<PAGE> " REVISED PRELIMINARY PROXY STATEMENT"
[LSB LETTERHEAD]
March 22, 1994
To the Shareholders of
LSB Industries, Inc.:
Enclosed for your review and consideration are a Notice of Special
Meeting, Proxy Statement and Proxy for a Special Meeting of the shareholders
of LSB Industries, Inc. (the "Company") to be held at 11:00 a.m., Central
Standard Time, on May 2, 1994, or any adjournment or postponement thereof,
at the Company's financial center located at 4000 Northwest 39th Expressway,
Oklahoma City, Oklahoma 73112 (405-948-9550).
The purpose of the Special Meeting is to consider and vote upon the sale
by the Company of its wholly-owned subsidiary, Equity Bank for Savings, F.A. (
"Equity Bank"), which constitutes the Financial Service Business of the
Company. Equity Bank is primarily engaged in retail banking services,
mortgage, and consumer and commercial lending services through fifteen (15)
branch offices located in the Oklahoma City metropolitan area and western
Oklahoma and operates an Oklahoma-based credit card operation. The sale of
Equity Bank is intended to be made pursuant to a Stock Purchase Agreement,
dated as of February 9, 1994 (the "Acquisition Agreement"), between the
Company, Prime Financial Corporation, a wholly-owned subsidiary of the Company
("Prime"), and, Fourth Financial Corporation ("Fourth Financial"). Prime is a
wholly-owned subsidiary of the Company and Equity Bank is a wholly-owned
subsidiary of Prime. Fourth Financial is to acquire all of the outstanding
shares of capital stock of Equity Bank. Under the Acquisition Agreement, the
Company is to acquire from Equity Bank (i) prior to the completion of the sale
of Equity Bank certain subsidiaries of Equity Bank ("Retained Corporations")
that own the real and personal property and other assets contributed by the
Company to Equity Bank at the time of the acquisition of the predecessor of
Equity Bank by the Company for Equity Bank's carrying values of the assets
so contributed at the time of the acquisition of the Retained Corporations
from Equity Bank; (ii) at the time of closing of the sale of Equity Bank
under the Acquisition Agreement, (a) the loan and mortgage on and option to
purchase the Equity Tower located in Oklahoma City, Oklahoma ("Equity Tower
Loan"), which Equity Bank previously classified as an in substance foreclosure
on its books, and (b) other real estate owned by Equity Bank that was acquired
by Equity Bank through foreclosure ("OREO") (the Equity Tower Loan and the
OREO are collectively called the "Retained Assets"), which are to be
acquired for an amount equal to Equity Bank's carrying value of the Retained
Assets at time of closing of the sale of Equity Bank; and (iii) at the time of
the closing of the sale of Equity Bank the Company has further agreed to
purchase from Equity Bank the outstanding accounts receivable sold to Equity
Bank by the Company and its subsidiaries under various purchase agreements,
dated March 8, 1988 (the "Receivables"), for the carrying value of such
Receivables on the books of Equity Bank as of the closing. In addition, the
Company has the option, but not the obligation, to acquire any loan owned by
Equity Bank that has been charged off or written down that may be acquired for
a price equal to the net book value of such loan that has been written down
and for a price of $1.00 in the case of each loan that has been charged off
("Other Loans").
<PAGE>
The Company currently expects that the purchase price to be paid by
Fourth Financial for Equity Bank will be approximately $92 million, subject to
determination and adjustment in accordance with the Acquisition Agreement (the
"Purchase Price"). The Purchase Price is based on a number of estimates, and
the amount of the Purchase Price cannot be determined exactly until the
closing of the sale of Equity Bank. The Company will use approximately
$65.4 million, plus interest, of the Purchase Price to repay a certain
indebtedness the Company intends to incur to finance the purchase from Equity
Bank of the Retained Corporations. In addition, it is anticipated that the
Company will use approximately $18.9 million of the Purchase Price to
purchase from Equity Bank the Retained Assets, which is the carrying value of
the Retained Assets on the books of Equity Bank as of February 28, 1994. As
of this date, the Company has made no decision if it will acquire any of the
Other Loans.
As of February 28, 1994, Equity Bank owned approximately $19.3 million
of the Receivables, which if the closing occurs on or about June 30, 1994, the
Company expects such to be less than $10 million as of the closing. On or
prior to the closing, the Company expects to have secured an accounts
receivable line of credit to replace, in whole or in part, the accounts
receivable financing provided by Equity Bank. The Company expects to use the
proceeds to be received from the new accounts receivable line of credit to
finance the repurchase of the Receivables from Equity Bank at the closing.
The balance of the Purchase Price, if any, remaining after (i) repayment
of the indebtedness incurred by the Company to purchase the Retained
Corporations, (ii) purchase from Equity Bank the Retained Assets, and (iii)
payment of the transactional costs relating to the sale of Equity Bank under
the Acquisition Agreement, will be used by the Company for general working
capital.
The enclosed Proxy Statement sets forth the details of the proposed
transaction and discusses the factors considered by the Board of Directors in
determining to approve the sale of Equity Bank to Fourth Financial pursuant to
the Acquisition Agreement. Shareholders are urged to read the Proxy Statement
in its entirety prior to voting on the proposed sale of Equity Bank.
The Board of Directors of the Company has unanimously concluded that the
sale of Equity Bank is in the best interests of the Company and its
shareholders and that the terms and conditions contained in the Acquisition
Agreement are fair to, and in the best interests of, the Company and its
shareholders. In arriving at its conclusion, the Board of Directors
considered the opinion, dated March ____, 1994, of Lazard Freres & Co.
("Lazard"), its independent financial advisor, that, as of such date, the
consideration to be received by the Company pursuant to the sale of Equity
Bank under the Acquisition Agreement was fair to the Company from a financial
point of view. A copy of the opinion of Lazard is attached as Exhibit "B" to
the Proxy Statement and shareholders are urged to read this opinion in its
entirety.
The Board of Directors of the Company unanimously recommends that you
vote to approve the Acquisition Agreement and the sale of Equity Bank. Your
approval of the sale of Equity Bank will specifically authorize the Company to
make future amendments or modifications to the terms and conditions of the
transaction which are either (i) not material or (ii) required by the
regulators in order to obtain regulatory approval of the Acquisition Agreement
and the transactions contemplated thereby, including material changes required
by the regulators, without obtaining any further approval by the shareholders
and without further solicitation of proxies from shareholders.
The sale of Equity Bank pursuant to the Acquisition Agreement is
currently estimated to result in a pre-tax gain for financial reporting
purposes for the Company of approximately $25.0 million, based upon the
currently-expected Purchase Price of approximately $92 million. The exact
amount of the Purchase Price will depend on certain factors at the time of
closing, and, as a result, the pre-tax gain for financial reporting purposes
could be higher or lower depending upon the ultimate amount of the Purchase
Price. The Company's tax basis in Equity Bank is higher than its basis for
financial reporting purposes. Under current federal income tax laws, the
consummation of the Acquisition Agreement and the sale of Equity Bank will not
have any federal income tax consequences to either the Company or to the
shareholders of the Company. There are, however, certain proposed regulations
which, if adopted by the Internal Revenue Service (the "IRS") before the
consummation of the sale of Equity Bank, could result in the Company having a
gain for federal income tax purposes in connection with the sale of Equity
Bank, but will not have any federal income tax effect on the shareholders of
the Company. The shareholders are urged to read the enclosed Proxy Statement,
including the section styled "Federal Income Tax Consequences".
Upon completion of the sale of Equity Bank, the Company will continue to
operate its industrial businesses consisting of the Chemical Business,
Environmental Control Business, Automotive Products Business and Industrial
Products Business.
The directors and officers of the Company, and their respective spouses
and children, beneficially own approximately 33.0% of the outstanding voting
shares of the Company, and they have indicated that they intend to vote in
favor of the Acquisition Agreement and the sale of Equity Bank.
Shareholders are not entitled to appraisal rights under Delaware law as
a result of the consummation of the Acquisition Agreement and the sale of
Equity Bank.
At the Special Meeting, you will also be asked to consider and vote upon
an adjournment of the Special Meeting to solicit additional proxies, if
necessary. In the event the holders of a majority of the outstanding voting
stock approve an adjournment, and the Company adjourns the Special Meeting, no
vote will be called with respect to the sale of Equity Bank until the date set
by the Company for the adjournment. The adjournment, if taken, will not
exceed fifteen (15) days. An adjournment of the Special Meeting will
provide the Company with an opportunity to solicit additional proxies in order
to increase the likelihood of shareholder approval of the sale of Equity Bank.
The Board of Directors of the Company unanimously recommends that you vote to
approve the adjournment of the Special Meeting, if necessary. Your approval
of the adjournment of the Special Meeting will specifically authorize the
Company to adjourn the Special Meeting for up to fifteen (15) days in order
to solicit additional proxies to approve the sale of Equity Bank.
All shareholders are invited to attend the Special Meeting in person.
However, in order that your shares may be represented at the Special Meeting,
please promptly sign and return the accompanying Proxy in the envelope
provided whether or not you plan to attend. If you attend the Special Meeting
in person, you may, if you wish, revoke your proxy and vote personally on all
matters brought before the meeting.
Very truly yours,
Jack E. Golsen
Chairman and President
<PAGE>
" REVISED PRELIMINARY PROXY STATEMENT"
LSB INDUSTRIES, INC.
_________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
May 2 , 1994
__________________________________________
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ("Special
Meeting") of LSB Industries, Inc., a Delaware corporation (the "Company"),
will be held at the Company's financial center, located at 4000 Northwest 39th
Expressway, Oklahoma City, Oklahoma 73107 (405-948-9550), on May 2, 1994, at
11:00 a.m., Central Standard Time, or any adjournment or postponement thereof,
for the following purposes:
1. To consider and approve a proposal to sell the Company's
subsidiary, Equity Bank for Savings, F.A., which operates
its financial services business;
2. To approve the adjournment of the Special Meeting to
solicit additional proxies, if necessary; and
3. To transact such other business as may properly come
before the meeting or any adjournments or postponements
thereof.
In accordance with the provisions of the Bylaws, the Board of Directors
has fixed the close of business on March 18, 1994, as the record date for
the determination of shareholders entitled to notice of, and to vote at, the
Special Meeting. Your attention is directed to the accompanying Proxy
Statement.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING, WE REQUEST THAT YOU PROMPTLY
SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. A
SHAREHOLDER WHO HAS GIVEN A PROXY MAY REVOKE IT BY FILING WITH THE COMPANY'S
SECRETARY AN INSTRUMENT REVOKING IT, BY SUBMITTING A DULY EXECUTED PROXY
BEARING A LATER DATE, OR BY VOTING IN PERSON AT THE MEETING.
By order of the Board of Directors,
David M. Shear
Vice President and Secretary
Oklahoma City, Oklahoma
March 22 , 1994
<PAGE>
" REVISED PRELIMINARY PROXY STATEMENT"
LSB INDUSTRIES, INC.
16 South Pennsylvania
Oklahoma City, Oklahoma 73107
_________________________
PROXY STATEMENT
____________________________
SPECIAL MEETING OF SHAREHOLDERS
To be held on May 2 , 1994
__________________________________________
THE SPECIAL MEETING
Date, Time and Place of Special Meeting and Matters to be Discussed at the
Special Meeting. This Proxy Statement is solicited on behalf of the Board of
Directors of LSB Industries, Inc., a Delaware corporation (the "Company"), and
is furnished to the holders of the Company's Common Stock, par value $.10 per
share ("Common Stock"); voting Convertible Noncumulative Preferred Stock, par
value $100 per share ("Convertible Preferred"); and, voting Series B 12%
Cumulative, Convertible Preferred Stock, par value $100 per share ("Series B
Preferred"), in connection with the solicitation of proxies to be used at the
Special Meeting of Shareholders of the Company to be held May 2, 1994, or
any adjournment or postponement thereof (the "Special Meeting"), at 11:00 a.m.
(Central Standard Time) at the Company's financial center, located at 4000
Northwest 39th Expressway, Oklahoma City, Oklahoma 73112. The date on which
this Proxy Statement and the enclosed Proxy are first sent to the shareholders
is on or about March 22, 1994.
At the Special Meeting, the shareholders are to consider and vote upon a
proposal to sell the Company's Financial Service Business, which consists of
Equity Bank for Savings, F.A. ("Equity Bank"), pursuant to a Stock Purchase
Agreement, dated as of February 9, 1994 (the "Acquisition Agreement"),
between the Company; Prime Financial Corporation ("Prime"), an Oklahoma
corporation and a wholly-owned subsidiary of the Company; and, Fourth
Financial Corporation ("Fourth Financial"), a Kansas corporation. Prime owns
all of the issued and outstanding capital stock of Equity Bank, and the
Company owns all of the issued and outstanding capital stock of Prime. The
Acquisition Agreement is attached to this Proxy Statement as Exhibit "A".
The Acquisition Agreement provides for the sale by the Company and Prime
to Fourth Financial of all of the outstanding shares of capital stock of
Equity Bank. The Company currently estimates that the purchase price to be
paid by Fourth Financial for Equity Bank will be approximately $92 million,
subject to determination and adjustment in accordance with the Acquisition
Agreement. See "Sale of Equity Bank - Summary of Sale". Approval at the
Special Meeting by the shareholders of the Company of the Acquisition
Agreement and the transactions contemplated thereby will also authorize the
Company, without further shareholder approval and without further solicitation
of proxies from shareholders, to make future modifications and amendments to
the terms and conditions of the sale of Equity Bank which are either (i) not
material or (ii) required by the regulators in order to obtain regulatory
approval as to the Acquisition Agreement and the transactions contemplated
therein, including material changes required by the regulators. See "Sale
of Equity Bank -- Regulatory Matters".
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE SALE
OF EQUITY BANK AND RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR THE
SALE OF EQUITY BANK.
The shareholders are also to consider and vote upon a proposal to
adjourn the Special Meeting to solicit additional proxies, if required. THE
BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE ADJOURNMENT
PROPOSAL AND RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR THE
ADJOURNMENT OF THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES, IF
NECESSARY.
Record Date; Voting at Special Meeting. The Board of Directors of the Company
has fixed March 18, 1994, as the Record Date for the determination of the
shareholders of the Company entitled to notice of, and to vote at, the Special
Meeting. As of the close of business on the Record Date, the Company had the
following shares of voting common stock and voting preferred stock issued and
outstanding: (i) [13,678,272] shares of Common Stock (excluding [835,784]
shares held in treasury), (ii) 1,632.5 shares of Convertible Preferred, and
(iii) 20,000 shares of Series B Preferred. Each shareholder of record, as of
the Record Date, will have one vote for each share of voting common stock and
voting preferred stock of the Company (or one-half of one vote for each
fractional one-half share of the Convertible Preferred) that the shareholders
own as of the Record Date. All shares of voting common stock and voting
preferred stock will vote together as a single class on all matters coming
before the Special Meeting. A majority of all of the outstanding shares of
voting common stock and voting preferred stock of the Company, as a single
class, entitled to notice of, and to vote at, the Special Meeting, represented
in person or by proxy, will constitute a quorum for the Meeting.
Pursuant to the General Corporation Law of the State of Delaware, only
votes cast "For" a matter constitute affirmative votes, except proxies in
which the shareholder failed to make a specification as to whether he votes
"For", "Against" or "Abstains" as to a particular matter shall be considered
as a vote "For" that matter. Votes will be tabulated by an inspector of
election appointed by the Company's Board of Directors. Votes in which the
shareholder specifies that he is "Abstaining" from voting are counted for
quorum purposes. Abstentions and broker non-votes are not considered as votes
"For" a particular matter.
One of the conditions of the proposed sale of Equity Bank is the
affirmative vote of the holders of a majority of the outstanding voting stock,
voting as a single class, of the Company and certain regulatory approvals. As
of the Record Date, the directors and officers of the Company and their
respective spouses and children beneficially owned approximately 33.0% of the
outstanding shares of voting stock of the Company, and they have indicated
that they intend to vote in favor of the Acquisition Agreement and the sale of
Equity Bank and the adjournment of the Special Meeting, if necessary. See
"Sale of Equity Bank -- Summary of Sale" for other conditions of the
proposed sale.
Approval by the shareholders of the Company of the Acquisition Agreement
and the transactions contemplated thereby will also authorize the Company,
without further shareholder approval and without further solicitation of
proxies from shareholders, to make further modifications and amendments to the
terms and conditions of the Acquisition Agreement and the sale of Equity Bank
which are either (i) not material or (ii) required by the regulators in order
to obtain regulatory approval of the Acquisition Agreement and the
transactions contemplated therein, including material changes required by the
regulators. See "Sale of Equity Bank -- Regulatory Matters" . If required
by the regulators, there would be no limitations on the Company's ability
to alter or change the amount or type of consideration to be received. The
Company is not currently aware of any such amendments or modifications which
are expected to occur. Shareholders who vote in favor of the Acquisition
Agreement and the transactions contemplated therein may be estopped under the
laws of Delaware, the Company's state of incorporation, from pursuing any
legal action if the amendments to the Acquisition Agreement are material as a
result of the requirements of the regulators, and, if such an action were
brought, the Company intends to assert an estoppel theory to defeat such an
action.
Approval by the shareholders of the Company of the proposal to adjourn
the Special Meeting to solicit additional proxies, if necessary, will
authorize the Company to adjourn the Special Meeting for a period of not more
than fifteen (15) days. During such period, the Company will have the
opportunity to solicit additional proxies in favor of the Acquisition
Agreement and the transactions contemplated thereby. In the event the Company
elects to adjourn the Special Meeting in order to solicit additional proxies,
no vote will be called with respect to the approval of the Acquisition
Agreement and transactions contemplated thereby until the date set by the
Company for such adjournment.
Proxies. The enclosed proxy is solicited by and on behalf of the Board of
Directors for use in connection with the Special Meeting and the vote to be
held at such meeting with respect to the sale of Equity Bank and any
adjournment of the Special Meeting, if necessary. Any proxy given may be
revoked by filing with the Secretary of the Company an instrument revoking it,
by submitting a duly executed proxy bearing a later date or by voting in
person at the Special Meeting. The Company has retained Kissel-Blake, Inc.
(the "Proxy Agent") to assist in the solicitation of proxies. The Proxy Agent
will receive a fee from the Company of $3,000 for its services, plus reim-
bursement for its reasonable out-of-pocket expenses. All additional expenses
of the solicitation of proxies for the Special Meeting, including the cost of
mailing, will be borne by the Company. In addition to solicitation by mail
and the services performed by the Proxy Agent, officers and regular employees
of the Company may solicit proxies from shareholders by telephone, telegram or
personal interview. Other than the Proxy Agent, the Company does not
anticipate retaining any specially engaged employees to solicit proxies. Such
persons will receive no additional compensation for such services. Further,
the Company and the Proxy Agent request persons holding stock in their name or
custody, or in the name of nominees, to send proxy materials to their
principals and request authority for the execution of proxies, and the Company
will reimburse such persons for their expenses in doing so.
SALE OF EQUITY BANK
The Company and Fourth Financial. The Company is a diversified holding
company which is engaged, through its subsidiaries, in (i) the manufacture and
sale of chemical products for the explosives, agricultural and industrial
acids markets (the "Chemical Business"), (ii) the manufacture and sale of a
broad range of air handling and heat pump products for use in commercial and
residential air conditioning systems (the "Environmental Control Business"),
(iii) the manufacture or purchase and sale of certain automotive and
industrial products, including automotive bearings and other automotive
replacement parts (the "Automotive Products Business") and the purchase and
sale of machine tools (the "Industrial Products Business"), and (iv) the
financial services business, which is conducted through Equity Bank (the
"Financial Services Business"). The Company's unaudited revenues and net
income for the nine (9) month period ending September 30, 1993, were $210.6
million and $10.8 million, respectively, as compared to the Company's revenues
of $246.8 million and net income of $9.3 million for the year ended December
31, 1992. For the nine (9) month period ended September 30, 1993,
approximately 85.2%, and 87.2% of the Company's revenues and operating income,
respectively, were attributable to its businesses other than the Financial
Services Business on an unaudited basis, while for the year ended December 31,
1992, approximately 81.0% and 88.5% of the Company's consolidated revenues and
operating income, respectively, were attributable to businesses other than the
Financial Services Business. The Financial Services Business accounted for
approximately 77.1% of the Company's unaudited consolidated assets at
September 30, 1993.
The Chemical Business manufactures and sells specialty explosives
products, prilled ammonium nitrate products and high grade specialty
industrial acids to the explosives, agricultural and industrial acids markets.
The Chemical Business accounted for approximately $91.0 million (43.2%) and
$15.5 million (61.7%) of the Company's unaudited consolidated revenues and
operating income, respectively, for the nine (9) month period ended September
30, 1993, and approximately $107.2 million (43.4%) and $18.4 million (71.2%)
of the Company's consolidated revenues and operating income, respectively, for
the year ended December 31, 1992.
The Environmental Control Business manufactures and sells a broad range
of fan coil, air handling, air conditioning, heating, heat pump, and
dehumidification products targeted to both new building construction and
renovation, as well as industrial applications. The Environmental Control
Business also sells components used in the manufacture of air conditioning,
heating, and refrigeration products to other manufacturers of those products,
some of whom resell those products in competition with the Environmental
Control Business. The Environmental Control Business accounted for
approximately $51.6 million (24.5%) and $2.7 million (10.7%) of the Company's
unaudited consolidated revenues and operating income, respectively, for the
nine (9) month period ended September 30, 1993, and approximately $55.0
million (22.3%) and $3.3 million (12.6%) of the Company's consolidated
revenues and operating income, respectively, for the year ended December 31,
1992.
The Automotive Products Business is primarily engaged in the manufacture
and sale of a line of anti-friction ball and roller bearings, oil seals and
motor mounts and certain other automotive replacement parts. The Industrial
Products Business purchases and markets a line of machine tools including
milling, drilling, turning, fabricating and grinding machines. The Automotive
Products Business and the Industrial Products Business combined accounted for
approximately $36.8 million (17.4%) and $3.7 million (14.8%) of the Company's
unaudited consolidated revenues and operating income, respectively, for the
nine (9) month period ended September 30, 1993, and approximately $37.6
million (15.3%) and $1.2 million (4.7%) of the Company's consolidated revenues
and operating income, respectively, for the year ended December 31, 1992.
