: Jerry A. Grundhofer
Title: Chairman, President and Chief
Executive Officer
Dated: December 9, 1997
/s/ Jerry A. Grundhofer Chairman of the Board,
- ---------------------------- President, Chief Executive
Jerry A. Grundhofer Officer and Director
(Principal Executive Officer)
/s/ David M. Moffett Executive Vice President and
- ---------------------------- Chief Executive Officer
David M. Moffett (Principal Executive Officer)
/s/ James D. Hogan Senior Vice President
- ---------------------------- (Principal Accounting Officer)
James D. Hogan
- ---------------------------- Director
James R. Bridgeland
-2-
<PAGE>
/s/ Laurence L. Browning, Jr.
- ---------------------------- Director
Laurence L. Browning, Jr.
/s/ Victoria B. Buyniski
- ---------------------------- Director
Victoria B. Buyniski
/s/ Samuel M. Cassidy
- ---------------------------- Director
Samuel M. Cassidy
- ---------------------------- Director
V. Anderson Coombe
/s/ John C. Dannemiller
- ---------------------------- Director
John C. Dannemiller
/s/ J.P. Hayden, Jr.
- ---------------------------- Director
J.P. Hayden, Jr.
/s/ Roger L. Howe
- ---------------------------- Director
Roger L. Howe
/s/ Thomas J. Klinedinst, Jr.
- ---------------------------- Director
Thomas J. Klinedinst, Jr.
/s/ Charles S. Meeham, Jr.
- ---------------------------- Director
Charles S. Meeham, Jr.
/s/ Daniel J. Mayer
- ---------------------------- Director
Daniel J. Mayer
/s/ David B. O'Maley
- ---------------------------- Director
David B. O'Maley
- ---------------------------- Director
O'dell M. Owens
/s/ Thomas E. Petry
- ---------------------------- Director
Thomas E. Petry
-3-
<PAGE>
/s/ William C. Portman
- ---------------------------- Director
William C. Portman
/s/ Oliver W. Waddell
- ---------------------------- Director
Oliver W. Waddell
-4-
<PAGE>
EXHIBIT 99.2
CONSENT OF PAUL M. BAKER
The undersigned hereby consents, pursuant to Rule 438 of the
Securities Act of 1933, as amended, to the references to him in the Proxy
Statement-Prospectus of Great Financial Corporation and Star Banc Corporation,
which is part of this Registration Statement on Form S-4 of Star Banc
Corporation, with respect to his being elected or appointed as a director of
Star Banc Corporation under the circumstances described therein.
/s/ Paul M. Baker
--------------------------------
Paul M. Baker
Director, Great Financial Corporation
December 11, 1997
<PAGE>
GREAT FINANCIAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE GREAT FINANCIAL
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 8, 1997
The undersigned hereby appoints Paul M. Baker and Richard M. Klapheke, and
either of them, with full power to act alone, the true and lawful
attorneys-in-fact and proxies of the undersigned to vote all shares of Common
Stock of GREAT FINANCIAL CORPORATION, a Delaware corporation (the "Company"),
held by the undersigned, with full power of substitution and revocation, with
the same force and effect as the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders of the Company to be
held at the Commonwealth Center, Room 207, 221 Fourth Avenue, Louisville,
Kentucky, on January 13, 1998, at 10:00 a.m. (Eastern Time), and at any
adjournment or postponement thereof, as follows:
<TABLE>
<S> <C> <C> <C>
1. Approval and adoption of the Agreement and Plan of Merger, dated FOR AGAINST ABSTAIN
September 15, 1997 (the "Merger Agreement"), by and between Star Banc / / / / / /
Corporation, an Ohio corporation, and the Company.
2. OTHER MATTERS: Discretionary authority is hereby granted to transact such
other business as may properly come before the meeting or any adjournment
or postponement thereof.
</TABLE>
See back side for important information.
<PAGE>
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF THIS PROXY IS SUBMITTED, BUT NO DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED
"FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and the Proxy Statement/Prospectus, each dated , 1997,
furnished herewith.
Dated:___________, 1997
Signature:________________________
Signature(s) (if held jointly):___
Title or Authority:_______________
IMPORTANT: Please sign your
name exactly as it appears hereon.
When signing as attorney, agent,
executor, administrator, trustee,
guardian or corporate officer,
please give your full title as
such. Each joint owner should sign
the proxy. If executed by a
partnership, this proxy should be
signed by an authorized partner.