The Financial Services Business offers, through Equity Bank, retail
banking services, mortgage, consumer and commercial lending, and other related
financial products and services through fifteen (15) branch offices located in
the Oklahoma City metropolitan area and western Oklahoma. In addition, the
Financial Services Business operates an Oklahoma-based credit card division in
order to complement its consumer lending activities. At September 30, 1993,
the Financial Services Business had, on a stand-alone basis, assets of $519.9
million and a net worth of $56.9 million. On a consolidated basis with the
Company, the Financial Services Business represented 77.1% of the Company's
unaudited consolidated assets at September 30, 1993. The Financial Services
Business accounted for approximately $31.2 million (14.8%) and $3.2 million
(12.8%) of the Company's unaudited consolidated revenues and operating income,
respectively, for the nine (9) month period ended September 30, 1993, and
approximately $46.9 million (19.0%) and $3.0 million (11.5%) of the Company's
consolidated revenues and operating income, respectively, for the year ended
December 31, 1992.
The Company's principal executive offices are located at 16 South
Pennsylvania, Oklahoma City, Oklahoma 73107, and its telephone number is (405)
235-4546.
Fourth Financial is a Kansas-based bank holding company that owns banks
in two (2) states of the United States, including one (1) bank in the
State of Oklahoma. The principal executive office of Fourth Financial is 100
North Broadway, Wichita, Kansas 67201, and its telephone number is (316) 261-
4444.
Background of and Reasons for the Sale. The Company entered the Financial
Services Business in March, 1988, with the acquisition of the predecessor of
Equity Bank, because the Company perceived an opportunity to purchase a
business with approximately $55.0 million in assets at an attractive price and
through which it could develop a profitable business and facilitate financing
of the Company's working capital needs pursuant to an accounts receivable
financing arrangement approved by the appropriate regulatory agency at the
time of the acquisition. In December, 1988, the Company acquired Arrowhead
Federal Savings and Loan Association ("Arrowhead"), which had assets of
approximately $317.0 million, in order to augment its Financial Services
Business. In 1989, Equity Bank acquired a credit card company, which provides
MasterCard and Visa credit card services to member financial institutions and
their customers and merchants.
In connection with the acquisition of Equity Bank in March, 1988, and
the approval of the appropriate regulatory authority at that time, the Company
and several of its subsidiaries transferred certain properties to Northwest
Financial Corporation ("Northwest Financial"), a wholly-owned service
corporation of Equity Bank. The properties included, but were not limited to,
the then manufacturing facilities and the then existing distribution
facilities of the Chemical Business, a portion of the real estate which the
Environmental Control, the Automotive Products and Industrial Products
Businesses conduct manufacturing and distribution operations and certain other
assets. (collectively, the "Transferred Assets"). Based upon approvals by the
appropriate regulatory authority at that time, Equity Bank was allowed to
record, on a stand-alone basis, the Transferred Assets at their then current
fair market value based on MAI appraisals approved by the appropriate
regulatory agency at that time. The MAI appraisals relating to the
Transferred Assets were, in the aggregate, approximately $69.8 million. The
Transferred Assets were transferred to Northwest Financial subject to
approximately $21.5 million in debt. Equity Bank was allowed to reflect the
MAI appraised values of the Transferred Assets, less the associated debt, for
capital purposes. The Company continued to reflect the historical cost, less
depreciation to date, for such Transferred Assets on the Company's
consolidated financial statements. The Company's historical cost for all of
the Transferred Assets, less depreciation, equaled approximately $18.8 million
as of the time such were transferred to Northwest Financial. In order for the
Company and its subsidiaries to continue their operations on those properties,
Northwest Financial entered into agreements to lease or sublease the
properties back to their original users for an original term of twelve (12)
years expiring in the year 2000, with an option to renew for an additional
term of ten (10) years, at an aggregate annual rental for all of the
Transferred Assets of $3.2 million, which lease agreement was amended,
including increasing the annual rental to approximately $4.3 million, due to
an agreement with its regulators as hereafter discussed in this section.
Subject to the terms of the leases between Northwest Financial and the
Company's subsidiary leasing such, Northwest Financial transferred beneficial
ownership of these properties to two general partnerships in which Northwest
Financial owns 99.0% of the partnership interest and the other 1.0% is owned
by another subsidiary of the Company. Northwest Financial continues to hold
record title to the real properties that constitute part of the Transferred
Assets.
As part of the acquisition of Equity Bank and thereafter Arrowhead and
the approval of the appropriate regulatory authority at that time, the Company
and its subsidiaries were permitted to sell up to $60.0 million of eligible
accounts receivable at any one time to Equity Bank with recourse to the seller
("Receivable Financing"). Under such Receivable Financing, each account
receivable sold to Equity Bank was sold at 100% of face value.
As a result of regulatory examinations by the Office of Thrift
Supervision ("OTS"), Equity Bank's primary regulatory authority, and the
Federal Deposit Insurance Corporation ("FDIC") in 1990 and subsequent years,
the OTS and the FDIC took the position that, among other things, the capital
carrying value of certain of the Transferred Assets contributed to Equity Bank
in 1988, which values were approved by the appropriate governmental agency at
the time of acquisition, needed to be substantially reduced. The Company
denied that such action by the FDIC and/or the OTS was proper. In 1992, the
Company, the FDIC and the OTS settled the issue as to the valuation of such
assets. As part of such settlement, the Company agreed, among other things,
to concede to the request of such regulatory authorities and amended the lease
between Northwest Financial and the Company's subsidiary leasing those
particular Transferred Assets for which the regulatory authorities questioned
the value by increasing the rent and shortened the lease term by
eliminating the option to renew for such Transferred Assets. In addition,
another wholly-owned subsidiary of the Company agreed to acquire from Equity
Bank certain of those Transferred Assets at the end of the lease term at
Equity Bank's then carrying value for regulatory capital purposes of such
Transferred Assets, which the Company estimates will have a carrying value of
approximately $55.0 million on the books of Equity Bank at the end of such
lease term. As of the date of this Proxy Statement, Equity Bank's carrying
value for all of the Transferred Assets is approximately $65.4 million,
which includes the $55.0 million of those Transferred Assets that a subsidiary
of the Company is required to purchase at the end of the lease term.
In addition, the OTS took the position that the initial five (5) year
approvals granted in 1988 allowing for the Receivable Financing between Equity
Bank and the Company and certain of its other subsidiaries expired, and
because of an intervening change in the law, beginning in September, 1993, the
amount of the Receivable Financing was to be reduced to amounts allowable
under current regulations relating to transactions with affiliated companies
which is based on a percentage of Equity Bank's capital. As part of the
negotiations with the OTS, the parties agreed to a phase-down period regarding
the Receivable Financing instead of having to reduce such to the applicable
percentage of Equity Bank's capital by September, 1993. It was agreed that:
(i) at no one time subsequent to September 28, 1993, but prior to September 1,
1994, would the total amount of such Receivable Financing outstanding at any
one time exceed $33.6 million; (ii) beginning February 1, 1994, Equity Bank
will not purchase any new accounts receivable from the Company and/or its sub-
sidiaries under the Receivable Financing arrangement if such would result in
Equity Bank owning an amount that would exceed the amount allowed by current
regulations, and (iii) on and after September 1, 1994, the outstanding amount
of such Receivable Financing at any one time must be in compliance with
current regulations. Assuming that on December 31, 1993, Equity Bank had
been required to meet current regulations regarding such Receivable Financing,
the amount would have had to be reduced to approximately $9.2 million as of
such date.
The Company had not considered selling Equity Bank prior to 1993.
During the first half of 1993, the Company was considering a public offering
of a new series of its Class C preferred stock, which offering was completed
in May, 1993 (the "Offering"). In connection with the Offering, the Company
selected Lazard Freres & Co. ("Lazard") as the managing underwriter of the
Offering. In connection therewith, Lazard advised the Company that, despite
benefits of ownership of Equity Bank, the public market and potential
investors found the Company more difficult to evaluate as a result of its
ownership of Equity Bank and the complexity of the Company being in both
industrial businesses and the financial services business. Lazard recommended
that since market conditions are currently favorable for selling financial
institutions, the Company consider selling Equity Bank or taking other steps
regarding Equity Bank to remove the complexity of analyzing the Company in the
minds of the investing public. As a result, the Company indicated in its
prospectus relating to the Offering the following:
The Company has pursued a strategy of acquisitions and is focusing
on increasing profitability within each of its businesses and
concentrating on business and product lines in niche markets where
the Company can establish a position as a market leader. In
addition, the Company is seeking to further build value for its
stockholders through realization of the value of selected assets
reflected on its balance sheet. In this connection, the Company
is considering alternatives with respect to the Financial Services
Business, including its possible disposition. As of the date of
this Prospectus, no decision has been made as to the disposition
of the Financial Services Business. Any disposition of the
Financial Services Business is, however, subject, among other
things, to the Company obtaining an acceptable price, acquisition
of, or agreement as to the treatment of certain assets owned by
the Financial Services Business contributed by the Company at the
time of the acquisition of the predecessor of Equity Bank and
obtaining necessary approvals from appropriate governmental
regulatory agencies.
The terms of the new series of preferred stock sold in the Offering
provided, among other things, that each share of such preferred stock would
have (i) rights to convert such into the Company's common stock, subject to
adjustment of the conversion price upon the occurrence of certain events based
on a formula, including, but not limited to, the distribution to all holders
of common stock of the Company of evidence of indebtedness or other assets,
and (ii) special conversion rights upon a corporate change or ownership change
having occurred, which would provide the holders of such preferred stock
greater conversion rights under certain conditions than under the terms of the
standard conversion rights applicable to such preferred stock. Under the
terms of such preferred stock, a "corporate change" was to occur at such time
that the Company shall consummate any transaction of merger or consolidation
of the Company or the Company shall convey, sell, lease, assign, transfer or
otherwise dispose of all or substantially all of the Company's property,
business or assets. Although the Company did not consider the sale or
disposition of Equity Bank to constitute all or substantially all of its
business, properties, or assets, as a result of Lazard's recommendations
regarding Equity Bank and to avoid any confusion, the Company provided in the
terms of the preferred stock covered by the Offering that (i) in the event of
any dividend or distribution to shareholders of the Company consisting
exclusively of capital stock of Equity Bank and/or certain other subsidiaries
of the Company, the Company may, at its option, elect, in lieu of all or any
portion of the adjustment to the conversion price, to make a cash payment to
the holders of such preferred stock based upon a formula described in the
terms of such preferred stock, and (ii) that the sale, transfer or other
disposition by the Company of any or all of the capital stock or assets of
Equity Bank and/or certain other subsidiaries of the Company would not be
considered a corporate change triggering the special conversion rights.
Upon completion of the Offering, in which Lazard was paid a customary
compensation for such activity, the Company retained Lazard to act as the
exclusive financial advisor to the Company in connection with the
consideration of alternatives relating to Equity Bank, including a possible
sale of Equity Bank. The Company selected Lazard to act as its financial
advisor as a result of the knowledge of the Company and Equity Bank that
Lazard had obtained acting as the managing underwriter of the Offering. In
connection with such services as the financial advisor, the Company paid to
Lazard a financial advisory fee of $75,000 and agreed to (i) pay Lazard the
sum of $1.0 million, less the $75,000 previously paid, upon completion of the
sale of Equity Bank to Fourth Financial under the Acquisition Agreement and
(ii) reimburse Lazard for certain of its reasonable out-of-pocket expenses in
connection therewith.
After entering into the engagement with Lazard to act as the Company's
exclusive financial advisor in connection with the consideration of
alternatives relating to Equity Bank, including its possible sale, Lazard,
with the assistance of the Company, prepared an informational memorandum
regarding Equity Bank and distributed such to potential acquirers of Equity
Bank, which they believed might have an interest in acquiring Equity Bank and
which would have the financial resources to fund such acquisition. Of those
financial institutions contacted, the Company received a written offer from
Fourth Financial. The Company did receive an indication of interest,
subject to performing due diligence, from another institution, and the amount
that this other institution indicated that it might pay for Equity Bank was
believed by the Company to be approximately the same as the offer from Fourth
Financial. The Company, however, felt that such other institution would not
be as viable a potential buyer as Fourth Financial since the Company did not
believe that such other institution had the financial resources of Fourth
Financial. As a result, the Company began negotiations with Fourth Financial.
After Fourth Financial conducted its due diligence of Equity Bank,
representatives of the Company and Fourth Financial met on numerous occasions
between August, 1993, and the end of November, 1993, to determine what was the
maximum Fourth Financial would pay for Equity Bank. Lazard was not involved
in the actual negotiations with Fourth Financial, but assisted the Company in
developing its negotiating strategy.
As a result of these discussions with Fourth Financial, Fourth Financial
made a formal proposal as to the amount that it would pay for Equity Bank.
Fourth Financial's proposal was based on a formula in which certain factors
of the formula were fixed and certain other factors of the formula could
only be finally determined as to amount at the time of closing of the Equity
Bank transaction. Management of the Company calculated that the projected
Purchase Price should be approximately $92 million, based on the following:
the (a) fixed factors of the formula were (i) $9.3 million for Equity Bank's
credit card business, (ii) $10.5 million for Equity Bank's net operating loss
carryforward, (iii) $11.0 million for Equity Bank's deposit balance, and (iv)
$1.2 million for certain of Equity Bank's branches, and (b) the factors of the
formula which could only be determinable at the closing were (i) the tangible
book value of Equity Bank at the closing, which the Company estimated will be
approximately $42.1 million of the Purchase Price; (ii) various percentages of
the unpaid principal balances at the closing of certain types of Equity Bank's
loans secured by fixed rate mortgages, which in the aggregate the Company
estimated will be approximately $2.4 million of the Purchase Price; (iii) an
amount at the closing equal to the unamortized discounts on certain of Equity
Bank's mortgages, which the Company estimated will be approximately $9.9
million of the Purchase Price; (iv) an amount to be determined at the closing
based on a certain percentage of mortgage loans that Equity Bank services for
others, which the Company estimated will be approximately $1.5 million of the
Purchase Price; (v) the amount at closing that Equity Bank's securities
portfolio differs from Equity Bank's book value of such securities portfolio
at the closing, which the Company estimates will be approximately $1.0 million
of the Purchase Price, with such amounts to vary depending on interest rates
and market conditions at the time of closing; and (vi) other factors to be
determined at closing, which the Company estimates will be less than $1.0
million of the Purchase Price. During the period from November 30, 1993, to
February 9, 1994 (the date of the definitive agreement), the Company and
Fourth Financial refined certain terms of such formula, which the Company
does not believe will materially change the estimated amount of the Purchase
Price of approximately $92 million. The material refinements to the formula
to determine the Purchase Price included: (i) Fourth Financial agreed to
increase that portion of the Purchase Price for certain of Equity Bank's
western Oklahoma branches from $1.2 million to $1.4 million; (ii) that in lieu
of indemnifying Fourth Financial for reductions to Equity Bank's net operating
loss carryforward below $64.0 million under certain conditions, the Company
had the option to be released from such indemnification by reducing the
Purchase Price by $600,00; (iii) changed the language in connection with the
calculation of the loan loss reserves at closing for purposes of determining
the Purchase Price to be more favorable to the Company by providing that
before any adjustment may be made the aggregate changes must exceed at least
$500,000 instead of $300,000, and that no change would be included in the
calculation to the extent such change was reflected in the tangible book value
of Equity Bank at the closing or if such change is less than $25,000, (iv) the
percentages as to yield adjustments were changed to favor the Company, which
the Company believes may increase the Purchase Price by approximately
$300,000, and (v) Fourth Financial agreed to pay as part of the Purchase Price
a certain percentage based on adjustable fixed rate mortgages owned by Equity
Bank at the closing, in addition to fixed rate mortgages owned by Equity Bank
at the closing. See "Sale of Equity Bank -- Summary of Sale" for the terms of
the formula as set forth in the Acquisition Agreement to determine the
Purchase Price to be received by the Company from Fourth Financial at the
closing of the sale of Equity Bank under the Acquisition Agreement. The
estimated amount of $92 million is based on a number of estimates made by
management of the Company, including an estimate of Equity Bank's earnings
through March 31, 1994, and other variables that will affect the amount of the
Purchase Price. As a result, the exact amount of the Purchase Price may be
higher or lower depending on those factors of the formula that can only be
determined at the time of closing of the sale of Equity Bank.
The Company and Fourth Financial also agreed that the Company (i) would
purchase from Equity Bank, prior to completion of the transaction, all of the
capital stock of the subsidiaries of Equity Bank that own the Transferred
Assets ("Retained Corporations") for an amount equal to Equity Bank's carrying
value of the Transferred Assets at the time the Company acquires the Retained
Corporations; (ii) that the Company would acquire from Equity Bank, at the
closing of the sale of Equity Bank, (a) the loan and mortgage on and option to
purchase the twenty-two (22) story Equity Tower and all related rights and
agreements, located in Oklahoma City, Oklahoma ("Equity Tower Loan"), in which
the principal offices of Equity Bank are located, which Equity Tower Loan had
previously been classified by Equity Bank as an in substance foreclosure on
its books, (b) all the other real estate owned by Equity Bank as a result of
foreclosures ("OREO") (the Equity Tower Loan and the OREO are
collectively called the "Retained Assets"), for an amount equal to the
carrying value thereof as shown on the books of Equity Bank at the closing,
and (c) the accounts receivable owned by Equity Bank at the closing which were
sold by the Company and certain of its subsidiaries to Equity Bank under
various purchase agreements, dated March 8, 1988 (the "Receivables"), for an
amount equal to the carrying value thereof as shown on the books of Equity
Bank at the closing. See "Sale of Equity Bank -- Summary of Sale". As of
February 28, 1994, the carrying value on the books of Equity Bank as to (i)
the Transferred Assets held by the Retained Corporations was, in the aggre-
gate, approximately $65.4 million; (ii) the Retained Assets was
approximately $18.9 million, and (iii) the Receivables was approximately
$19.3 million.
At a meeting of the Company's Board of Directors held on November 11,
1993, the Board of Directors was advised as to the status of the negotiations
between the Company and Fourth Financial regarding Equity Bank.
Prior to any meeting of the Company's Board of Directors regarding
whether the Company should sell Equity Bank to Fourth Financial, management of
the Company provided each member of the Board of Directors with a substantial
amount of information relating to Equity Bank and the Fourth Financial
proposal, including, but not limited to, a summary of Fourth Financial's
proposal and an example calculation of the proposed Purchase Price; Equity
Bank's historical earnings and projected earnings based on numerous
assumptions if Equity Bank was retained by the Company; and the effect on the
Company of selling Equity Bank at an assumed purchase price of $92 million
after acquiring the Transferred Assets at Equity Bank's carrying value thereof
but before acquisition of the note and mortgage relating to the Equity Tower.
Management made no recommendations to the Board of Directors regarding Fourth
Financial's proposal at that time. After allowing the members of the Board of
Directors several days to review such information and documents, a meeting of
the Board of Directors was held on November 29, 1993. All of the directors
(except for Robert C. Brown, M.D.) were present. Also present at that meeting
were the Company's General Counsel, the Company's Managing Counsel, and the
president of Equity Bank. At this meeting, management presented to the Board
of Directors a summary of the progress to date as to the negotiations with
Fourth Financial and the other institution that management had discussions
with regarding Equity Bank. The Company's Board of Directors reviewed in
detail at the meeting the documents supplied to them regarding the offer from
Fourth Financial and discussed other alternatives as to Equity Bank, such as
spinning off Equity Bank to the holders of the Company's common stock, the
possibility of retaining Equity Bank, and the possibility of Equity Bank
having an initial public offering ("IPO") of a certain percentage of its stock
with the Company retaining a majority of the outstanding stock of Equity Bank.
The Board made no decision at the November 29, 1993, meeting regarding Equity
Bank.
The Company's Board of Directors met again on November 30, 1993. At
that meeting all of the directors (except Robert C. Brown, M.D.) were present.
The Company's General Counsel, the Company's Managing Counsel, and
representatives of Ernst & Young, the Company's independent public
accountants, and Lazard were also present. At this meeting, representatives
of Lazard presented to the Board of Directors in writing a summary of the
preliminary valuation analysis for Equity Bank and orally advised the Board of
Directors that the proposal made by Fourth Financial was, in their opinion,
fair from a financial point of view to the Company. See "Sale of Equity Bank
- -- Opinion of Financial Advisor". At this meeting, the Board of Directors
unanimously approved the Company proceeding with a sale of Equity Bank to
Fourth Financial on terms substantially as presented to the Board of Directors
and approved the execution of an agreement in principle to sell Equity Bank to
Fourth Financial on such terms.
The alternatives considered by the Board of Directors regarding spinning
off Equity Bank to the holders of the Company's Common Stock and the IPO
with the Company retaining a majority of the outstanding stock of Equity Bank
were determined by the Board not to be satisfactory alternatives for, among
other things, (i) increased competition in the markets served by Equity Bank;
(ii) Equity Bank would continue to own the Transferred Assets and the
Company's subsidiary would continue to have the obligation to purchase the
Transferred Assets at the end of the lease term for a substantial amount of
money; (iii) the Company would have to continue to pay rent for the
Transferred Assets to an entity which would no longer be a wholly-owned
subsidiary; (iv) the Transferred Assets would continue to be owned by Equity
Bank, which is highly regulated, and, as a result, under certain conditions,
the regulators could require Equity Bank to dispose of, or to take other
actions regarding, the Transferred Assets to the detriment of the Company and
Equity Bank; (v) the distribution of the capital stock of Equity Bank to the
holders of the Company's Common Stock could result in substantially greater
dilution to the holders of the Company's Common Stock than under the normal
conversion rights of the holders of the preferred stock covered by the
Offering as a result of the required adjustment to the conversion rights of
such preferred stock due to such distribution or, in order to avoid the
additional dilution, require the Company to make a substantial cash payment to
the holders of such preferred stock reducing the Company's working capital;
and, (vi) the Company would receive greater benefit in selling Equity Bank at
this time than in spinning off the capital stock of Equity Bank to the
Company's holders of Common Stock or having Equity Bank sell a portion of its
stock through an IPO with the Company retaining a majority of Equity Bank's
stock.
The Board of Directors concluded on November 30, 1993, that the sale of
Equity Bank at this time and on the terms presented to the Board of Directors
would be in the best interest of the Company and its shareholders. In
arriving at such conclusion, the Board of Directors considered a number of
factors, including, but not limited to: (i) Lazard's advice to the Board of
Directors that at the present time there was a favorable market to sell
financial institutions, and, as a result, if the Company decided not to sell
Equity Bank to Fourth Financial it might be difficult to find another
substantial buyer at a later date for an Oklahoma financial institution; (ii)
increased competition in the markets served by Equity Bank, since a number of
out-of-state financial institutions have come into the Oklahoma market with
financial capital greater than that of Equity Bank and increased competition
in the credit card business; (iii) the highly regulated nature of Equity Bank,
which (a) requires Equity Bank to be extremely conservative in its lending
practice, and, as a result, Equity Bank may not in the future be able to
develop a sufficient amount of outstanding loans to provide the Company with
what the Company believed is an adequate rate of return on its investment, (b)
refusal by the regulators to extend the initial five (5) year approval period
relating to the Receivable Financing, and (c) the limitations as a result of
the qualified thrift lending requirements ("QTL Requirements"); (iv)
limitations on the growth of Equity Bank as a result of such regulations,
which prevents the Company from converting Equity Bank from a savings insti-
tution to a bank with less restrictive regulations allowing Equity Bank to
more effectively compete with the new out-of-state banks establishing
operations in the Oklahoma market; (v) changing marketplace for savings
institutions such as Equity Bank due to out-of-state banks establishing
operations in Oklahoma; (vi) potential change in the tax laws which could
result in the Company having to recognize a taxable gain if the sale were to
occur after certain proposed regulations were adopted (see "Sale of Equity
Bank --Federal Income Tax Consequences") ; (vii) sale would eliminate
problems with having to raise the funds at a later date to buy back certain of
the Transferred Assets , since a subsidiary of the Company had agreed with
the OTS to purchase certain of the Transferred Assets at the end of the lease
term for the then carrying value of such Transferred Assets, which was
estimated to be approximately $55.0 million at the end of such lease term;
(viii) recommendations of Lazard as to (a) the fairness of the transaction,
from a financial point of view, of the consideration to be received by the
Company from the sale of Equity Bank to Fourth Financial, (b) the benefits of
generating the funds to purchase certain of the Transferred Assets from Equity
Bank, (c) level of earnings that might be anticipated from Equity Bank in the
future, and (d) the effect that the Company's ownership of Equity Bank was
having on investor's ability to evaluate the Company, and (ix) increase of
approximately $25.0 million in the net worth of the Company as a result of the
sale of Equity Bank, assuming the Purchase Price is $92.0 million, and
improvement of the Company's debt to capital ratio as a result of the sale .
See "Sale of Equity Bank -- Fairness of the Sale" and "Sale of Equity Bank --
Opinion of Financial Advisor" for a discussion of the factors considered
relating to the fairness of the sale of Equity Bank. See "Sale of Equity Bank
- -- Use of Proceeds" for a discussion of the use and potential use of the
proceeds from the sale of Equity Bank. See also "Sale of Equity Bank --
Business of the Company after the Sale of Equity Bank" and "Pro Forma
Financial Statements".
The Board of Directors also concluded that the sale of Equity Bank will
enable management to focus the resources of the Company, both financially and
operationally, on its industrial businesses which, although such only
represented approximately 22.9% and 20.0% of the Company's consolidated assets
as of September 30, 1993, and December 31, 1992, respectively, such industrial
businesses represented approximately 85.2% and 81.0% of the Company's
consolidated revenues for the nine (9) month period ended September 30, 1993,
and for the year ended December 31, 1992, respectively.
The Board of Directors did consider certain disadvantages regarding
selling Equity Bank, including, but not limited to, (i) the additional
earnings provided by Equity Bank to the Company's consolidated net income in
the manner provided in 1991, 1992, and 1993, as evidenced by the "Unaudited
Restated Historical Selected Financial Data" contained elsewhere in this Proxy
Statement; (ii) the favorable perception that owning Equity Bank had on the
Company's industrial activities, and (iii) Equity Bank's continuing to provide
Receivable Financing at 100% of face value of the Receivables, although the
amount of such financing was substantially reduced as a result of an agreement
between the OTS and Equity Bank, as opposed to other financial institutions
financing only 80% to 85% of the face value of such receivables.
On November 30, 1993, the Company and Fourth Financial entered into an
agreement in principle regarding the sale and purchase of Equity Bank, and on
December 1, 1993, both the Company and Fourth Financial issued press releases
that they had reached an agreement in principle whereby the Company would
sell, and Fourth Financial would purchase, Equity Bank, and that such
transaction was subject to the execution of a definitive agreement, obtaining
regulatory approvals and other conditions to be met.
The first draft received by the Company from Fourth Financial of a
definitive agreement was not acceptable for since the first draft did not
contain certain terms agreed to during negotiations and the initial draft
contained terms which the parties were aware were subject to further
negotiations. Between November 30, 1993, and February 9, 1994 (the date
of the definitive agreement ), representatives of the Company and Fourth
Financial had numerous meetings and telephone conferences negotiating the
terms of the definitive agreement.
Copies of the final draft of the Acquisition Agreement and a draft of
Lazard's form of opinion that the Purchase Price was fair from a financial
standpoint were delivered to the members of the Board of Directors. See "Sale
of Equity Bank -- Opinion of Financial Advisor". On February 8, 1994, a
telephonic meeting of the Board of Directors was held, at which time the
Board of Directors reviewed, in detail, the Acquisition Agreement and the
draft of Lazard's form of opinion. Present at the telephonic meeting were all
of the directors, the Company's General Counsel and the Company's Managing
Counsel After discussion of the merits and status, the Board of Directors
unanimously approved and authorized the execution, delivery and performance of
the Acquisition Agreement and the sale of Equity Bank pursuant to the terms
thereof. The Board of Directors unanimously approved and authorized the
consummation of the Acquisition Agreement, subject to, among other things
specified in the Acquisition Agreement, the approval of the shareholders of
the Company and obtaining regulatory approvals, which shareholder approval
would specifically authorize the Company to amend or modify the Acquisition
Agreement without further shareholder approval if such amendments or
modifications are either (i) not material or (ii) required by the regulators
in order to obtain regulatory approval of the Acquisition Agreement and the
transactions contemplated therein, including material changes required by the
regulators. Consummation of the Acquisition Agreement is subject to other
conditions being met as described in "Sale of Equity Bank -- Summary of Sale".
The Acquisition Agreement was executed as of February 9, 1994, by all
of the parties. On February 10, 1994, press releases announcing the
execution of a definitive agreement were issued by the Company and Fourth
Financial. On March 11, 1994, Lazard delivered an executed fairness
opinion. See "Sale of Equity Bank -- Opinion of Financial Advisor".
Fairness of the Sale. The Board of Directors believes that the terms and
conditions contained in the Acquisition Agreement are fair to, and in the best
interests of, the Company and its shareholders. In arriving at this belief,
the Board of Directors considered (i) the advice of Lazard that at the
present time there was a favorable market to sell financial institutions; (ii)
the opinion of Lazard, the Company's independent financial advisor, that, as
of the date of such opinion, the consideration to be received by the Company
pursuant to the sale of Equity Bank was fair to the Company from a financial
point of view; (iii) the analysis presented to the Board of Directors at its
November 30, 1992, meeting by Lazard in connection with Lazard's rendering of
its fairness opinion (iv increased competition in the markets served by
Equity Bank; (v) the highly regulated nature of Equity Bank; (vi) limitations
on the growth of Equity Bank as a result of such regulations; (vii) changing
marketplace for savings institutions such as Equity Bank; (viii) potential
change in the tax laws which could result in the Company having to recognize a
taxable gain if the sale were to occur after certain proposed regulations were
adopted (see "Sale of Equity Bank -- Federal Income Tax Consequences"); (ix)
sale would eliminate problems with having to raise the funds at a later date
to buy back certain of the Transferred Assets; (x) increase in the net worth
of the Company as a result of the sale of Equity Bank; and, (xi)
recommendations by Lazard as to (a) the fairness of the transaction, from a
financial point of view, of the consideration to be received by the Company
from the sale of Equity Bank to Fourth Financial, (b) the benefits of
generating the funds to purchase certain of the Transferred Assets from Equity
Bank, (c) level of earnings that might be anticipated from Equity Bank in the
future, and (d) the effect that the Company's ownership of Equity Bank was
having on investor's ability to evaluate the Company. See "Sale of Equity
Bank -- Background and Reasons for the Sale", "Sale of Equity Bank -- Opinion
of Financial Advisor" and "Sale of Equity Bank -- Use of Proceeds", "Sale of
Equity Bank -- Business of the Company after the Sale of Equity Bank", and
"Pro Forma Financial Statements". The Board of Directors also noted the
substantial efforts undertaken by the Company and Lazard to locate other
potential purchasers for Equity Bank. Such efforts included discreet
inquiries of, and discussions with, potential financial purchasers, as well as
potential strategic purchasers which, like Fourth Financial, may be in a
position to take advantage of synergies created by combining the operations of
Equity Bank with their present business operations.
In determining that the sale of Equity Bank is fair to, and in the best
interests of, the Company and its shareholders, the Board of Directors did not
assign any particular weight to any of the factors it considered, but gave
serious consideration to each of them. See "Sale of Equity Bank -- Background
of and Reasons for the Sale" and "Sale of Equity Bank -- Opinion of Financial
Advisor".
Opinion of Financial Advisor. On November 30, 1993, at the meeting at
which the Company's Board of Directors approved the agreement in principle to
sell Equity Bank to Fourth Financial, Lazard delivered its oral opinion, which
was subsequently confirmed in writing on March ____, 1994, that the Purchase
Price for Equity Bank was fair, from a financial point of view, to the
Company. No limitations were imposed by the Company's Board of Directors upon
Lazard with respect to the investigations made or procedures followed by it in
rendering its opinion.
The full text of the opinion of Lazard, dated as of March ____, 1994
(the "Lazard Fairness Opinion"), which sets forth assumptions made, matters
considered and limits on the review undertaken in connection with such
opinion, is attached hereto as Exhibit "B" to this Proxy Statement. The
Lazard Fairness Opinion is addressed only to the Company's Board of Directors
and does not constitute a recommendation to any of the Company's shareholders
as to how such shareholder should vote at the Special Meeting. The summary of
the Lazard Fairness Opinion set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of such opinion. The Company's
shareholders are urged to read the Lazard Fairness Opinion in its entirety.
Lazard is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwritings, distributions of
securities and similar activities. Lazard has acted as financial advisor to
the Company in connection with the sale of Equity Bank. In connection
therewith, Lazard has been paid a fee of $75,000 and will be paid an
additional fee for its services as financial advisor which is contingent upon
the consummation of the Acquisition Agreement. In the course of its
activities, Lazard has provided investment banking services to the Company
from time to time, including acting as managing underwriter of the Offering by
the Company in May, 1993, for which Lazard received customary compensation.
See "Sale of Equity Bank -- Background of and Reasons for the Sale". Lazard
may, in the ordinary course of its business, trade securities of the Company
for its own account or for the accounts of customers and, thus, may hold long
or short positions in such securities at any time.
In connection with the delivery of the Lazard Fairness Opinion, Lazard
reviewed the following material documents (i) the Acquisition Agreement;
(ii) a draft, dated March ___, 1994, of this Proxy Statement; (iii) audited,
consolidated financial statements of Equity Bank for the three (3) years ended
December 31, 1992; and (iv) certain financial and other information regarding
Equity Bank, including financial forecasts for Equity Bank, which were
furnished to Lazard by the Company and Equity Bank or were publicly available.
Lazard held discussions with members of the senior management of Equity Bank
with respect to its past and current business operations and financial
condition, regulatory relationships and future prospects. Lazard also held
discussions with the independent auditors of Equity Bank regarding its
financial and accounting affairs. In addition, Lazard compared certain
financial and stock market information for Equity Bank with similar
information for other companies the securities of which are publicly traded,
which companies are listed under "Valuation of the Bank -- Analysis Based on
Selected Thrift Trading Multiples" below, and reviewed the financial terms of
certain recent merger and acquisition transactions involving savings
institutions specifically and in other industries generally and performed such
other studies and analyses as it considered appropriate.
Lazard relied upon the accuracy and completeness of all of the financial
and other information reviewed by it for purposes of the Lazard Fairness
Opinion and did not attempt independently to verify any of such information.
In that regard, Lazard did not conduct a physical inspection of any of the
properties or assets of Equity Bank, nor did it obtain any independent
evaluation or appraisal of any properties, assets or liabilities of Equity
Bank. In addition, Lazard assumed, with the consent of the Company's Board of
Directors, that the financial forecasts furnished to it had been reasonably
prepared on a basis reflecting the best currently available judgments and
estimates of Equity Bank. The Lazard Fairness Opinion does not address the
relative merits of the sale of Equity Bank as compared to any alternative
business strategies that might exist for the Company. The Lazard Fairness
Opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of, the date hereof.
The following is a brief summary of the material analyses performed by
Lazard in connection with rendering its written opinion, dated as of March
____, 1994. Lazard utilized substantially the same financial analyses in
preparing its oral opinion to the Company's Board of Directors on November 30,
1993.
Derivation of Equity Bank's Normalized Earnings. Equity Bank's
historical and projected consolidated stand-alone statements of income include
interest income from certain affiliated Receivable Financing transactions,
non-interest revenues associated with the Equity Tower Loan, gains on the sale
of the OREO, and rental income generated by the Retained Corporations relating
to the Transferred Assets. Lazard adjusted Equity Bank's earnings to remove
these revenues since under the Acquisition Agreement, the Company will
purchase the Retained Assets, the Receivables, and the Retained Corporations
from Equity Bank. Lazard made a related pro forma adjustment to credit Equity
Bank's interest income for a 6% yield on the theoretical reinvestment of cash
of approximately [$85.9] million received from the sale of the Retained Assets
and the Retained Corporations and [$29.4] million for the repurchase of the
accounts receivable sold to Equity Bank under the Receivable Financing.
Lazard further adjusted Equity Bank's earnings to eliminate the effect of
certain non-recurring items which would either be eliminated due to purchase
accounting adjustments or whose value was separately determined. These
adjustments included goodwill amortization and the accretion of a discount
relating to and gains on the sale of a portfolio of purchased loans.
As a result of the adjustments discussed above, Lazard calculated Equity
Bank's normalized pre-tax income for the year ended December 31, 1993, to
be $7.5 million, versus $8.2 million reported by Equity Bank in its
internal stand-alone financial statements. Lazard calculated normalized pre-
tax income for the year ending December 31, 1994 (based on estimates
prepared by management of Equity Bank) to be $5.6 million, versus
management's estimated figure of $5.7 million. Since the value of
Equity Bank's net operating loss carryforwards also was determined separately
(together with the adjustments referred to in the preceding paragraph, the
"Valuation Adjustment"), and in order to facilitate comparisons, Lazard
applied a tax rate of 38% to the normalized pre-tax income figures. This
resulted in fully-taxed net income ("Normalized Earnings") of $4.6 million
and $3.5 million for the year ended December 31, 1993, and estimated for
the year ending December 31, 1994, respectively. The Valuation Adjustment
was calculated based on financial information relating to Equity Bank provided
to Lazard by the managements of the Company and Equity Bank, which information
Lazard did not independently verify.
Analysis of Selected Savings Institution Stock Purchases. Lazard
reviewed certain merger and acquisition transactions involving savings
institutions announced since January 1, 1992, in which the acquired
institution had assets of less than $1 billion and was located in selected
midwest and southern states. The transactions included (acquiror/acquiree):
Roosevelt Financial Group, Inc./Home Federal Bancorp of Missouri, Inc.; First
Bancorporation of Ohio/Great Northern Financial Corp.; First American Corpora-
tion/Fidelity Crossville, Corp.; SunTrust Banks, Inc./Regional Investment
Fund, Ltd.; Crestar Financial Corporation/Providence Savings and Loan
Association of Vienna; Crestar Financial Corporation/Virginia Federal Savings
Bank; First Financial Corproation/Highland Federal Savings Bank; First Banks,
Inc./American Home Savings & Loan Association; AmSouth Bancorporation/First
Federal Savings Bank of Calhoun; Colonial BancGroup, Inc./AmFed Financial
Corporation; Standard Federal Savings Bank/Heritage Bancorp., Inc.; Centura
Banks, Inc./ Robeson Savings Bank, Inc.; First Banks, Inc./First Federal
Savings Bank of Proviso Township; Fourth Financial Corporation/Great Southern
Bancorp., Inc.; Fifth Third Bancorp/The TriState Bancorp; AmSouth
Bancorporation/Florida Bank, A Federal Savings Bank; Southern National
Corporation/Home Federal Savings Bank of Statesville; First Citizens
Bancshares, Inc./Pioneer Bancorp., Inc.; Huntington Bancshares, Inc./First
Bancorp Indiana, Inc.; First American Corporation/First Federal Savings & Loan
Association; Metropolitan Financial Corporation/Eureka Savings Bank, F.S.b.;
Metropolitan Financial Corporation/Western Financial Savings Bank, F.S.B.;
Great Financial Federal/Cardinal Financial Group, Inc. Lazard compared
certain multiples implied by the Fourth Financial proposal with comparable
multiples for these transactions. The analysis indicated price/tangible book
values for these transactions that ranged from 0.48x to 2.22x, with a median
multiple of 1.59x; and price/last twelve (12) months ("LTM") earnings per
share ("EPS") multiples that ranged from 3.4x to 20.3x with a median multiple
of 13.5x. Based on a Purchase Price of $92 million and before the Valuation
Adjustment, the comparable analysis of the Fourth Financial proposal to
acquire Equity Bank indicated a price/tangible book value of 2.36x; a
price/LTM fully-taxed reported earnings of 17.3x; and a price/LTM Normalized
Earnings of 22.8x. Reducing the assumed purchase price of $92 million by the
Valuation Adjustment, the comparable analysis of the Fourth Financial proposal
to acquire Equity Bank indicated a price/tangible book value of 1.69x; a
price/LTM fully-taxed reported earnings of 12.4x; and a price/LTM Normalized
Earnings of 16.4x.
Valuation of the Bank. As Equity Bank is not a publicly-traded company,
Lazard undertook a series of analyses, described below, to determine a
reference range for the transaction value of Equity Bank under different
valuation methodologies:
Analysis Based on Selected Savings Institution M&A
Transactions. As described above, Lazard reviewed certain merger and
acquisition transactions involving savings institutions. Lazard applied
the multiples implied by these transactions to Equity Bank's tangible
book value and Normalized Earnings and added the Valuation Adjustment to
these products. On the basis of this analysis, Lazard established a
reference range for the transaction value of Equity Bank of $81.6
million to $91.5 million (Lazard established a reference range of
$73.7 million to $90.2 million at the time it delivered its oral
opinion).
Analysis Based on Selected Thrift Trading Multiples. Lazard
selected and analyzed a group of publicly traded savings institutions
located in selected midwest and southern states, with total assets
between $200 million and $800 million, and with return on assets between
0.50% and 2.00%. The institutions in this group were Conservative
Savings Corporation, FirstFed Northern Kentucky Bancorp, Inc., Great
Southern Bancorp, Inc., Home Federal Savings Bank of Missouri, Railroad
Financial Corporation and UNSL Financial Corp. This analysis indicated
that the common stock of the group traded at price/tangible book values
that ranged from 0.75x t 1.51x, with a median multiple of 1.22x;
price/1993 EPS multiples that ranged from 6.1x to 14.2x with a
median multiple of 9.0x; and price/1994E (as compiled by the
Institutional Brokers' Estimate System) EPS multiples that ranged from
10.7x to 12.5x with a median multiple of 11.0x. Lazard applied
these multiples to Equity Bank's tangible book value and Normalized
Earnings, added an assumed control premium of 25% to this product and
further added the Valuation Adjustment to this sum. On the basis of
this analysis, Lazard established a reference range for the transaction
value of the Bank of $77.5 million to $88.8 million (Lazard
established a reference range of $66.8 million to $86.1 million at the
time it delivered its oral opinion).
Analysis Based on Balance Sheet Mark-to-Market. Lazard
analyzed the values that might be obtained if the assets and liabilities
of Equity Bank were sold separately. This analysis considered not only
the possible premiums that might be paid for certain on-balance sheet
assets, but also the possible premiums for off balance sheet assets such
as Equity Bank's portfolios of mortgage servicing and credit card
receivables. In determining the range of possible premiums that might
be paid for these assets, Lazard took into account the range of premiums
that had been paid in transactions involving similar asset types. On
the basis of this analysis, Lazard established a reference range for the
transaction value of Equity Bank of $77.5 million to $86.6 million
(Lazard established a reference range of $78.6 million to $90.3 million
at the time it delivered its oral opinion).
No company or transaction used in the above analyses is identical to
Equity Bank or the Acquisition Agreement. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading or
acquisition values of the companies to which they are being compared.
The summary set forth above does not purport to be a complete
description of the analyses performed by Lazard. The preparation of a
fairness opinion is a complex process and is not susceptible to partial
analysis or summary description. Lazard believes that its analyses and the
summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses or factors, or selecting parts of the above summary, without
considering all analyses and factors, could create an incomplete view of the
processes underlying the preparation of the Lazard Fairness Opinion. None of
the analyses performed by Lazard was indicated by Lazard to have a greater
significance than any other. The ranges of valuations resulting from any
particular analysis described above should not be taken to be Lazard's view of
the actual value of Equity Bank.
In performing its analyses, Lazard made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Equity Bank. The
analyses performed by Lazard are not necessarily indicative of actual value or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, the analyses do not purport to be
appraisals or to select the prices at which a company might actually be sold
or the prices at which any securities may trade at the present time or at any
time in the future. Lazard used in its analyses various projections of future
performance prepared by the management of Equity Bank. The projections are
based on numerous variables and assumptions which are inherently unpredictable
and must be considered uncertain of occurrence in the amounts and at the times
projected. Accordingly, actual results could vary significantly from those
set forth in such projections.
As described above, the Lazard Fairness Opinion was among many factors
taken into account by the Company's Board of Directors in making its
determination to approve the Acquisition Agreement.
The terms of the engagement of Lazard were set forth in an engagement
letter dated June 11, 1993, and amended on January 20, 1994. Pursuant to that
letter, as amended, Lazard was paid a financial advisor's fee of $75,000, and,
if the Acquisition Agreement is consummated, the Company will pay to Lazard a
transaction fee of $1 million, less the $75,000 previously paid. The Company
has further agreed to reimburse Lazard for certain of its reasonable out-of-
pocket expenses. The Company has agreed to indemnify Lazard against certain
liabilities relating to, or arising out of, the engagement, including
liabilities under the federal securities laws.
Use of Proceeds. As stated in the "Sale of Equity Bank -- Background of
and Reasons for the Sale", the Acquisition Agreement provides that the Company
is to purchase prior to the consummation of the Acquisition Agreement the
Retained Corporations from Equity Bank for a price equal to the then carrying
value of the Retained Corporations on the books of Equity Bank. The Company
anticipates that such price for the Retained Corporations will be
approximately $65.4, which is the carrying value of the Transferred Assets
contained in the Retained Corporations on the books of Equity Bank as of
December 31, 1993. The Company has arranged with Bank IV Oklahoma, National
Association ("Bank IV"), a subsidiary of Fourth Financial, to borrow such
funds to acquire the Retained Subsidiaries, with such funds to bear an annual
rate of interest of _______% and to be repaid in full as soon as possible
after the consummation of the Acquisition Agreement with a portion of the
proceeds received as the Purchase Price from Fourth Financial. In addition,
the Acquisition Agreement also provides that the Company is to acquire at the
time of the consummation of the Acquisition Agreement the (i) Retained Assets
for an amount equal to the carrying value of such on the books of Equity Bank
at the consummation of the Acquisition Agreement, which is estimated to be
approximately $18.9 million, since such was the aggregate carrying value of
the Retained Assets as of February 28, 1994, and (ii) the Receivables sold
to Equity Bank by the Company and subsidiaries of the Company that are on the
books of Equity Bank at the time of consummation of the Acquisition Agreement
for an amount equal to Equity Bank's carrying value of such Receivables at the
time of such consummation. As of February 28, 1994, Equity Bank owned
approximately $19.3 million of such Receivables, which the Company believes
will be less than $10 million if the consummation of the Acquisition Agreement
occurs on or about June 30, 1994. The Acquisition Agreement also provides
that the Company will have the option, but not the obligation, to acquire
loans of Equity Bank that have been charged off or written down ("Other
Loans") for a price equal to the net book value of each loan that has been
written down or $1.00 for each loan charged off. See "Sale of Equity Bank --
Summary of Sale". [As of the date of this Proxy Statement, the Company has
not made a decision as to whether it will acquire any Other Loans.]
The price to be paid for the Retained Assets and, if acquired, the Other
Loans shall be paid by the Company at the closing of the sale of Equity Bank
utilizing a portion of the Purchase Price. On or prior to consummation of the
Acquisition Agreement, the Company expects to have arranged with Bank IV or
another financial institution an accounts receivable line of credit to
replace, in whole or in part, the accounts receivable line of credit provided
by Equity Bank. The Company expects to use proceeds to be received under such
line of credit to finance the repurchase of the Receivables from Equity Bank.
The Company will use the balance of the Purchase Price (after repaying the
loan obtained to purchase the Retained Corporations and payment for the
Retained Assets, Receivables, and, if any, the Other Loans) for general
working capital purposes.
Business of the Company After the Sale. After completion of the sale of
Equity Bank, the Company will continue to operate its industrial businesses
consisting of the Chemical Business, The Environmental Control Business, the
Automotive Products Business and the Industrial Products Business.
The Chemical Business. The Chemical Business manufactures and sells
specialty explosive products, prilled ammonium nitrate products, and high
grade specialty industrial acids to the explosives, agricultural and
industrial acids markets. The Chemical Business' revenues (i) for the nine
(9) month period ended September 30, 1993, were approximately $91.0 million,
with approximately 35.3% consisting of sales of fertilizer and related
chemical products for agricultural purposes; 40.3% consisting of sales to
ammonium nitrate and other chemical-based blasting products for the mining
industry, and 20.5% consisting of acid sales to the industrial acid markets,
and (ii) for the year ended December 31, 1992, were $107.2 million, with 31.8%
consisting of sales of fertilizer and related chemical products for
agricultural purposes, 41.0% consisting of sales to ammonium nitrate and other
chemical-based blasting products for the mining industry, and 26.1% consisting
of acid sales to the industrial acid markets.
The Company believes that the only seasonal products of the Chemical
Business are fertilizer and related chemical products sold to the agricultural
industry. The selling seasons for those products generally occur during the
spring and fall planting seasons (i.e., from February through May and from
September through November). In addition, sales to the agricultural markets
depend upon weather conditions and other circumstances beyond the control of
the Company.
Ammonia represents an essential component in the production of most of
the products of the Chemical Business, and the price of those products
generally fluctuates with the price of ammonia. The Company has a contract
with a supplier of ammonia pursuant to which the supplier has agreed to supply
the ammonia requirements of the Chemical Business on terms the Company
considers favorable. The Company believes that it could obtain ammonia from
other sources in the event of a termination of that contract.
The Chemical Business sells and markets its products directly through
its own sales force, twenty (20) agricultural distribution centers located
in Texas, Missouri, and Tennessee, and thirteen (13) blasting centers located
in Missouri, Kentucky, Indiana, Wyoming, West Virginia, Illinois, New Mexico,
Georgia, Oklahoma and Kansas.
The Company's Chemical Business' primary manufacturing operations are
conducted on 150 acres of a 1,400-acre tract located in El Dorado, Arkansas
(the "Site"). Since the 1940's, the Site has been a manufacturing facility
for ammonium nitrate compounds and, until 1969, was a manufacturing facility
for ammonia. In 1955, the Site was acquired by Monsanto Company ("Monsanto"),
and, in June, 1983, Monsanto sold the Site to El Dorado Chemical Company
("EDC"). EDC was acquired by the Company in 1984. Under the agreement with
Monsanto, the indemnification is not assignable to a party to which EDC
transfers the Site without the prior written consent of Monsanto, except to
any company 100% of the voting stock of which is owned or controlled, directly
or indirectly, by EDC. Although EDC has operated the Site since its
acquisition from Monsanto in 1983, in 1988 EDC transferred ownership of the
Site to the Company, which, in turn, transferred title to a company within the
Financial Services Business. The Site, together with certain assets located
on the Site, are included in the Transferred Assets. Although no consent was
obtained from Monsanto when EDC transferred ownership of the Site to its
affiliated company to assign the Monsanto indemnification, if such a consent
was required under the agreement with Monsanto, the Monsanto indemnification
remains applicable to EDC. The Company's Chemical Business has been advised
that the Site had been placed in the Environmental Protection Agency's ("EPA")
data-based tracking system (the "System"). The System maintains an inventory
of sites in the United States where it is known or suspected that a release of
hazardous waste has occurred. Notwithstanding inclusion in the System, EPA
regulations recognize that such inclusion does not represent a determination
of liability or a finding that any response action will be necessary. Over
36,000 sites in the United States are presently listed in the System. If a
site is placed in the System, EPA regulations require that the government or
its agent perform a preliminary assessment of the site. If the preliminary
assessment determines that there has been a release, or that there is
suspected to have occurred a release, at the site of certain types of contam-
ination, the EPA will perform a site investigation. Pursuant to such
regulations, the State of Arkansas performed such preliminary assessment for
the EPA. The preliminary assessment report prepared by the State of Arkansas,
dated September 30, 1992, regarding the Site states, in part, that releases of
certain types of contaminants at the Site is probable or suspected to have
occurred and that certain violations alleged by the State of Arkansas of
environmental regulations, some of which are alleged to have occurred between
1989 and 1991, may be contributing factors. The Company believes that a
number of statements in the Arkansas report are inaccurate and that others
relate to matters that had already been corrected. Accordingly, the Company
provided the State of Arkansas with a response to the report which challenged
a number of the findings contained therein. The Company understands that this
response was forwarded to the EPA by the State of Arkansas. It is anticipated
that the EPA will, at some future date, perform a site inspection at the Site,
which inspection will usually involve the gathering of additional data
including environmental sampling of the Site. After conducting the site
inspection, the regulations provide that the EPA may determine that: (i) the
Site does not warrant further involvement in the evaluation process, or (ii)
that further study of the Site is warranted to determine what appropriate
action is to be taken in response to a release of contaminants at the Site or
whether such release justifies the Site being placed on the National
Priorities List. Being placed in the System will generally be the first step
in the EPA's determination as to whether a site will be placed on the National
Priorities List. After the EPA completes its site inspection and evaluates
other information, the EPA will then assess the Site using the Hazard Ranking
System to ascertain whether the Site poses a sufficient risk to human health
or the environment to be proposed for the National Priorities List. There are
approximately 1,200 sites in the United States presently listed on the
National Priorities List. The Company has been advised that there have
occurred certain releases of contaminants at the Site. However, the Company
does not believe that such releases should warrant the Site being placed on
the National Priorities List, but there are no assurances to that effect. The
Company is in the process of studying the Site in an attempt to determine the
extent of such releases at the Site and when such releases may have occurred.
In addition, as a result of certain releases of contaminants at the Site, EDC
may be subject to assessment of certain civil penalties. The Company has not
yet received from the appropriate governmental agency of the State of Arkansas
a determination as to the appropriate plan of remediation of the Site and what
contaminants, if any, must be remediated. The Company is unable to estimate
the cost of such remediation until the Company receives an acceptable plan
from such agency. The Company believes that it will receive such plan from
the appropriate Arkansas state agency in the near future and at that time will
be able to estimate the cost of such remediation at the Site. While there are
no assurances, based on information presently available to the Company, the
Company does not believe, as of the date of this Proxy Statement, that the
Site being placed in the System or the response to any contamination at the
Site or the assessment of penalties, if any, due to release of certain
contaminants at the Site should have any material adverse effect on the
Company or the Company's financial condition. See "Sale of Equity Bank --
Summary of Sale" for a discussion of certain indemnities provided to Fourth
Financial and Bank IV by the Company related to environmental matters as to
the Transferred Assets.
The Environmental Control Business. The Environmental Control Business
manufactures and sells a broad range of fan coil, air handling, air
conditioning, heating, heat pump and dehumidification products targeted to
both new building construction and renovation, as well as industrial
applications. For the nine (9) month period ending September 30, 1993, the
revenues of the Environmental Control Business were approximately $51.6
million. For the year ended December 31, 1992, the revenues for the
Environmental Control Business were $55.0 million.
Most of the Environmental Control Business' production of the above-
described products occurs on a specific order basis. The Company manufactures
the units in many sizes, as required by the purchaser, to fit the space and
capacity requirements of hotels, motels, schools, hospitals, apartment
buildings, office buildings and other commercial or residential structures.
The Environmental Control Business sells its products to mechanical
contractors, original equipment manufactures and distributors. The Company's
sales to mechanical contractors primarily occur through independent
manufacturer's representatives, who also represent complimentary product lines
not manufactured by the Company. Original equipment manufacturers generally
consist of other air conditioning and heating equipment manufacturers who
resell under their own brand name the products purchased from the
Environmental Control Business as a separate item in competition with the
Company or as part of a package with other air conditioning-heating equipment
products to form a total air conditioning system which they then sell to
mechanical contractors or end-users for commercial application. The
Environmental Control Business depends primarily on the commercial
construction industry, including new construction and the remodeling and
renovation of older buildings.
During 1993, the Environmental Control Business entered into two (2)
letters of intent to supply a foreign customer in Poland and a foreign
customer in the Ukraine (formerly part of the Soviet Union) with equipment,
licenses, designs, tooling, machinery, and technical data and services to
manufacture environmental control products. Each letter of intent provides
that the purchase price is to be approximately $49 million. Each letter of
intent provides that, in lieu of cash, the Company will accept payment in kind
of anhydrous ammonia from the foreign customer for use by the Company's
Chemical Business. The letter of intent with the customer in Poland has been
orally amended to provide that (i) the agreement will be divided into two (2)
segments, with a definitive agreement as to the first segment presently being
negotiated for approximately one-half of the total purchase price and the
second segment for approximately the other half of such purchase price to be
negotiated after finalization of the definitive agreement relating to the
first segment, and (ii) the Polish customer will pay cash under such contracts
in lieu of delivering anhydrous ammonia to the Company. The Company has not
yet begun negotiations as to a definitive agreement with the other customer.
Each letter of intent is subject to the finalization and the execution of a
definitive agreement. The Company has not finalized definitive agreements
under either of the letters of intent, and there are no assurances that
definitive agreements will be reached on either of these projects.
The Automotive Products Business. The Automotive Products Business is
primarily engaged in the manufacture and sale of a line of anti-friction
bearings, which includes straight-thrust and radial-thrust ball bearings,
angular contact ball bearings, and certain other automotive replacement parts.
These products are used in automobiles, trucks, trailers, tractors, farm and
industrial machinery, and other equipment. For the nine (9) month period
ending September 30, 1993, and the year ended December 31, 1992, the revenues
of the Automotive Products Business were approximately $22.2 million and $20.0
million, respectively.
The automotive and truck replacement market serves as the principal
market for the Automotive Products Business. This business sells its products
domestically and for export, principally through independent manufacturers'
representatives who also sell other automotive products. Those manufacturers'
representatives sell to retailers (including major chain stores), wholesalers,
distributors and jobbers. The Automotive Products Business also sells its
products directly to original equipment manufacturers and certain major chain
stores.
The Company generally produces or purchases the products sold by the
Automotive Products Business in quantities based on a general sales forecast,
rather than on specific orders from customers. The Company fills most orders
for the automotive replacement market from inventory. The Company generally
produces or purchases bearings for original equipment manufacturers after
receiving an order from the manufacturer.
The principal materials that the Automotive Products Business needs to
produce its products consist of high alloy steel tubing, steel bars, flat
strip coil steel and bearing components produced to specifications. The
Company acquires those materials from a variety of domestic and foreign
suppliers at competitive prices. The Company does not anticipate having any
difficulty in obtaining those materials in the near future.
The Industrial Products Business. The Industrial Products Business
purchases and markets a proprietary line of machine tools and also markets
industrial supplies. The current line of machine tools distributed by the
Industrial Products Business includes milling, drilling, turning, fabricating
and grinding machines. The Company purchases most of the machine tools
marketed by the Industrial Products Business from foreign companies, which
manufacture the machine tools to the Company's specifications. For the nine
(9) month period ending September 30, 1993, and for the year ended December
31, 1992, the revenues of the Industrial Products Business were approximately
$14.6 million and $17.6 million, respectively.
The Industrial Products Business distributes its machine tools in the
United States, Mexico, Canada and certain other foreign markets. The
Industrial Products Business sells and distributes its products through its
own sales personnel, who call directly on end-users. The Industrial Products
Business also sells its machine tools through independent machine tool dealers
throughout the United States and Canada, who purchase the machine tools, for
resale to end users. The principal markets for machine tools, other than
independent machine tool dealers, consist of manufacturing and metal working
companies, maintenance facilities, utilities and schools.
The Industrial Products Business does not depend on any single customer,
or a few customers, the loss of any one or more of which would have a material
adverse effect on the Industrial Products Business. A significant increase in
the revenues of the Industrial Products Business occurred during 1992 and 1993
as a result of an agreement with a Slovakian company ("Buyer") signed July 6,
1992, to supply the Buyer with equipment, technology and technical services to
manufacture certain types of automotive bearing products. The agreement
provides for a total contract amount of approximately $56.0 million, with
$12.0 million of the contract amount to be retained by the Buyer as the
Company's subsidiary's equity participation in the Buyer at a nominal amount.
The balance of approximately $44.0 million has been or will be paid to the
Company's subsidiary as follows: (i) approximately $12.3 million was paid
during 1992 as a downpayment, and (ii) the balance of approximately $31.6
million payable in equal quarterly installments over a ten (10) year period,
plus interest. Payment of the quarterly installments has been delayed from
time to time. However, during the first 1993, approximately $791,000 of such
balance was paid by the Buyer to the Industrial Products Business under this
agreement. The Industrial Products Business has acquired the machinery and
equipment and is developing the tooling and designs to be delivered to the
Buyer under the Agreement. The Company has shipped to the Buyer certain
machinery and equipment and expects to deliver the balance of such machinery
and equipment and the tooling and designs to the Buyer by the end of June,
1994. Circumstances could arise that could delay the delivery of the
machinery, equipment, designs and tooling to the Buyer. Under the agreement,
the Company's subsidiary will use its best efforts to purchase approximately
$14.5 million of bearing products from the Buyer each year over a period of
ten (10) years; provided, however, that the Company's subsidiary is not
required to purchase more product from the Buyer in any one (1) year than the
amount of tapered bearings the Company's subsidiary is able to sell in its
market. The Company presently manufactures and purchases from outside sources
tapered bearings. During the nine (9) months ended September 30, 1993, and
for the year ended December 31, 1992, the Company sold approximately $8.0
million and $6.9 million, respectively, of tapered bearings. The Company
believes that the purchase price of these bearings will be favorable compared
to its present cost in purchasing these products from other sources or
manufacturing these products. Such prices are subject to increases or
decreases based upon price increases or decreases sustained in the United
States bearing industry. The Company will recognize revenues and profits on
the sale of equipment and technology over the term of the agreement as they
are realized. The revenue and profit realized during the delivery and
installation period will be recognized on a percentage of completion basis.
During the nine (9) months ended September 30, 1993, and the year ended
December 31, 1992, the Company recorded sales of approximately $5.4 million
and $6.2 million, respectively, in connection with the agreement. The per-
centage of completion will be determined by relating the productive costs
incurred to date to the total productive costs estimated to complete the
performance under the contract for delivery and installation. The Company
presently meets all of its obligations under the contract which generally
coincides with the payout term.
During the last quarter of 1993, the Industrial Products Business
exchanged its rights to an equity interest in the Buyer to a foreign non-
affiliated company ("Purchaser of the Interest") for $12.0 million in notes.
The Company has been advised that the Buyer has agreed to repurchase from the
Purchaser of the Interest up to $6 million of such equity interest over a six
(6) year period, with payment to be either in cash or bearing products. The
notes issued to the Industrial Products Business for its rights to the equity
interest in the Buyer will only be payable when, as and if the Purchaser of
the Interest collects from the Buyer for such equity interest, and the method
of payment to the Company will be either cash or bearing products in the same
manner as received by the Purchaser of the Interest from the Buyer. Due to
the Company's inability to determine what payments, if any, it will receive on
such notes, the Company will continue to carry such notes at a nominal amount.
See "Sale of Equity Bank -- The Company and Fourth Financial", "Pro
Forma Financial Statements" and "Incorporation of Certain Documents by
Reference".
Recent Developments of the Company. In addition to those described in this
Proxy Statement, the Company did not have any material change in the Company's
affairs which have occurred since December 31, 1992, that have not been
described in a report on Form 10-K, Form 10-Q or Form 8-K filed by the Company
under the Securities and Exchange Commission ("SEC"), except that during
November, 1993, the Company's Chemical Business acquired an additional
concentrated nitric acid plant and related assets ("Plant and Assets") for
approximately $1.9 million. The Chemical Business is in the process of moving
such Plant and Assets from Illinois to, and installing such at, its manufac-
turing plant located in El Dorado, Arkansas. The Company anticipates that the
total amount that will be expended to acquire, move and install the Plant and
Assets will be approximately $12.0 million. In addition, the Company's
consolidated net income for the year ended December 31, 1993, was
$______________, as compared to $9.2 million for the year ended December 31,
1992.
Accounting Treatment in Connection with the Sale. As Equity Bank represents
all of the operations of the Company's Financial Services Business, the sale
of Equity Bank will result in the disposal of a business segment for financial
reporting purposes by the Company. Accordingly, the financial statements of
the Company for 1993 and prior years will reflect the operations of Equity
Bank as a discontinued operation. The gain on the sale of Equity Bank will be
reflected when the sale is consummated, which is expected to occur during the
second quarter of 1994.
Federal Income Tax Consequences. The following is a summary of certain of the
federal income tax consequences to the Company as a result of the sale of
Equity Bank under the Acquisition Agreement, which summary is believed by the
Company to contain a description of all material tax aspects of the sale of
Equity Bank under the Acquisition Agreement. The consummation of such sale
will not in itself be a taxable event for the shareholders of the Company.
The Company, Equity Bank, and the Company's other subsidiaries file a
consolidated federal income tax return. The Company expects to realize a
consolidated net loss for federal income tax purposes upon the consummation of
the sale of Equity Bank in the amount of approximately $19.9 million. Under
the Treasury Regulations promulgated by the Internal Revenue Service (the
"IRS") governing consolidated returns in effect as of the date of this Proxy
Statement (the "Consolidated Return Regulations"), no deduction is generally
allowed for any loss recognized by a member of a consolidated group with
respect to the disposition of stock of a subsidiary. Accordingly, the Company
may not deduct any losses arising from the consummation of the sale of Equity
Bank.
The Consolidated Return Regulations permit the Company to elect to
reattribute to itself the amount of any disallowed loss which is otherwise
attributable to Equity Bank. Under the terms of the Acquisition Agreement,
Equity Bank is required to indemnify Fourth Financial and Bank IV from any
reduction in the aggregate amount of Equity Bank's net operating loss
carryforward for federal income tax purposes below $64.0 million; provided,
however, that such reduction results from either (i) a reduction required by
final action of the Internal Revenue Service and made retroactive to the
period prior to the consummation of the sale of Equity Bank under the
Acquisition Agreement, or (ii) a reduction in the net operating loss
carryforward of Equity Bank at the consummation of the Acquisition Agreement
attributable to the consolidated taxable income of the Company. The Company
is required to indemnify Fourth Financial in an amount (not to exceed $10.5
million, which represents that amount allocated toward the Purchase Price for
Equity Bank's net operating loss) equal to the product of (a) the dollar
amount of such remediation and (b) a fraction, the numerator of which shall be
$10.5 million and the denominator of which shall be $64.0 million, except that
the Company shall have the right to be released from such net operating loss
carryforward indemnification by electing to have the Purchase Price reduced by
$600,000. See "Sale of Equity Bank -- Summary of Sale". Any significant
reattribution of such disallowed loss would result in Equity Bank's net
operating loss carryovers being reduced to an amount less than $64.0 million,
thereby invoking the Company's obligation to indemnify Fourth Financial,
unless such indemnification is eliminated by the Company electing to have the
Purchase Price reduced by $600,000; therefore, if the Company does not elect
to have the indemnification eliminated, it is anticipated that the Company
will not elect to reattribute any such disallowed loss.
The consolidated net loss which the Company expects to recognize in
connection with the sale of Equity Bank under the Acquisition Agreement for
federal tax purposes differs substantially from the net gain arising from the
sale of Equity Bank under the Acquisition Agreement as computed for financial
accounting purposes. The Company expects to realize a net gain of
approximately $25.0 million for financial accounting purposes. This
difference is primarily attributable to the Company's increased tax basis in
its shares of Equity Bank stock under the Consolidated Return Regulations as a
result of (i) the amount of nontaxable assistance to Equity Bank by the
Federal Savings and Loan Insurance Corporation which is excluded from Equity
Bank's taxable income without a corresponding reduction in tax basis and (ii)
the amount of Equity Bank's net operating loss carryovers which are unused by
the Company's consolidated group at the time of the consummation of the sale
of Equity Bank under the Acquisition Agreement. Other factors creating the
difference relate to increases in the Company's basis in its shares of Equity
Bank stock attributable to temporary differences between financial accounting
and income tax reporting.
The calculation of the consolidated net loss which the Company expects
to realize in connection with the sale of Equity Bank under the Acquisition
Agreement is based upon the Consolidated Return Regulations in effect as of
the date of this Proxy Statement. On November 12, 1992, certain proposed
amendments to the Consolidated Return Regulations were published in the
Federal Register (the "Proposed Regulations"). The Proposed Regulations, if
effective, would result in a reduction of the Company's basis in its shares of
Equity Bank stock by certain net operating loss carryovers attributable to
Equity Bank which have expired since Equity Bank has been a member of the
Company's consolidated group. This stock basis reduction is not required
under the Consolidated Return Regulations currently in effect.
As of December 31, 1993, the amount of Equity Bank's expired net
operating loss carryovers was approximately $36.1 million. Thus, the Proposed
Regulations, if effective, would result in a reduction of approximately $36.1
million in the Company's basis in its shares of Equity Bank stock. This
reduction would result in the recognition by the Company of a consolidated net
gain in connection with the sale of Equity Bank of approximately $16.2 million
for federal tax purposes. The approximately $16.2 million gain which would be
generated under the Proposed Regulations would be applied against and result
in a reduction of Equity Bank's net operating loss carryovers in the amount of
approximately $5.0 million and the reduction of the Company's net operating
loss carryovers in the amount of approximately $11.2 million. This reduction
of Equity Bank's net operating loss carryovers by approximately $5.0 million
would invoke the Company's obligation to indemnity Fourth Financial for the
reduction of Equity Bank's net operating loss carryovers below $64.0 million,
for an amount equal to a percentage of the amount by which Equity Bank's net
operating losses are reduced below $64.0 million.
The Proposed Regulations have not been finalized as of the date of this
Proxy Statement, and, if finalized, will be effective as to transactions
occurring after the date the Proposed Regulations are filed in final form with
the Federal Register. Thus, the Proposed Regulations will not be effective as
to the sale of Equity Bank under the Acquisition Agreement if the sale of
Equity Bank under the Acquisition Agreement occurs prior to the date the
Proposed Regulations are published in final form with the Federal Register.
The Company has reserved the right under the Acquisition Agreement to
terminate the Acquisition Agreement and cancel the sale of Equity Bank under
the Acquisition Agreement if the Proposed Regulations become effective prior
to the consummation of the sale of Equity Bank under the Acquisition Agreement
or if any other change in the law occurs with the effect that the tax basis of
the Company in its shares of Equity Bank stock shall be significantly reduced.
See "Summary of the Sale of Equity Bank".
Regulatory Matters. As a federally chartered savings institution, the
acquisition of Equity Bank by Fourth Financial is subject to the approval of
the Office of Thrift Supervision under the Home Owners' Loan Act. In
addition, the acquisition by Fourth Financial is subject to the approval of
the board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956 and the Merger with Bank IV is subject to the approval of
the United States Office of the Comptroller of the Currency under the National
Bank Act. In considering the applications, applicable law requires that the
agencies take into consideration the financial and managerial resources and
future prospects of Fourth Financial and Bank IV as well as the competitive
effects of the acquisition and Merger. Following the receipt of such
approvals, a period of thirty (30) days must expire within which time the
Federal Trade Commission ("FTC") or the Assistant Attorney General ("Attorney
General") may file objections to the acquisition of the Merger under the Hart-
Scott-Rodino Antitrust Improvement Act. The foregoing applications have not
as of the date of this Proxy Statement been filed with the appropriate
agencies and, when they are, there can be no assurance that all such approvals
will, in fact, be obtained.
Appraisal Rights. Pursuant to the Delaware General Corporation Law, holders
of shares of the Company's voting securities will not be entitled to rights of
appraisal in connection with the sale of Equity Bank under the Acquisition
Agreement.
Shareholder Approval. The Company is a Delaware corporation and, under
Delaware law, a sale of all or substantially all of the Company's assets would
require shareholder approval by the affirmative vote of a majority of the
outstanding stock of the Company entitled to vote thereon, unless otherwise
provided in the Company's certificate of incorporation. The business proposed
to be sold comprises all of the Financial Services Business of the Company.
This sale does not include any of the Company's industrial businesses,
consisting of its Chemical Business, Environmental Control Business,
Automotive Products Business or Industrial Products Business, and, as a
result, the Company does not believe that such constitutes a sale of all or
substantially all of the Company's assets.
Article Eleventh of the Company's Restated Certificate of Incorporation
provides, among other things, that, in addition to any affirmative vote of the
holders of the outstanding voting capital stock required by law or the
Company's Restated Certificate of Incorporation, the affirmative vote of the
holders of not less than two-thirds of the outstanding voting stock of the
Company voting as a single class shall be required for the approval or
authorization of any sale, lease or exchange of all or substantially all of
the assets of the Company; provided, however, that such two-thirds voting
requirement shall not be applicable if such transaction has been approved by a
vote of at least a majority of the members of the Board of Directors of the
Company. Although the Company does not believe the sale of Equity Bank
constitutes a sale of all or substantially all of the Company's assets since
the sale of Equity Bank to Fourth Financial was approved by more than a
majority of the Board of Directors (see "Sale of Equity Bank -- Background of
and Reasons for the Sale"), then the sale of Equity Bank to Fourth Financial
under the Acquisition Agreement, if such constituted a sale of all or
substantially all of the Company's assets, would require only the affirmative
vote of a majority of the outstanding voting stock of the Company as of the
close of business on the Record Date.
While the Financial Services Business constituted a significant portion
of the total consolidated assets, at historical cost, of the Company as at
September 30, 1993, the Financial Services Business comprised only 14.8% and
19.0% of the consolidated revenues of the Company for the nine (9) month
period ended September 30, 1993, and for the year ended December 31, 1992,
respectively, and only 12.8% and 11.5% of the Company's consolidated operating
income for the nine (9) month period ended September 30, 1993, and for the
year ended December 31, 1992, respectively.
The sale of Equity Bank is not believed by the Company to be deemed to
be a sale of all or substantially all of the Company's assets under applicable
Delaware law. However, the Board of Directors has determined that the sale of
Equity Bank represents a significant step for the Company and, notwithstanding
the fact that the Company does not believe that it is legally required to
obtain shareholder approval for the proposed transaction, the Board of
Directors has determined in this case that the sale of Equity Bank will be
concluded only if it receives the affirmative vote of a majority of the votes
cast by all shareholders voting as a single class entitled to vote thereon, in
person or by proxy at the Special Meeting. As of the Record Date, the
directors and officers, and their spouses and children, of the Company
beneficially owned approximately 33.0% of the outstanding shares of voting
stock of the Company, and they have indicated that they intend to vote all
such shares in favor of the sale of Equity Bank. However, if such required
vote is not obtained, the Company will terminate the Acquisition Agreement in
accordance with its terms. Approval at the Special Meeting by the
shareholders of the Company of the Acquisition Agreement and the transactions
contemplated thereby will also authorize the Company, without further
shareholder approval and without further solicitation of proxies from
shareholders to make future modifications and amendments to the terms and
conditions of the sale of Equity Bank which either are (i) not material or
(ii) required by the regulators in order to obtain regulatory approval,
including material amendments or modifications required by the regulators .
The Company is not currently aware of any such amendments or modifications
which are expected to occur or of any estoppel effects respecting the sale of
Equity Bank which will be applicable to a shareholder depending on the manner
of such shareholder's vote.
If the sale of Equity Bank to Fourth Financial is not approved, the
likely alternatives which will be considered by the Board of Directors for the
foreseeable future consist of the continued ownership and operation of Equity
Bank by the Company or negotiate with other possible parties to acquire Equity
Bank.
Summary of Sale. The following is a summary of the Acquisition Agreement, a
copy of which is attached hereto as Exhibit "A" to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Acquisition Agreement. Terms which are not otherwise
defined in this summary have the meaning set forth in the Acquisition
Agreement. Although, such is a summary, the following is a discription of all
material matter contained in the Acquisition Agreement. For purposes of such
summary, references to the "Company" are to both the Company and Prime unless
the context requires otherwise.
Business to be Sold. The terms of the Acquisition Agreement
contemplate, among other things, the sale of all of the issued and outstanding
capital stock of Equity Bank, which constitutes the sale of the Company's
Financial Services Business. After the sale of Equity Bank, the Company will
continue to operate its industrial businesses through the Chemical Business,
Environmental Control Business, Automotive Products Business and Industrial
Products Business. The Acquisition Agreement also contemplates that after the
sale of Equity Bank, Fourth Financial will merge Equity Bank into its wholly-
owned subsidiary, Bank IV (the "Merger"). The closing of the Acquisition
Agreement is to occur within fifteen (15) days after obtaining the necessary
Regulatory Approvals (as defined below under "Sale of Equity Bank -- Required
Consents and Approvals") or non-objection, as the case may be, of all
governmental, self governing agencies required in order to consummate the sale
of Equity Bank, the Merger, and the retention by Bank IV of Equity Bank and
the following subsidiaries of Equity Bank: Credit Card Center, Inc., Equity
Financial Services Corp., and United BankCard, Inc. (such Equity Bank
subsidiaries are referred to as the "Corporations") contained in the
Acquisition Agreement (the "Closing"), assuming all of the conditions
precedent contained in the Acquisition Agreement are met or waived on or prior
to the Closing.
Prior to the Closing, the Company has agreed to purchase from Equity
Bank the Retained Corporations. Under the Acquisition Agreement, the Company
will pay to Equity Bank for the Retained Corporations an amount equal to the
carrying value of the Transferred Assets within the Retained Corporations as
of the date of purchase of such Retained Corporations. As of December 31,
1993, Equity Bank's carrying value of the Transferred Assets held by the
Retained Corporations is approximately $65.4 million. In addition, the
Acquisition Agreement provides that the Company is to purchase from Equity
Bank at the Closing for an amount equal to Equity Bank's aggregate carrying
value thereof at the Closing (i) the Equity Tower Loan, which Equity Bank has
previously classified as an in substance foreclosure on its books, and (ii)
all OREO (the Equity Tower Loan and the OREO have been previously col-
lectively defined as the "Retained Assets"). As of February 28, 1994,
Equity Bank's aggregate carrying value of the Retained Assets was
approximately $18.9 million. In addition, under the Acquisition Agreement
the Company has agreed to purchase from Equity Bank at the Closing the
Receivables sold to Equity Bank by the Company and its subsidiaries for an
amount equal to Equity Bank's carrying value of such Receivables at the
Closing. As of February 28, 1994, Equity Bank owned approximately $19.3
million of such Receivables, which the Company believes will be less than $10
million if the Closing occurs on or about June 30, 1994. See "Sale of Equity
Bank -- Use of Proceeds".
The Company shall have the option to acquire any loan owned by Equity
Bank that has been charged off or written down for a purchase price equal to
Equity Bank's net book value of each loan that has been written down and for a
purchase price of $1.00 in the case of each loan that has been charged off.
The Company shall have the option to be released from its obligations to
indemnify Fourth Financial and Bank IV regarding Equity Bank's net operating
loss carryovers by having the Purchase Price to be paid by Fourth Financial
reduced by $600,000, as further discussed under "Representations, Warranties
and Indemnities" of this section.
Purchase Price. The purchase price ("Purchase Price") to be paid by
Fourth Financial for Equity Bank under the Acquisition Agreement at the
Closing is estimated to be approximately $92 million. The exact amount of the
Purchase Price is based on a formula with the exact amount to be determined
at Closing as the sum of the following: (i) the tangible book value of Equity
Bank (defined as the aggregate consolidated stockholders' equity of Equity
Bank, less the amounts in the accounts relating to purchased mortgage
servicing rights, goodwill, and United BankCard goodwill) at the Closing, plus
a premium over Equity Bank's tangible book value of the following determined
at the Closing: (a) $9.3 million for Equity Bank's credit card business, (b)
1% of the aggregate of the unpaid principal balance at Closing of Equity
Bank's loans secured by fixed rate mortgages having fully amortizing original
terms of fifteen (15) years or less, excluding loans originated after October
31, 1993, (c) 6% of the aggregate unpaid principal balance at Closing of
Equity Bank's loans secured by fixed rate mortgages having fully amortizing
original terms in excess of fifteen (15) years but not more than thirty (30)
years, excluding loans originated after October 31, 1993, and (d) 2% of the
aggregate unpaid principal balance at Closing of Equity Bank's loans secured
by variable rate mortgages, excluding loans originated after October 31, 1993;
(ii) an amount at the Closing equal to the unamortized discount on Equity
Bank's mortgages included in (i) (b), (c), and (d) above; (iii) an amount at
the Closing equal to (a) 0.65% of the aggregate unpaid principal balance of
loans serviced by Equity Bank prior to March 1, 1993, on which Equity Bank
performs mortgage servicing (other than loans serviced for the account of
Equity Bank), (b) 1% of such balance on such loans serviced by Equity Bank
that were originated after March 31, 1993, secured by fixed or adjustable rate
mortgages of fully amortizing original terms of at least ten (10) but not more
than fifteen (15) years, and (c) 1.25% of such balance on such loans
originated on or after March 1, 1993, secured by fixed or adjustable rate
mortgages having original fully amortized terms of more than fifteen (15) but
not more than thirty (30) years; (iv) an amount obtained by subtracting the
"required reserve" (as defined below) from Equity Bank's actual loan loss
reserve account at the Closing, with the "required reserve" meaning $2.7
million as adjusted by the amount by which Equity Bank's loan loss account
would have been adjusted at the Closing under normal and prudent banking
practice to reflect aggregate changes of at least $500,000 occurring
subsequent to October 31, 1993, or originating since October 31, 1993, and not
reviewed in advance by Fourth Financial; provided, that no such change in the
quality of a loan is to be included in the calculation to the extent such
change has been reflected in the tangible book value of Equity Bank at the
Closing or if such change is less than $25,000; (v) to the extent not
otherwise reflected in the tangible book value of Equity Bank, an amount,
either positive or negative, by which the aggregate fair market value of
Equity Bank's securities portfolio at the Closing differs from Equity Bank's
book value of such portfolio at the Closing; (vi) the difference, positive or
negative, between the carrying value of Equity Bank's time deposits and the
aggregate value of such deposits after repricing them to the Treasury yield
curve at the Closing; (vii) $10.5 million for Equity Bank's net operating
loss; (viii) $11.0 million for Equity Bank's deposit balance; and, (ix) $1.4
million for certain of Equity Bank's branches.
The percentages specified in (i)(b) and (c) immediately above are
determined utilizing the spread between the bank's average portfolio yield and
FNMA required thirty (30) day yield as of August 31, 1993. If, at the time of
the Closing, such spreads have fluctuated by more than 0.25%, the applicable
percentages in such subparagraphs (i)(b) and (c) will be adjusted up or down
by one-fourth of 1% for each full one-eighth of 1% change in the spread, in
the case of loans with an original term of fifteen (15) years or less, and by
three-eighths of 1% for each full one-eighth of 1% change in the spread, in
the case of loans with an original term of more than fifteen (15) but not
more than thirty (30) years.
Based on the above, the Company estimates that at the Closing the
Purchase Price will be approximately $92 million, which amount is estimated
based upon estimates which cannot be definitively determined until the
Closing. Among other things, management of the Company has estimated Equity
Bank's earnings through March 31, 1994, in order to estimate tangible net
worth of Equity Bank, a major component of the Purchase Price, and made
estimates with respect to the other variables which make up the Purchase
Price. The date of Closing is not known as of the date of this Proxy
Statement, and the Purchase Price will be affected by the results of
operations of and the fluctuation of interest rates between the date of this
Proxy Statement and the Closing. Notwithstanding the foregoing, if the
Purchase Price, as finally determined at the Closing, is less than $92
million, the Company may, at its option, terminate the Acquisition Agreement.
Representations, Warranties and Indemnities. In the Acquisition
Agreement, the Company made certain representations and warranties to Fourth
Financial, including as to: the organization, good standing and authority of
the Company and the Corporations; the Acquisition Agreement as a binding
obligation of the Company; Equity Bank's financial statements; certain tax
matters; Equity Bank's capitalization; the financial statements of Equity
Bank; the absence of certain changes, violations of law, events or defaults
respecting the Company, Equity Bank and the other Corporations; pending or
threatened litigation affecting the Company, Equity Bank or any of the other
Corporations; compliance with applicable laws (including, without limitation,
applicable environmental laws); real and personal property owned or leased by
Equity Bank or any other Corporation; material contracts; the status of
employee benefit plans and employee compensation arrangements; labor
relations; government authorizations; maintenance of insurance; notes and
leases of Equity of Equity Bank or any other Corporations; payments to
brokers; and, environmental compliance. Fourth Financial made certain
representations and warranties to the Company including as to: the
organization, good standing and authority of Fourth Financial; the Acquisition
Agreement as a binding obligation of Fourth Financial; the absence of certain
changes, violations of law, events or defaults respecting Fourth Financial;
obtaining the Regulatory Approvals; and, the future capitalization of Bank IV.
The Acquisition Agreement also provides indemnification obligations.
Specifically, the Company has agreed to indemnify and hold harmless Fourth
Financial, Bank IV and the Corporations against and with respect to any
liabilities arising from any material uncured breach or nonfulfillment of any
of the warranties, agreements, or representations made by the Company. The
Acquisition Agreement provides generally that a minimum $1.0 million in
damages must be sustained before seeking monetary recovery pursuant to certain
of the indemnification provisions, and that the Company shall not be required
to pay more than $25.0 million pursuant to the indemnification obligations.
The Company has also agreed to indemnify Fourth Financial and Bank IV
from any reduction below $64.0 million in the aggregate amount of Equity
Bank's net operating loss carryforwards for federal income tax purposes as a
result of final action of the Internal Revenue Service made retroactive to the
period prior to the Closing or such a reduction at the Closing is attributable
to the consolidated taxable income of the Company; provided, however, the
payment to be made by the Company shall not exceed an amount equal to the
product of (a) the dollar amount of such reduction, and (b) a fraction, the
numerator of which shall be $10.5 million and the denominator of which shall
be $64.0 million. Thus, the Company's aggregate liability for indemnification
as a result of the reduction in the aggregate amount of Equity Bank's net
operating loss carryforward should not exceed $10.5 million. As stated
above, the Company has the option to be released from its indemnification
obligation relating to Equity Bank's net operating loss by having the amount
of the Purchase Price to be paid by Fourth Financial at the Closing reduced by
the sum of $600,000. This indemnification is not subject to the $1.0
million deductibility and $25.0 million maximum liability provisions.
The Acquisition Agreement also provides that the Company shall indemnify
and hold harmless Fourth Financial, Equity Bank, and Bank IV against and with
respect to certain liabilities relating to environmental matters relating to
the Transferred Assets that are acquired by the Company as part of the
Retained Corporations. In addition, under the Acquisition Agreement, the
Company has agreed to indemnify and hold harmless Fourth Financial, Bank IV
and Equity Bank against liabilities relating to (i) the frozen 401-K plan of
Equity Bank's bankcard division involving approximately thirteen (13)
employees, (ii) one (1) lawsuit ("Lawsuit") in which the maximum liability
could be approximately $143,000 if the defenses asserted are deemed not to be
valid, and (iii) the pending Internal Revenue Service examination of a
supplier of computer services to a partnership in which Equity Bank was
believed to be a limited partner. Under the terms of the Acquisition
Agreement, Bank IV shall pay one-half of the out-of-pocket attorney fees and
costs incurred in connection with the Lawsuit. The indemnifications for
matters described in this paragraph are not subject to the $1.0 million
deductibility and the $25.0 maximum liability provisions.
Fourth Financial has agreed to indemnify and hold harmless any officer,
director, or employee of Equity Bank or any of the other Corporations from
and against any liability in connection with any claim in which such persons
are, or threatened to be made, a party based on such person's status as an
officer, director or employee of a Corporation prior to Closing, if such claim
pertains to any matter arising prior to the Closing.
The representations and warranties set forth in the Acquisition
Agreement will survive for two (2) years following the Closing. However,
notwithstanding the two (2) year survival period (i) a three (3) year period
of survival will apply to certain representations of the Company relating to
the payment of taxes (ii) the obligation of the Company arising as a result of
a reduction in Equity Bank's net operating loss below $64.0 million shall
survive until the earlier of October 31, 1998, or thirty (30) days after the
Internal Revenue Service's completion of its examination of Fourth Financial's
1994 federal income tax returns; and, (iii) there shall be no time limit with
respect to the indemnification for environmental liabilities with respect to
the Retained Corporations.
In addition, the parties' indemnity does not apply to claims for any
breaches which were communicated to the nonbreaching party prior to the
Closing where nonbreaching party elects to close the transactions contemplated
by the Acquisition Agreement notwithstanding notification of such breach or
misrepresentation.
Required Consents and Approvals. The Acquisition Agreement provides
that the consummation of the transactions contemplated by the Acquisition
Agreement is subject to the approval, consent or non-objection, as the case
may be, of the Board of Governors of the Federal Reserve System, the Office of
Thrift Supervision, the United States Controller of the Currency, and all
other necessary governmental or self-governing agencies (the "Regulatory
Approvals"). See "Sale of Equity Bank -- Regulatory Matters".
The Acquisition Agreement also provides that the obligations of the
Company under the Acquisition Agreement are subject to the approval of the
shareholders of the Company of the Acquisition Agreement and the transactions
contemplated thereby.
Closing Conditions. The obligations of the Company and Fourth Financial
to consummate the transactions contemplated by the Acquisition Agreement are
subject to the satisfaction or waiver of the following conditions at or prior
to Closing: (i) all Regulatory Approvals in connection with the sale of Equity
Bank, the Merger, and the retention by Bank IV of the Corporations shall have
been procured; and (ii) no proceeding, whether judicial or administrative,
shall be pending or threatened for the purpose of enjoining or preventing the
sale of Equity Bank, the Merger or any of the other transactions permitted or
contemplated by the Acquisition Agreement, and no order, judgment, or decree
shall be outstanding restraining or enjoining consummation of the same.
The obligations of the Company to consummate the transactions con-
templated by the Acquisition Agreement are further subject to satisfaction or
waiver of the following conditions at or prior to Closing: (i) the
representations and warranties of Fourth Financial shall have been true and
correct in all respects when such representations and warranties were
originally made and as of the date of Closing (except for such changes
permitted in compliance with the Acquisition Agreement); (ii) Fourth Financial
shall have duly performed all of its obligations under the Acquisition
Agreement; (iii) the Purchase Price shall not be less than $92 million, less
the amount of the option price for release of the indemnification regarding
Equity Bank's net operating loss carryovers if such is exercised by the
Company ; (iv) the Company shall have a written opinion from Lazard as to the
fairness of the Purchase Price to the Company from a financial standpoint; (v)
all certificates and opinions required to be delivered by Fourth Financial or
any other party representing Fourth Financial, as contemplated by the
Acquisition Agreement shall have been duly executed and delivered, including,
without limitation, the execution and delivery of the opinion of counsel to
Fourth Financial; (vi) the shareholders of the Company shall have approved the
Acquisition Agreement and the sale of Equity Bank; (vii) no change in the law
shall have occurred with the effect of significantly reducing the tax basis of
the Company in its shares of Equity Bank, including, but not limited to, the
final adoption of the proposed changes to the Treasury Regulations at Section
1.1502-33; and, (viii) all of the Retained Assets, Receivables and the
Retained Corporations shall have been transferred to the Company as provided
in the Acquisition Agreement.
The obligations of Fourth Financial to consummate the transactions
contemplated by the Acquisition Agreement are further subject to the
satisfaction or waiver of the following conditions at or prior to the Closing:
(i) the tangible book value of Equity Bank, without taking into account
restructuring charges, shall not be less than $41.0 million; (ii) all
certificates and opinions required to be delivered by the Company or any other
party representing the Company, as contemplated by the Acquisition Agreement
shall have been duly executed and delivered, including, without limitation,
the execution and delivery of the opinion of counsel to the Company and the
Corporations; (iii)the representations and warranties of the Company shall
have been true and correct in all respects when such representations and
warranties were originally made and as of the date of Closing (except for such
changes permitted in compliance with the Acquisition Agreement); (iv) the
Company shall have duly performed all of its obligations under the Acquisition
Agreement; (v) the Company shall have delivered to Fourth Financial the
written resignations, effective at Closing, of certain officers and directors
of Equity Bank and the other Corporations as requested by Fourth Financial;
(vi) the Company shall have delivered to Fourth Financial a copy of Equity
Bank's audited consolidated financial statements as of December 31, 1993 and
for the year then ended; (vii) Bank IV shall have entered into leases as
lessee of a certain portion of Equity Tower and as lessee of the Branch, and
(viii) Fourth Financial shall have secured satisfactory environmental
assessment reports relating to certain real properties of Equity Bank.
Additional Agreements of the Parties. The Acquisition Agreement
provides that the Company shall use its reasonably best efforts to cause
Equity Bank and each of the other Corporations to conduct its business in the
ordinary and usual course consistent with past practice. In connection with,
and without limitation to, the foregoing, prior to the Closing and without the
consent of Fourth Financial: (i) no changes may be made in the Corporations'
certificate of incorporation, charter or bylaws; (ii) no changes may be made
in the authorized or issued shares of capital stock or any security
convertible into any class of the Corporations' capital stock; (iii) no
dividends or other distributions in respect of any class of the Corporations'
capital stock may be declared or paid; (iv) no material amendment to any
employment contract, stock option, or similar employee benefit arrangement may
be adopted, except (a) normal individual increases in compensation to
employees in accordance with established employee procedures, (b) the Fourth
Financial Corporation Acquisition Severance Schedule, and (c) severance
agreements to be performed by the Company without any obligation of Equity
Bank or Fourth Financial; (v) Equity Bank and the other Corporations may not,
except in the ordinary and usual course of business (a) guarantee or assume
any indebtedness of any other individual, firm or corporation, (b) pay or
incur any obligation or liability; (vi) except for transactions in the
ordinary and usual course of its business, Equity Bank shall not (a) mortgage
or otherwise encumber any of its properties or assets and (b) sell or transfer
any of its properties or assets or cancel, release or assign any indebtedness
owed to it or any claims held by it; (vii) the Corporations shall not make any
investment of a capital nature in excess of $25,000 for any one item or group
of similar items, other than certain planned leasehold improvements being made
to Equity Tower and the Branch; (viii) the Corporations may not enter into any
other agreement not in the usual course of business; and, (ix) the
Corporations may own only certain investment securities.
Prior to the Closing, the Acquisition Agreement also provides that the
Company shall use its reasonable and best efforts to cause each of the
Corporations to conduct its respective business in the ordinary and usual
course consistent with previous practice and to use its reasonable and best
efforts (i) to maintain its existing business organization intact; (ii) keep
available to Bank IV the services of the present officers and employees of
Equity Bank; (iii) to preserve the goodwill of customers with Equity Bank;
(iv) to maintain its properties; (v) to comply with applicable laws; (vi) to
maintain existing policies of insurance; (vii) to make no material change in
the terms and conditions upon which it does business; (viii) to continue its
current practice of selling loans secured by fixed rate mortgages on a
service-retained basis; (ix) to duly and timely file all government, state and
local authorities' reports and returns; and, (x) to pay all material taxes and
to withhold or collect and pay all taxes and other assessments which it
believes, in good faith, to be required by law to be so withheld or collected.
The Acquisition Agreement further provides that (i) Equity Bank shall
give Fourth Financial and its counsel and accountants access to their
respective properties, books and records, and Fourth Financial shall treat as
confidential all confidential information disclosed to it; (ii) the Company
agrees not to transfer or encumber any shares of Equity Bank stock prior to
Closing; (iii) the Company shall cause Equity Bank and the Corporations to
take all such corporate action as may be necessary to (a) obtain all required
Regulatory Approvals, (b) authorize, execute and perform the Bank Merger
Agreement; and, (iv) the Corporations shall cooperate in Fourth Financial's
efforts to obtain certain reports and surveys.
The Acquisition Agreement provides that Fourth Financial shall (i) use
its best efforts and good faith to obtain all necessary Regulatory Approvals;
(ii) observe the confidentiality of information obtained from the Company and
the Corporations; (iii) consult with the Company prior to issuing any planned
public statement regarding the subject matter of the Acquisition Agreement or
the termination thereof; (iv) cause Bank IV to be well capitalized upon the
consummation of the transactions contemplated by the Acquisition Agreement at
and immediately following the Closing; (vi) provide the Company with such
information as the Company may request in connection in preparation of
material for the Company's shareholders' meeting to approve the Acquisition
Agreement; (vii) following the Closing, permit the Company to examine the
former records of Equity Bank or the other Corporations in order to defend
against new legal action with respect to matters occurring prior to Closing.
No Sale Negotiations. Under the Acquisition Agreement the Company
has agreed prior to the Closing, not to sell, pledge, encumber, or
otherwise hypothecate or transfer any shares of Equity Bank.
Additional Termination Provisions. In addition to the termination
provisions previously described, the Acquisition Agreement provides that it
may be terminated at any time prior to Closing by (i) mutual consent of the
parties; (ii) by either party if the Regulatory Approvals have not been
approved or the conditions to obtaining a Regulatory Approval are reasonably
deemed onerous by Fourth Financial or the Company; or (iii) on June 30, 1994,
unless extended by agreement of the parties, if the conditions to the
obligations of the parties have not occurred on or before June 30, 1994.
The Company or Fourth Financial may terminate the Acquisition Agreement
in the event of (i) any uncured material breach of any of the obligations,
covenants or warranties of the other party, or (ii) any written representation
furnished by the other party is false or misleading in any material respect at
the time made in relation to the size and scope of the transactions
contemplated by the Acquisition Agreement.
Expenses. The Acquisition Agreement provides that each party shall pay
all of its costs and expenses incurred in connection with the Acquisition
Agreement and the transactions contemplated thereby, whether or not the sale
of Equity Bank is consummated and whether or not the Acquisition Agreement is
terminated.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE SALE OF EQUITY BANK
PURSUANT TO THE ACQUISITION AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE SALE OF EQUITY BANK.
SELECTED FINANCIAL DATA
Historical Selected Financial Data. The selected financial information
presented below has been derived from, and should be read in conjunction with,
the Consolidated Financial Statements of the Company incorporated by reference
in this Proxy Statement. The historical financial data for the five (5) years
ended December 31, 1992, is derived from the Company's audited Consolidated
Financial Statements for such years. The historical financial data for the
nine (9) months ended September 30, 1993 and 1992, is derived from unaudited
consolidated financial statements of the Company for such periods, and, in the
opinion of management, includes all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for such
interim periods. Results for the interim periods are not necessarily
indicative of the results for the entire year.
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Nine months ended
Years ended December 31, September 30,
1988 1989 1990 1991 1992 1992 1993
Selected statement of
operations data:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 211,709 $ 212,748 $ 196,577 $ 177,035 $ 198,373 $150,858 $ 177,798
========= ========= ========= ========= ========= ======== =========
Interest income on
loans and invest-
ments $ 3,557 $ 28,746 $ 33,856 $ 40,548 $ 32,205 $ 24,604 $ 20,911
FSLIC interest and ========= ========= ========= ========= ========= ========= =========
yield maintenance $ - $ 10,089 $ 7,803 $ 3,441 $ 936 $ 712 $ -
========= ========= ========= ========= ========= ========= =======
Total revenues $ 216,309 $ 262,590 $ 248,226 $ 234,191 $ 246,783 $ 188,238 $ 210,567
========= ========= ========= ========= ========= ========= =========
Interest expense:
Deposits $ 5,167 $ 30,580 $ 27,940 $ 23,144 $ 16,445 $ 12,982 $ 9,556
Long-term debt
and other 8,112 13,996 16,100 16,142 13,194 10,108 7,305
--------- --------- --------- --------- --------- ---------
$ 13,279 $ 44,576 $ 44,040 $ 39,286 $ 29,639 $ 23,090 $ 16,861
========= ======== ======== ========= ======== =========
Provision for loan losses $ 375 $ 35 $ 5,852 $ 1,335 $ 1,224 $ 882 $ 1,037
========= ========= ======== ======== ========= =========
Income (loss) before
extraordinary items $ 1,451 $ 4,036 $(10,654) $ (1,147) $ 9,255 $ 7,481 $ 10,839
========= ======== ======== ======== ========= =========
Net income (loss) $ 3,251 $ 4,036 $ (9,121) $ (1,147) $ 9,255 $ 7,481 $ 10,839
========= ======== ======== ======== ========= =========
</TABLE>
<PAGE>
<TABLE>
Nine months ended
Years ended December 31, September 30,
----------------------- ------------------
1988 1989 1990 1991 1992 1992 1993
---- ---- ---- ---- ---- ---- ----
Net income (loss) applic-
<S> <C> <C> <C> <C> <C> <C> <C>
able to common stock $ 1,092 $ 1,987 $(11,107) $ (3,090) $ 7,428 $ 6,079 $ 9,604
========= ======== ======== ======== ========= ======== ========
Earnings (loss) per
common share:
Primary:
Income (loss) before
extraordinary items $ (0.06) $ 0.32 $ (2.30) $ (0.48) $ 0.94 $ 0.79 $ 0.74
========= ======== ========= ========= ========== ========= =========
Net income (loss) $ 0.19 $ 0.32 $ (2.02) $ (0.48) $ 0.94 $ 0.79 $ 0.74
========= ======== ========= ========= ========== ========= =========
Fully diluted:
Income (loss) before
extraordinary items $ (0.06) $ 0.31 $ (2.30) $ (0.48) $ 0.66 $ 0.53 $ 0.64
========= ======== ========= ========= ========== ========= =========
Net income (loss) $ 0.19 $ 0.31 $ (2.02) $ (0.48) $ 0.66 $ 0.53 $ 0.64
Selected Balance Sheet Data: ========= ======== ========= ========= ========== ========= =========
Total assets $ 549,007 $ 662,424 $ 649,730 $ 605,513 $ 582,248 $ 587,394 $ 581,289
========= ========= ========= ========= ========== ========= =========
Deposits $ 385,003 $ 386,493 $ 364,402 $ 359,228 $ 336,053 $ 340,244 $ 332,941
Long-term debt $ 53,591 $ 43,616 $ 57,092 $ 56,330 $ 50,321 $ 51,154 $ 27,115
========= ========= ========= ========= ========= ========= =========
Redeemable preferred
stock $ 206 $ 196 $ 186 $ 179 $ 163 $ 168 $ 158
========= ========= ========= ========= ========= ========= =========
Non-redeemable pre-
ferred stock, common
stock, and other
stockholders' equity $ 24,787 $ 25,144 $ 13,481 $ 10,352 $ 18,339 $ 16,769 $ 73,954
Cash dividends declared ========= ========= ========= ========= ========== ========= =========
per common share $ - $ - $ - $ - $ $ 0.03
========= ========= ========= ========= ========== ========= ========
</TABLE>
Unaudited Restated Historical Selected Financial Data. The proposed sale of
Equity Bank will require the Company to remove the results of operations of
Equity Bank from continuing operations for financial statement reporting
purposes. Accordingly, certain historical data has been restated below
in accordance with the requirements effective with the consummation of the
proposed sale of Equity Bank.
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data)
Nine months ended
Years ended December 31, September 30,
--------------------------------------------------- --------------------
1988 1989 1990 1991 1992 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 211,709 $ 212,748 $ 196,577 $ 177,035 $ 198,373 $ 150,858 $ 177,798
Operating costs and
expenses:
Cost of sales 161,061 159,848 148,352 136,258 146,391 111,899 132,991
Selling, general and
administrative 33,291 36,357 36,785 36,240 37,124 27,019 30,123
------- ------- ------- ------- ------- ------- -------
194,352 196,205 185,137 172,498 183,515 138,918 163,114
------- ------- ------- ------- ------- ------- -------
Operating income 17,357 16,543 11,440 4,537 14,858 11,941 14,685
Other deductions
(income):
Interest expense 8,035 9,694 11,128 10,776 9,225 6,965 5,778
Interest income (227) (1,022) (655) (492) (147) (109) (180)
Other expense
(income), net (377) (2,200) (2,314) (2,212) (1,706) (1,265) 142
------ ------- ------- ------- ------- ------- -------
Income (loss) from con-
tinuing operations be-
fore provision for in-
come taxes and extra-
ordinary items 9,926 10,071 3,281 (3,535) 7,486 6,350 8,945
Provision for income
taxes 2,940 529 379 47 353 414 720
------- ------ ------ ------ ------ ------- --------
Income (loss) from con-
tinuing operations: 6,986 9,542 2,902 (3,582) 7,133 5,936 8,225
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
----------------------------------------------- ----------------
1988 1989 1990 1991 1992 1992 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Discontinued operations:
Income (loss) from dis-
continued operations,
net of applicable in-
come taxes (5,535) (5,506) (13,556) 2,435 2,122 1,546 2,615
------ ----- ------ ----- ----- ----- ------
Income (loss) before
extraordinary items 1,451 4,036 (10,654) (1,147) 9,255 7,481 10,839
Extraordinary items, net
of tax 1,800 - 1,533 - - - -
----- ----- ------ ----- ----- ----- ------
Net income (loss) $ 3,251 $ 4,036 $ (9,121) $ (1,147) $ 9,255 $7,481 $ 10,839
===== ===== ====== ===== ===== ===== ======
Net income (loss) applic-
able to common stock $ 1,092 $ 1,987 $ (11,107) $ (3,090) $ 7,428 $6,079 $ 9,604
===== ===== ====== ===== ====== ===== =======
Earnings (loss) per
common share:
Primary:
Income (loss) from
continuing opera-
tions before extra-
ordinary items $ 0.71 $ 1.07 $ 0.17 $ (0.88) $ 0.68 $ 0.60 $ 0.54
Discontinued opera-
tions (0.77) (0.75) (2.47) 0.40 0.26 0.19 0.20
Extraordinary items 0.25 - 0.28 - - -
------ ----- ----- ----- ------ ------ -------
Net income (loss) $ 0.19 $ 0.32 $ (2.02) $ (0.48) $ 0.94 $ 0.79 $
====== ===== ====== ====== ======= ======= =======
Fully diluted:
Income (loss) from
continuing opera-
tions before extra-
ordinary items $ 0.44 $ 0.74 $ 0.17 $ (0.88) $ 0.51 $ 0.42 $ 0.47
Discontinued opera-
tions (0.50) (0.43) (2.47) 0.40 0.15 0.11 0.17
Extraordinary items 0.25 - 0.28 - - -
------- ------ ------ ------- ------- ------- --------
Net income (loss) $ 0.19 $ 0.31 $ (2.02) $ (0.48) $ 0.66 $ 0.53 $
======= ====== ====== ======= ======== ====== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30,
--------------------------------------------- ---------------
1988 1989 1990 1991 1992 1992 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average com-
mon and dilutive
common equivalent
shares outstanding:
Primary 7,202 7,343 5,495 6,105 8,188 8,027 13,059
Fully diluted 11,015 12,705 5,495 6,105 14,413 14,360 15,497
</TABLE>
Unaudited Pro Forma Selected Financial Data.
The selected balance sheet data at September 30, 1993, and the selected
income statement data for the year ended December 31, 1992, and the (9) month
period ended September 30, 1993, has been adjusted to reflect the impact of the
sale of Equity Bank, all as if such transaction had occurred, for the purpose
of the balance sheet data, on September 30, 1993, and, for the
income statement data, on January 1, 1992. The data should be read in
conjunction with the "Unaudited Pro Forma Financial Information" and the
related notes thereto.
UNAUDITED PRO FORMA
SELECTED BALANCE SHEET DATA
at September 30, 1993
(Amounts in thousands, except per share data)
Total assets $ 187,779
Long-term debt $ 56,747
Redeemable preferred stock $ 158
Non-redeemable preferred stock, common
stock, and other stockholders' equity $ 98,954
Book value per common share $ 3.83
Cash dividends declared per common share $ .03
<PAGE>
<TABLE>
UNAUDITED PRO FORMA
SELECTED INCOME STATEMENT DATA
<CAPTION>
Year ended Nine months ended
December 31, 1992 September 30, 1993
----------------- ------------------
(Amounts in thousands, except per share amounts)
<S> <C> <C>
Net sales $ 198,373 $ 177,798
========= =========
Income from continuing opera-
tions $ 7,799 $ 9,168
========= =========
Income from continuing operations
applicable to common stock $ 5,972 $ 7,933
========== =========
Earnings from continuing operations
per common share:
Primary $ 0.79 $ 0.63
========== =========
Fully diluted $ 0.56 $ 0.53
========== =========
</TABLE>
<PAGE>
PRO FORMA FINANCIAL STATEMENTS
The following unaudited Pro Forma Balance Sheet as of September 30,
1993, and the Pro Forma Statements of Income for the fiscal year ended
December 31, 1992, and the nine (9) months ended September 30, 1993, are
presented to give effect to the sale of Equity Bank.
Historical financial data used to prepare the pro forma financial
statements were derived from the audited financial statements included in the
Company's Form 10-K for the year ended December 31, 1992, and the unaudited
financial statements included in the Company's Report on Form 10-Q for the
nine (9) months ended September 30, 1993, which are incorporated by reference
into this Proxy Statement. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE". These pro forma financial statements should be read in
conjunction with such historical financial statements.
The pro forma adjustments reflected herein are based on available
information and certain assumptions that the Company's management believes are
reasonable. Pro forma adjustments made in the Pro Forma Balance Sheet assume
that the sale of Equity Bank was consummated on September 30, 1993, and do not
reflect the impact of Equity Bank's historical operating results or changes in
other balance sheet amounts subsequent to September 30, 1993. The pro forma
adjustments related to the Pro Forma Statements of Operations assume that the
sale of Equity Bank was consummated on January 1, 1992.
The Pro Forma Balance Sheet and Statements of Income are based on
assumptions and approximations and, therefore, do not reflect in precise
numerical terms the impact of the transaction on the historical financial
statements. In addition, such pro forma financial statements should not be
used as a basis for forecasting the future operations of the Company.
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1993
(Unaudited)
<CAPTION>
As
ASSETS Actual Pro Forma Adjustments Adjusted
- ------------------------------ ---------- ------------------------------ --------
(Note 1) (Note 2)
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,476 $ 65,416 $ (77,322) $ 6,570
Investment securities 7,812 - ( 7,812) -
Trade accounts receivable,
less allowance for doubtful
accounts 49,000 49,000
Loans, less allowance for loan
losses 138,340 - (138,340) -
Mortgage-backed securities 202,835 - (202,835) -
Inventories 44,957 - - 44,957
Supplies and prepaid items 6,645 - - 6,645
Foreclosed real estate 19,961 - (3,928) 16,033
Net property, plant and equipment 61,165 - (7,617) 53,548
Excess of purchase price over net
assets acquired, net of accumu-
lated amortization 22,539 - (17,919) 4,620
Other assets 9,559 - (3,153) 6,406
--------- ----------- ---------- ---------
$ 581,289 $ 65,416 $ (458,926) $ 187,779
========= =========== ========== =========
</TABLE>
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1993
(Unaudited)
<CAPTION>
LIABILITIES, PREFERRED AND COMMON
STOCKS AND OTHER STOCKHOLDERS(1) As
EQUITY Actual Pro Forma Adjustments Adjusted
- ---------------------------------- --------- ------------------------ --------
(Note 1) (Note 2)
(Dollars in thousands)
<S> <C> <C> <C> <C>
Liabilities:
Deposits $ 332,941 $ - $ (332,941) $ -
Notes payable $ 65,416 (65,416) -
Accounts and drafts payable 26,041 - 26,041
Securities sold under agreements to repurchase 38,721 (38,721) -
Accrued liabilities 9,209 (3,330) 5,879
Federal Home Loan Bank advances 73,150 (73,150) -
Long-term debt 27,115 29,632 56,747
------- ------- ------- -------
507,177 65,416 (483,926) 88,667
Redeemable, noncumulative, convertible
preferred stock 158 158
Non-redeemable preferred stock, common stock,
and other stockholders' equity:
Preferred stocks 48,000 48,000
Common Stock 1,411 1,411
Capital in excess of par value 36,175 36,175
Retained earnings (deficit) (7,885) 25,000 17,115
------ ------- -------
77,701 25,000 102,701
Less treasury stock 3,747 3,747
------ -------
Total non-redeemable preferred stock, common
stock and other stockholders' equity 73,954 25,000 98,954
------ ------ -------- -------
$ 581,289 $ 65,416 $ (458,926) $ 187,779
======= ====== ======== ========
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
Note 1:
Pro forma adjustment to recognize the cash required by the Company to
purchase the Retained Corporations from Equity Bank prior to the sale of Equity
Bank to Bank IV. The Company has arranged with a lender to borrow the funds
with which to fund the purchase. The borrowed funds will be repaid from the
proceeds of the sale of Equity Bank. As the carrying value of the Retained
Assets and Retained Corporations on a consolidated basis
will not change as a result of the purchase, no adjustment to such carrying
value is necessary.
Note 2:
Pro forma adjustment to recognize the sale of Equity Bank as though
consummated on September 30, 1993. The adjustment is based on an estimated
selling price of $92 million resulting in a financial gain of $25 million after
consideration of costs of the transaction.
The reductions in the detail balance sheet amounts represent the historical
carrying values of such accounts that will remain assets and liabilities of
Equity Bank after the sale and after acquisition by the Company of the
Retained Assets and Retained Corporations.
A summary of the cash activity in connection with the sale of Equity Bank
is as follows:
<TABLE>
<CAPTION>
The Company Equity Bank Consolidated
----------- ----------- ------------
<S> <C> <C> <C>
Cash balances September 30, 1993 $ 6,570 $ 11,906 $ 18,476
Borrowing to finance purchase of Retained Corporations 65,416 65,416
Purchase by the Company of the Retained Corporations (65,416) 65,416
Cash received on the sale of Equity Bank 92,000 92,000
Purchase by the Company of the Retained Assets (20,066) (20,066)
Pay off funds borrowed to purchase Retained
Corporations (65,416) (65,416)
Estimated costs of sale (2,550) (2,550)
Funds borrowed by the Company to repurchase accounts
receivable sold to Equity Bank 29,632 29,632
Repurchase accounts receivable from Equity Bank (33,600) (33,600)
Eliminate Equity Bank from the consolidated group (77,322) (77,322)
---------- ---------- -------
Pro forma cash balance $ 6,570 $ - $ 6,570
========== ========== ========
</TABLE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Notes)
(Amounts in thousands except per share data)
<TABLE>
(Unaudited)
Year ended December 31, 1992 Nine months ended September 30, 1993
----------------------------------------- --------------------------------------------------
Pro Forma As Pro Forma As
Actual Adjustments Adjusted Actual Adjustments Adjusted
------ ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales $ 198,373 $ $ 198,373 $ 177,798 $ - $ 177,798
Interest income
on loans and
investments 32,205 (32,058) 147 20,911 (20,731)(a) 180
FSLIC interest
and yield
maintenance 936 (936)(a) - - -
Credit card and (13,563)(a) (10,233)(a)
other 15,269 314(b) 2,020 11,858 671(b) 2,296
------- ------- ------- ------- ------ -------
Total revenues 246,783 (46,243) 200,540 210,567 (30,293) 180,274
Costs and expenses:
Cost of sales 146,391 146,391 132,991 132,991
Selling, general
and administra-
tive:
Financial
Services 22,282 (22,282)(a) - 15,838 (15,838)(a) -
Nonfinancial (352)(a) - (291)(a)
Services 37,476 133(b) 37,257 30,414 78(b) 30,201
Interest:
Deposits 16,445 (16,445)(a) - 9,556 (9,556)(a) -
Long-term debt (3,969)(a) (1,527)(a)
and other 13,194 (694)(b) 8,531 7,305 (506)(b) 5,272
Provision for
loan losses 1,224 (1,224)(a) - 1,037 (1,037)(a) -
Settlement of
dispute 1,767 1,767
------- ------ ------- ------- ------ -------
237,012 (44,833) 192,179 198,908 (28,677) 170,231
Income from con- ------- ------ ------- ------- ------ -------
tinuing opera-
tions before pro-
vision for income
taxes 9,771 (1,410) 8,361 11,659 (1,616) 10,043
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1992 Nine months ended September 30, 1993
Pro Forma As Pro Forma As
Actual Adjustments Adjusted Actual Adjustments Adjusted
<S> <C> <C> <C> <C> <C> <C>
Provision for in- (163)(a) (100)(a)
come taxes 516 209(b) 562 820 155(b) 875
------- ------- -------- ------- ------ -------
Income from con-
tinuing oper-
tions $ 9,255 $ (1,456) $ 7,799 $ 10,839 $ (1,671) $ 9,168
======= ======= ======= ======= ====== =======
Income from contin-
uing operations
applicable to
common stock $ 5,972 $ 7,933
======= =======
Earnings from con-
tinuing operations
per common share:
Primary $ 0.79 $ 0.63
======== =======
Fully diluted $ 0.56 $ 0.53
======== =======
</TABLE>
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Note (a)
- ---------
Reclassification of revenues and expenses of Equity Bank as a discontinued
operation of the Company for the periods presented. Such amounts are
reconciled to previously reported segment data as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, 1992 September 30, 1993
----------------- ----------------------
(Amounts in thousands)
<S> <C> <C>
Operating profit -
Financial Services, as reported $ 2,989 $ 3,238
Allocation of general corporate expenses (750) (563)
Allocation of income taxes (163) (100)
Losses on Retained Assets 46 39
------- -------
Income from discontinued operations $ 2,122 $ 2,614
======= =======
</TABLE>
Note (b):
- ----------
Pro Forma Adjustments to reflect the estimated effect on earnings of
acquiring the Retained Assets is considered. These include reduced
interest expense on financing of the Company's accounts receivable with a
new lender and the earnings on real estate assets acquired as Retained Assets.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following table shows
the total number and percentage of the outstanding shares of the Company's
voting common stock and voting preferred stock beneficially owned as of the
Record Date, with respect to each person (including any "group" as used in
Section 13(d)(3) of the Securities Act of 1934, as amended) that the Company
knows to have beneficial ownership of more than five percent (5%) of the
Company's voting common stock and voting preferred stock. A person is deemed
to be the beneficial owner of voting shares of Common Stock of the Company
which he or she could acquire within sixty (60) days of the Record Date, such
as upon the exercise of options.
Because of the requirements of the Securities and Exchange Commission as
to the method of determining the amount of shares an individual or entity may
beneficially own, the amounts shown below for an individual or entity may
include shares also considered beneficially owned by others.
Amounts of
Name and Address Title Shares Percent
of of Beneficially of
Beneficial Owner Class Owned Class
---------------- ----- ----------------- ------
Jack E. Golsen and members Common 4,058,771(3)(5)(6) 27.9%
of his family Preferred
______________________________
(1) The Company based the information with respect to beneficial
ownership on information furnished by the above-named individuals or
entities or contained in filings made with the Securities and Exchange
Commission or the Company's records.
(2) Includes Jack E. Golsen and the following members of his family: wife,
Sylvia H. Golsen; son, Barry H. Golsen (a director of the Company and
President of several subsidiaries of the Company); son, Steven J.
Golsen (Executive officer of several subsidiaries of the Company), and
daughter, Linda F. Rappaport. The address of Jack E. Golsen,
Sylvia H. Golsen and Linda F. Rappaport is 16 South Pennsylvania
Avenue, Oklahoma City, Oklahoma 73107; Barry H. Golsen's address is
5000 S.W.Seventh Street, Oklahoma City, Oklahoma 73125 and
Steven J. Golsen's address is 518 North Indiana Avenue,
Oklahoma City, Oklahoma 73107.
(3) Includes (a) the following shares that Jack E. Golsen ("J. Golsen") has
the sole voting and investment power: (i) 89,028 shares that he owns
of record, (ii) 165,000 shares that he has the right to acquire
under a non-qualified stock option, (iii) 4,000 shares that he has the
right to acquire upon conversion of a promissory note, (iv) 133,333
shares that he has the right to acquire upon the conversion of
4,000 shares of the Company's Series B 12% Cumulative Convertible
Preferred Stock (the "Series B Preferred") owned of record by him, and
(v) 10,000 shares that he has the right to acquire within the
next sixty (60) days under the Company's stock option plans;
(b) 1,315,310 shares owned of record by Sylvia H. Golsen, in which she
and her husband, J. Golsen, share voting and investment power;
(c) 264,526 shares that Barry H. Golsen ("B. Golsen") has the sole
voting and investment power, 533 shares that he shares the voting and
investment power with his wife that are owned of record by his
wife, and 14,000 shares that he has the right to acquire within the
next sixty (60) days under the Company's stock option plans;
(d) 225,897 shares that Steven J. Golsen ("S. Golsen") has the sole
voting and investment power and 14,000 shares that he has the right
to acquire within the next sixty (60) days under
the Company's stock option plans; (e) 145,460
shares held in trust for the grand-children of Jack E. and Sylvia H.
Golsen of which B. Golsen, S. Golsen and Linda F. Rappaport
jointly or individually are trustees; (f) 82,552 shares owned of
Record by Linda F. Rappaport, which Mrs. Rappaport has the sole
voting and investment power; and, (g) 1,061,799 shares owned of record
by Golsen Petroleum Corporation ("GPC") and 533,333 shares that GPC has
the right to acquire upon conversion of 16,000 shares of Series B
Preferred owned of record by GPC. GPC is wholly owned
by J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen and Linda F.
Rappaport, with each owning twenty percent (20%) of the outstanding
stock of GPC, and, as a result, GPC, J. Golsen, Sylvia H. Golsen,
B. Golsen, S. Golsen and Linda F. Rappaport share the voting
and investment power of the shares beneficially owned by GPC.
GPC's address is 16 South Pennsylvania Avenue, Oklahoma
City, Oklahoma 73107.
(4) Includes: (a) 4,000 shares of Series B Preferred owned of record by
J. Golsen, which he has the sole voting and investment power; and (b)
16,000 shares of Series B Preferred owned of record by GPC,
in which GPC, J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen and
Linda F. Rappaport share the voting and investment power.
(5) Does not include 144,260 shares of Common Stock that Linda F.
Rappaport's husband owns of record and 14,000 shares which he has the
right to acquire within the next sixty (60) days under the
Company's stock option plans, all of which Linda F. Rappaport
disclaims beneficial ownership.
(6) J. Golsen disclaims beneficial ownership of the shares that B.
Golsen, S. Golsen and Linda F. Rappaport each have the sole voting and
investment power over as noted in footnote (3) above. B. Golsen,
S. Golsen and Linda F. Rappaport disclaim beneficial ownership of
the shares that J. Golsen has the sole voting and investment power
over as noted in footnote (3) and the shares owned of record by
Sylvia H. Golsen. Sylvia H. Golsen disclaims beneficial ownership of
the shares that J. Golsen has the sole voting and investment
power over as noted in footnote (3) above.
ecurity Ownership of Management. The following table sets forth information
obtained from the directors of the Company and the directors and executive
officers of the Company as a group as to their beneficial ownership
of the Company's voting common stock and voting preferred stock as of the Record
Date.
Because of the requirements of the Securities and Exchange Commission as to
the method of determining the amount of shares an individual or entity may
own beneficially, the amount shown below for an individual may include
shares also considered beneficially owned by others. A person is deemed to be
the beneficial owner of voting shares of Common Stock of the Company which
he or she could acquire within sixty (60) days of the Record Date,
Such as upon the exercise of an option. In calculating the percentage
of any class of stock which such person does not own but which he or she
has the right to acquire within sixty (60) days from the Record Date is deemed
to be outstanding for the purpose of computing the percentage of outstanding
stock of the class owned by such person but is not deemed to be outstanding
for the purpose of computing the percentage of the class owned by any other
person.
<TABLE>
<CAPTION>
Amounts of
Name Title Shares Percent
of of Beneficially of
Beneficial Owner Class Owned(1) Class
---------------- ----- --------------- -------
<S> <S> <C> <C>
Raymond B. Ackerman Common 140(2) *
Robert C. Brown, M.D. Common 253,329(3) 1.8%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amounts of
Name Title Shares Percent
of of Beneficially of
Beneficial Owner Class Owned(1) Class
---------------- -------- ------------- ------
<S> <S> <C> <C>
Barry H. Golsen Common 1,946,921(4) 14.2%
Preferred 16,000(4) 74.0%
Jack E. Golsen Common 3,311,803(5) 23.9%
Preferred 20,000(5) 92.5%
David R. Goss Common 266,477(6) 1.9%
Bernard G. Ille Common 125,000(7) *
Jerome D. Shaffer, M.D. Common 135,374(8) 1.0%
Tony M. Shelby Common 262,882(9) 1.9%
C. L. Thurman Common 66,833(10) *
Directors and Executive Common 5,095,085(11) 36.9%
Officers as a group (12 Preferred 20,000(11) 92.5%
persons)
</TABLE>
______________________________
* Less than 1%.
(1) The Company based the information with respect to beneficial ownership
on information furnished by each director or officer, contained in
filings made with the Securities and Exchange Commission, or
contained in the Company records.
(2) Mr. Ackerman has sole voting and investment power of these shares,
which shares are held in a trust in which Mr. Ackerman is both the
settlor and the trustee and in which he has both the vested
interest in the corpus and income.
(3) The amount shown includes 65,000 shares of common stock that Dr. Brown
may acquire pursuant to currently exercisable nonqualified stock
options granted to him by the Company. Dr. Brown has sole
voting and investment power over 30,000 shares and shares the
voting and investment power of the balance of the shares. The shares
with respect to which Dr. Brown shares the voting and investment
power consist of 87,516 shares owned by Dr. Brown's wife, 50,727
shares owned by Robert C. Brown, M.D., Inc., a corporation wholly-owned
by Dr. Brown, and 20,086 shares held by the Robert C. Brown M.D., Inc.
Employee Profit Sharing Plan, of which Dr. Brown serves as the trustee.
The amount shown does not include 56,090 shares directly owned by the
children of Dr. Brown, all of which Dr. Brown disclaims beneficial
ownership.
(4) See footnotes (3), (4) and (6) of the table under "Security Ownership
of Certain Beneficial Owners and Management" of this Item for a
description of the amount and nature of the shares beneficially
owned by B. Golsen, including the 14,000 shares B. Golsen has the
right to acquire within sixty (60) days.
(5) See footnotes (3), (4) and (6) of the table under "Security Ownership
of Certain Beneficial Owners and Management of this Item for a
description of the amount and nature of the shares beneficially
owned by J. Golsen, including the 10,000 shares J. Golsen has
the right to acquire within sixty (60) days.
(6) The amount shown includes 5,000 shares that he has the right to acquire
within sixty (60) days pursuant to options granted under the
Company's ISOs, all of which Mr. Goss has the sole voting
and investment power. Mr. Goss shares voting and investment power
over 2,429 shares owned by Mr. Goss's wife, individually and/or as
custodian for Mr. Goss's children and has sole voting and
investment power over the balance of the shares.
(7) The amount includes 65,000 shares that Mr. Ille may purchase pursuant
to currently exercisable nonqualified stock options, all of which
Mr. Ille has the sole voting and investment power. Mr. Ille
shares voting and investment power over 60,000 shares owned by
Mr. Ille's wife.
(8) Dr. Shaffer has the sole voting and investment power over these shares,
which includes 65,000 shares that Dr. Shaffer may purchase pursuant to
currently exercisable non-qualified stock options.
(9) Mr. Shelby has the sole voting and investment power over these shares,
which include 5,000 shares that he has the right acquire to within
sixty (60) days pursuant to options granted under the Company's ISOs.
(10) Mr. Thurman has the sole voting and investment power over these shares.
(11) The amount shown includes 489,380 shares of common stock that officers
and directors, or entities controlled by officers and directors of
the Company, have the right to acquire within sixty (60) days.
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
Market Information. The Company's common stock trades on the American Stock
Exchange ("AMEX"). The following table shows for the periods indicated, the
high and low closing sales prices for the common stock.
Fiscal Year Ended
December 31,
------------------
Quarter 1992
------- ----
High Low
---- ---
First 2-7/8 1-1/4
Second 4-7/8 2-3/8
Third 6-1/2 3-3/4
Fourth 7-3/4 4-3/4
Fiscal Year Ended
December 31,
-----------------
Quarter 1993
High Low
First 11-1/8 6-3/4
Second 12 9
Third 12-3/8 10
Fourth 11-3/8 8-1/8
1994
----
First 10 8-3/8
(through
March 10, 1994)
On November 30, 1993, the last full trading day preceding the initial
public announcement by the Company of the agreement in principle to sell
Equity Bank, the closing price of the Company's Common Stock on the AMEX was
$9.875. On January ___, 1994, the last full trading day preceding the
announcement by the Company of the execution of the Acquisition Agreement, the
closing price of the Company's Common Stock on the AMEX was $9.625.
Shareholders of and Dividends on Company's Common Stock. As of the Record
Date, the Company had _____________ record holders of its Common Stock.
The sale of Equity Bank to Fourth Financial would not have any effect on
the amount and percentage of present holdings of the Company's Common Stock
owned beneficially by (i) any person (including any group as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934) who is known to
the Company to be the beneficial owner of more than 5% of any class of the
Company's Common Stock, and (ii) each director and all directors and officers
as a group, and the Company's present commitments to such persons with respect
to the issuance of shares of any class of its Common Stock.
Holders of the Company's Common Stock are entitled to receive dividends
only when, as, and if declared by the Board of Directors. No dividends may be
paid on the Company's Common Stock until all required dividends are paid on
the outstanding shares of the Company's preferred stock, or declared and
amounts set apart for the current period, and, if cumulative, prior periods.
The Company has issued and outstanding as of the Record Date 920,000 shares of
a series of $3.25 Convertible Exchangeable Class C Preferred Stock, Series 2,
no par value, 1,632.5 shares of a series of Convertible Preferred and 20,000
shares of Series B Preferred. The Company did not pay cash dividends on its
Common Stock for many years. During the first part of 1993, the Company's
Board of Directors approved the adoption of a policy as to the payment of cash
dividends on its outstanding Common Stock pursuant to which an annual cash
dividend of $.06 per share will be declared by the Board of Directors and paid
on the Company's outstanding shares of Common Stock, payable at $.03 per share
semiannually, subject to change or termination by the Board of Directors at
any time. The Company paid a cash dividend of $.03 a share on its outstanding
Common Stock on July 1, 1993, and January 1, 1994; however, there are no
assurances that this policy will not be terminated or changed by the Board of
Directors.
ADJOURNMENT OF THE MEETING
The proxies solicited by this Proxy Statement request authority to vote
for an adjournment of the Special Meeting. Approval of the adjournment will
authorize the Company to seek an adjournment of the Special Meeting for not
more than fifteen (15) days to enable the Company to solicit additional
votes in favor of the approval of the Acquisition Agreement and the sale of
Equity Bank pursuant to the terms of the Acquisition Agreement. If the
Company wishes to seek an adjournment, it will request a motion that the
Special Meeting be adjourned and, if that motion is approved, no vote will be
taken on the sale of Equity Bank at the Special Meeting as originally
scheduled.
Any adjournment will permit the Company to solicit additional proxies
and will permit more extensive consideration and expression by the
shareholders of their views on the sale of Equity Bank. Such an adjournment
would be disadvantageous to shareholders who oppose the sale of Equity Bank
because such an adjournment would give the Company additional time to solicit
votes and to increase the likelihood of shareholder approval of the
Acquisition Agreement and the sale of Equity Bank pursuant to the Acquisition
Agreement.
Because the Board of Directors of the Company recommends the approval of
the Acquisition Agreement and the sale of Equity Bank pursuant to the
Acquisition Agreement, the Board of Directors unanimously recommends that
holders of record of Common Stock, Convertible Preferred, and Series B
Preferred vote to approve the proposal to adjourn the Special Meeting, if
required. Approval by the affirmative vote of the holders of a majority of
the voting stock of the Company present in person or represented by proxy at
the Special Meeting will be necessary to approve the adjournment proposal.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
ADJOURNMENT PROPOSAL AND RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR
ADJOURNMENT OF THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES, IF
NECESSARY.
SHAREHOLDER PROPOSAL
In order for the Company to include a shareholder proposal in the proxy
materials for the Company's 1994 Annual Meeting of Shareholders, a shareholder
must deliver the proposal, in writing, to the Secretary of the Company no
later than April 15, 1994.
INDEPENDENT ACCOUNTANTS
For many years, Ernst & Young (and its predecessor, Arthur Young &
Company), independent public accountants, have audited the Company's financial
statements. It is expected that representatives of Ernst & Young will attend
the Special Meeting where they will have an opportunity to address the Special
Meeting, if they so desire, and to respond to appropriate shareholder
questions.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
EXCEPT AS NOTED BELOW, THIS PROXY STATEMENT INCORPORATES BY REFERENCE
DOCUMENTS WHICH ARE NOT DELIVERED HEREWITH. SUCH DOCUMENTS RELATING TO THE
COMPANY WILL BE PROVIDED WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO THE
COMPANY, BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE (1)
BUSINESS DAY OF RECEIPT OF SUCH REQUEST. IF MAKING SUCH A REQUEST, PLEASE
DIRECT IT TO: LSB INDUSTRIES, INC., 16 SOUTH PENNSYLVANIA, POST OFFICE BOX
754, OKLAHOMA CITY, OKLAHOMA 73101; ATTENTION: DAVID M. SHEAR, VICE PRESIDENT
AND SECRETARY (405-235-4546).
The following documents previously filed by the Company with the SEC
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") are
hereby incorporated by reference into this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the year
ended December 31, 1992, including Amendment No. 1 filed
on Form 8 on April 30, 1993, and Amendment No. 2 filed on
Form 10K/A on May 13, 1993;
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993;
3. The Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993;
4. The Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993;
5. The Company's Current Report on Form 8-K, dated December
3, 1993 ; and,
6. The Company's Current Report on Form 8-K, dated February
22, 1994.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date of the Special
Meeting shall be deemed to be incorporated by reference into this Proxy
Statement.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
OTHER MATTERS
As of the date of this Proxy Statement, neither the Board of Directors
nor management knows of any other matters which will be presented for
consideration at the Special Meeting. However, if any other business should
properly come before the Special Meeting, the persons named in the enclosed
proxy (or their substitutes) will have discretionary authority to take such
other action as shall be in accordance with their best judgment.
March 22, 1994.
By order of the Board of Directors,
David M. Shear
Vice President, General Counsel
and Secretary
<PAGE>
STOCK PURCHASE AGREEMENT
among
FOURTH FINANCIAL CORPORATION,
as Purchaser
and
LSB INDUSTRIES, INC.,
and
PRIME FINANCIAL CORPORATION,
as Sellers
Dated as of February 9, 1994
<PAGE>
TABLE OF CONTENTS
Page #
------
ARTICLE I. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . .8
Section 1.3 Use of Defined Terms . . . . . . . . . . . . . . . . . .8
ARTICLE II. Sale and Transfer of Stock; Closing. . . . . . . . . . . . . .8
Section 2.1 Sale of the Shares . . . . . . . . . . . . . . . . . . .8
Section 2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . .8
Section 2.3 Additional Adjustments to Purchase Price . . . . . . . 10
Section 2.4 Post-Closing Adjustments . . . . . . . . . . . . . . . 11
Section 2.5 Closing. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.6 Closing Deliveries . . . . . . . . . . . . . . . . . . 12
Section 2.7 Option to Acquire Certain Loans. . . . . . . . . . . . 13
Section 2.8 Retained Assets and Retained Corporations
and Certain Loans. . . . . . . . . . . . . . . . . . . 13
ARTICLE III. Agreements of the Parties. . . . . . . . . . . . . . . 13
Section 3.1 Agreements of Fourth . . . . . . . . . . . . . . . . . 13
Section 3.2 Agreements of Sellers. . . . . . . . . . . . . . . . . 15
ARTICLE IV. Representations and Warranties . . . . . . . . . . . . . . . 20
Section 4.1 Representations and Warranties of Sellers. . . . . . . 20
Section 4.2 Representations and Warranties of Fourth . . . . . . . 30
ARTICLE V. Closing Conditions . . . . . . . . . . . . . . . . . . . . . 32
Section 5.1 Conditions to Obligations of Fourth. . . . . . . . . . 32
Section 5.2 Conditions to Obligations of Sellers . . . . . . . . . 34
ARTICLE VI. Termination of Agreement . . . . . . . . . . . . . . . . . . 35
Section 6.1 Mutual Consent; Termination Date . . . . . . . . . . . 35
Section 6.2 Election by Fourth . . . . . . . . . . . . . . . . . . 35
Section 6.3 Election by Sellers . . . . . . . . . . . . . . . . . 36
ARTICLE VII. Indemnification. . . . . . . . . . . . . . . . . . . . 36
Section 7.1 Effect of Closing. . . . . . . . . . . . . . . . . . . 36
Section 7.2 General Indemnification. . . . . . . . . . . . . . . . 37
Section 7.3 Procedure . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.4 Survival of Representations and Warranties . . . . . . 38
Section 7.5 Special Indemnification. . . . . . . . . . . . . . . . 39
Section 7.6 Separate Indemnification for Environmental
Matters . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.7 Separate Indemnification for Barki
Litigation . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.8 Director and Officer Indemnification . . . . . . . . . 41
<PAGE>
ARTICLE VIII. Miscellaneous. . . . . . . . . . . . . . . . . . . . . 42
Section 8.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.3 Time . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 8.4 Law Governing. . . . . . . . . . . . . . . . . . . . . 43
Section 8.5 Entire Agreement; Amendment. . . . . . . . . . . . . . 43
Section 8.6 Successors and Assigns . . . . . . . . . . . . . . . . 43
Section 8.7 Cover, Table of Contents, and Headings . . . . . . . . 43
Section 8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . 43
Section 8.9 No Third Party Beneficiaries . . . . . . . . . . . . . 43
Section 8.10 Severability . . . . . . . . . . . . . . . . . . . . . 43
EXHIBITS
Exhibit "A" Form of Housley Goldberg & Kantarian, P.C. legal opinion
with attached opinion of David A. Shear
Exhibit "B" Form of Foulston and Siefkin legal opinion
Exhibit "C" Form of Lease - Equity Tower
Exhibit "D" Form of Real Estate Contract - Retained Assets
Exhibit "E" Form of Bank Merger Agreement<PAGE>
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of February 9, 1994, among
FOURTH FINANCIAL CORPORATION, a Kansas corporation ("Fourth"), LSB INDUSTRIES,
INC., a Delaware corporation ("LSB"), and PRIME FINANCIAL CORPORATION, an
Oklahoma corporation ("Prime").
W I T N E S S E T H: That,
-------------------
WHEREAS, Fourth desires to acquire all, and not less than all, of
the issued and outstanding capital stock of all classes of Equity Bank for
Savings, F.A. (the "Bank") and to simultaneously merge the Bank into Fourth's
subsidiary, BANK IV Oklahoma, National Association ("BANK IV") as permitted by
Section 501.1D of the Oklahoma Banking Code of 1965 as amended, subject to and
pursuant to the terms of this Agreement; and
WHEREAS, LSB owns all of the issued and outstanding capital stock
of all classes of Prime and Prime owns all of the issued and outstanding
capital stock of the Bank; and
WHEREAS, each party hereto believes that the proposed acquisition
by Fourth of Bank and the merger of the Bank into BANK IV pursuant to the
terms and conditions of this Agreement would be desirable and in their
respective best interests;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. The following terms as used in this
Agreement shall have the following meanings unless the context otherwise
requires.
<PAGE>
"This Agreement" refers to this Stock Purchase Agreement and all
exhibits hereto and all amendments hereto.
"Bank" means Equity Bank for Savings, F.A., a savings bank
organized under the laws of the United States.
"BANK IV" means BANK IV Oklahoma, National Association, a national
banking association.
"Bank Holding Company Act" means the federal Bank Holding Company
Act of 1956, as amended (12 U.S.C. Section 1841 et seq.), or any successor
federal statute, and the rules and regulations of the Board promulgated
thereunder, all as the same may be in effect at the time.
"Bank Merger Agreement" means the Agreement to Merge,
substantially in the form of Exhibit "E" hereto, pursuant to which the Bank
will be merged into BANK IV at the Closing simultaneously with the
consummation of the Purchase.
"Bank Stock" means common stock of the Bank, par value $.01 per
share.
"Board" means the Board of Governors of the Federal Reserve System
or any successor governmental entity which may be granted powers currently
exercised by the Board of Governors.
"Closing" shall mean the purchase and sale of the Shares and the
simultaneous consummation of the Merger.
"Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder, all as the same may be in
effect at the time.
"Comptroller" means the United States Comptroller of the Currency
or any successor governmental agency which may be granted powers currently
exercised by the Comptroller of the Currency.
<PAGE>
"Corporations" means collectively the Bank and all of the
following of its Subsidiaries: Credit Card Center, Inc., Equity Financial
Service Corp., and United BankCard, Inc.; and "Corporation" means any one of
them.
"Disclosure Statement" means the Disclosure Statement prepared by
Sellers and delivered by Sellers to Fourth prior to the execution and delivery
of this Agreement by Fourth.
"Effective Time" means the date and time on which the Purchase is
effected as more fully defined in this Agreement.
"Environmental Liabilities" means all losses, costs, expenses,
claims, demands, liabilities, or obligations of whatever kind or otherwise,
based upon an Environmental Law relating to:
(i) any environmental matter or condition, including, but
not limited to, on-site or off-site contamination, and regulation
of chemical substances or products;
(ii) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims,
demands, and response, remedial or inspection costs and expenses
arising under Environmental Laws;
(iii) financial responsibility under any Environmental
Law for cleanup costs or corrective actions, including for any
removal, remedial or other response actions, and for any natural
resource damage; and
(iv) any other compliance, corrective, or remedial
action required under any Environmental Law.
"Environmental Law" means any provision of Law relating to any
environmental matters or conditions, Hazardous Materials, pollution, or
protection of the environment, including, but not limited to, on-site and
off-site contamination, and regulation of chemical substances or products,
emissions, discharges, release, or threatened release of contaminants,
chemicals, or industrial, toxic, radioactive, or Hazardous Materials or wastes
into the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
Hazardous Materials, pollutants, contaminants, chemicals, or industrial,
toxic, radioactive, or hazardous substances or wastes.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder, all as
the same may be in effect at the time.
"Facilities" means any real property, leaseholds, or other
interests owned by the Bank or any of the Corporations and/or any buildings,
plants, structures, or equipment of any of the Corporations, but shall not
include any real property, leaseholds, or other interests owned by any of the
Retained Corporations nor any of the Retained Assets other than the Equity
Tower.
"Federal Deposit Insurance Act" means the Federal Deposit
Insurance Act, as amended, and the rules and regulations promulgated
thereunder, all as the same may be in effect at the time.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor agency.
"Financial Statements" refers to all of the financial statements
described in clause h of Section 4.1 and clause h of Section 5.1 of this
Agreement.
"GAAP" means generally accepted accounting principles, applied on
a consistent basis.
"Hazardous Materials" means and includes: (i) any hazardous
substance or toxic material (excluding any lawful product in customary
quantities for use in the Bank's or other occupant's ordinary course of
business which contains such substance or material), pollutant, contaminant,
toxic material, or hazardous waste as defined in any state, federal, or local
Environmental Law; (ii) waste oil and petroleum products; and (iii) any
asbestos, asbestos containing material, urea formaldehyde or material which
contains urea formaldehyde.
<PAGE>
"Indemnifying Losses" has the meaning set forth in Section 7.2 of
this Agreement.
"Indemnitee" and "Indemnitees" shall have the meanings set forth
in Section 7.2 of this Agreement.
"Law" or "Laws" means all applicable statutes, laws, ordinances,
regulations, orders, writs, injunctions, or decrees of the United States of
America, any state or commonwealth, or any subdivision thereof, or of any
court or governmental department, agency, commission, board, bureau, or other
instrumentality.
"Litigation" means any proceeding, claim, lawsuit, and/or
investigation being conducted or, to the best of the knowledge of the person
or corporation making the representation, threatened before any court or other
tribunal, including, but not limited to, proceedings, claims, lawsuits, and/or
investigations, under or pursuant to any occupational safety and health,
banking, antitrust, securities, tax, or other Laws, or under or pursuant to
any contract, agreement, or other instrument.
"LSB" means LSB Industries, Inc., a Delaware corporation.
"Merger" means the merger of the Bank into BANK IV at the Closing
immediately following the Purchase.
"OREO Properties" means any interest in any real or personal
property owned by the Bank or any other Corporation acquired through
foreclosure or otherwise in connection with collecting a loan or lease.
"OTS" means the Office of Thrift Supervision of the United States
Treasury and any successor agency which may be granted powers currently
exercised by the Office of Thrift Supervision.
"Permitted Contract" means a contract or agreement, written or
oral, between the Bank or another of the Corporations, on the one hand, and a
person other than a customer of the Bank or another financial institution, on
the other hand, which (i) was entered into in the ordinary course of business,
(ii) may be terminated by the Bank after the Effective Time on no more than 60
days' prior notice, (iii) provides for a payment of no more than $5,000 in any
calendar month by the Bank or a Corporation, and (iv) provides for no payment
upon termination in excess of $5,000.
<PAGE>
"Permitted Encumbrances" means with respect to any asset:
(a) liens for taxes not past due;
(b) mechanics' and materialmen's liens for services
or materials for which payment is not past due; and
(c) minor defects, encumbrances, and irregularities
in title which do not, in the aggregate, materially diminish the
value of an asset or materially impair the use of an asset for the
purposes for which it is or is intended to be used.
"Purchase" means the purchase at the Closing of all of the Shares
from Sellers by Fourth pursuant to this Agreement.
"Purchase Price" has the meaning set forth in Section 2.2 of this
Agreement as adjusted in accordance with this Agreement.
"Required Approvals" means the approval, consent, or
non-objection, as the case may be, of the Board, the OTS, the Comptroller, and
all other governmental or self-governing agencies, boards, departments, and
bodies whose approval, consent, or non-action is required in order to
consummate the Purchase and the Merger and the retention by BANK IV of all of
the Corporations engaged in banking or thrift-related activities and their
operations in substantially their present form except as specifically
otherwise provided in this Agreement, which approvals, consents, and
non-objections shall have become final and nonappealable without any appeal or
other form of review having been initiated and as to which all required
waiting periods shall have expired.
"Retained Assets" means collectively (i) the loan and all related
rights and agreements on the books of the Bank secured by the Equity Tower
building (the "Equity Tower"), (ii) all OREO Properties, (iii) receivables
sold to the Bank pursuant to various purchase agreements dated March 8, 1988,
and (iv) such other assets that Sellers elect to acquire from the Bank
pursuant to the provisions of Section 2.7 hereof; and "Retained Asset" means
any one of the Retained Assets.
<PAGE>
"Retained Corporations" means all of the following wholly owned
Subsidiaries of the Bank all of the capital stock of each of which is to be
purchased by LSB or Prime prior to the Effective Time: Northwest Financial
Corporation, Northwest Energy Enterprises, Inc., and Northwest Capital
Corporation; and "Retained Corporation" means any one of them.
"Securities Portfolio" means (i) all equity securities other than
investments in Subsidiaries, (ii) all mortgage-backed securities (as defined
by Section 5(c)(1)(R) of the Home Owners' Loan Act), (iii) all government
securities (as defined by Section 5(c)(1)(F) of the Home Owners' Loan Act),
and (iv) all obligations of or fully insured as to principal and interest by
the United States, owned by the Bank as of the Effective Time, whether held
for sale or otherwise.
"Sellers" means LSB and Prime collectively.
"Shares" means collectively all of the 100,000 shares of Bank
Stock being purchased and sold pursuant to this Agreement.
"Subsidiary" means any corporation fifty percent or more of the
common stock or other form of equity of which shall be owned, directly or
indirectly, by another corporation.
"Tangible Book Value of the Bank" means the aggregate consolidated
stockholders' equity of the Bank, calculated in accordance with GAAP, less the
amounts in the following accounts: purchased mortgage servicing rights
(account number 1797), goodwill (account number 1799), and United BankCard
goodwill (account number 1305), net of accumulated amortization (account
number 1310).
"Time Deposits" means all deposit liabilities shown on the Bank's
records as time deposits.
<PAGE>
1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with that
applied in the preparation of the financial statements submitted pursuant to
this Agreement, and all financial statements submitted pursuant to this
Agreement shall be prepared in all material respects in accordance with such
principles.
1.3. Use of Defined Terms. All terms defined in this
Agreement shall have the defined meanings when used in any other agreement,
document, or certificate made or delivered pursuant to this Agreement, unless
the context otherwise requires.
ARTICLE II
SALE AND TRANSFER OF STOCK; CLOSING
2.1. Sale of the Shares. Subject to the terms and conditions
of this Agreement, at the Closing, Sellers shall sell, transfer, and deliver
to Fourth, and Fourth shall purchase, all of the Shares for the Purchase
Price.
2.2. Purchase Price. (a) The Purchase Price for all of the
Shares shall be the sum of:
(i) the Tangible Book Value of the Bank at the
Effective Time;
(ii) $9,300,000 with respect to the Bank's credit
card receivables;
(iii) one percent of the aggregate unpaid principal
balance at the Effective Time of loans secured by fixed-rate
mortgages having fully amortizing original terms of 15 years or
less, excluding loans originated after October 31, 1993;
(iv) six percent of the aggregate unpaid principal
balance at the Effective Time of loans secured by fixed-rate
mortgages having fully amortizing original terms of more than 15
years but not more than 30 years, excluding loans originated after
October 31, 1993;
(v) two percent of the aggregate unpaid principal
balance at the Effective Time of loans secured by variable rate
mortgages, excluding loans originated after October 31, 1993;
<PAGE>
(vi) the amount of unamortized discount on the
mortgages included in (iii), (iv), and (v) above;
(vii) 0.65% of the aggregate unpaid principal balance
at the Effective Time of loans serviced by Bank prior to March 1,
1993 on which the Bank performs mortgage servicing (other than
loans serviced for the account of Bank), one percent of such
balance on such loans originated on or after March 1, 1993 secured
by fixed or adjustable rate mortgages of fully amortizing original
terms of at least ten but not more than 15 years, and 1.25% of
such balance on such loans originated on or after March 1, 1993,
secured by fixed or adjustable rate mortgages having original
fully amortizing terms of more than 15 but not more than 30 years;
(viii) the remainder obtained by subtracting the
Required Reserve (as hereinafter defined) from the Bank's actual
loan loss reserve account (including its unallocated loan loss
reserve) at the Effective Time. "Required Reserve" means
$2,700,000 as adjusted by the amount by which the Bank's loan loss
reserve account (including its unallocated loan loss reserve)
would have to be adjusted at the Effective Time under normal
prudent banking practice to reflect aggregate changes of at least
$500,000 occurring subsequent to October 31, 1993 in the quality
of commercial and energy loans held by the Bank on October 31,
1993 or originated since October 31, 1993 and not reviewed in
advance by Fourth; provided, that no such change in the quality of
a loan shall be included in this calculation to the extent such
change has been reflected in the calculation of the Tangible Book
Value of the Bank at the Effective Time, or if such change is less
than $25,000;
(ix) to the extent not otherwise reflected in the
calculations of the Tangible Book Value of the Bank, the amount,
either positive (if the aggregate fair market value exceeds book
value) or negative (if the aggregate fair market value is less
than book value), by which the aggregate fair market value of the
Bank's Securities Portfolio at the Effective Time differs from the
aggregate book value of the Securities Portfolio on such date;
(x) $11,000,000, with respect to the Bank's deposit
balances;
<PAGE>
(xi) $10,500,000, with respect to the Bank's net
operating loss carryforward at the Effective Time;
(xii) the difference, positive (in the case of a rise
in the yield curve) or negative (in the case of a decline in the
yield curve), between the aggregate book value of all of the
Bank's Time Deposits at the Effective Time and the aggregate value
of such deposits after repricing them to the Treasury yield curve
at the Effective Time; and
(xiii) $1,400,000, representing the aggregate premiums
attributable to the Sayre, Clinton, Thomas, and Beaver branches of
the Bank.
2.3. Additional Adjustments to Purchase Price. (a) The
percentages specified in subparagraphs (iii) and (iv) of Section 2.2 were
calculated using the following yields and spreads as of August 31, 1993:
15 year 30 year
------- -------
Bank's average portfolio yield 7.44% 8.79%
FNMA required 30-day yield 6.19% 6.66%
------- -------
Spread 1.25% 2.13%
If, at the Effective Time, either of such spreads has fluctuated by more than
0.25%, the applicable percentages in subparagraphs (iii) and (iv) of Section
2.2(a) will be adjusted up (if the spread has widened) or down (if the spread
has narrowed) by 1/4 of one percent for each full 1/8 of one percent change in
the spread, in the case of loans with an original term of 15 years or less,
and by 3/8 of one percent for each full 1/8 of one percent change in the
spread, in the case of loans with an original term of more than 15 but not
more than 30 years.
(b) The amount of the Purchase Price will be increased by the
aggregate amount, if any, the Tangible Book Value of the Bank at the Effective
Time has been reduced by any restructuring charge or charges that the Bank
shall have recorded on its books as the result of the anticipated effects of
the Purchase, none of which the Bank shall be obligated to take, and all of
which shall have been approved in advance in writing by Fourth to the extent
permitted by Law.
<PAGE>
2.4. Post-Closing Adjustments. (a) Unless otherwise
specifically provided herein, each component of the Purchase Price shall be
calculated as of the Effective Time; provided, however, that if any element of
the Purchase Price cannot be calculated accurately as of the Effective Time,
such items shall be calculated as of the end of the month preceding the
Effective Time. Any element of the Purchase Price so calculated shall be
adjusted to reflect the accurate amount as of the Effective Time and Sellers
and Fourth agree to enter into mutually agreeable arrangements for the final
adjustment and the payment or repayment of the net amount thereof with
interest from the Effective Time at four percent per year within five business
days after Sellers deliver to Fourth a written statement setting forth in
reasonable detail all proposed price adjustments and the basis of calculating
each.
(b) Upon completion of the 1994 consolidated corporate income
tax return of LSB, LSB shall notify Fourth of the amount of the final net
operating loss carryforward of the Bank at the Effective Time. To the extent
any payment shall be owing to Fourth pursuant to the formula set forth in
clause (ii) and the second sentence of Section 7.5(a) and regardless of
whether Sellers exercise the option referred to in Section 7.5(c), LSB shall
make such payment to Fourth no later than the due date of LSB's 1994
consolidated federal income tax return (including extensions).
2.5. Closing. The Closing shall take place at the offices of
Foulston & Siefkin, 700 Fourth Financial Center, Wichita, Kansas, at 10:00
a.m., or at such other time or place as the parties may agree, on a date
selected by Fourth upon giving reasonable notice to Sellers, which, unless
otherwise agreed, shall be on the 15th day (or the closest Friday if the 15th
is not a Friday) of the month in which the final Regulatory Approval is
obtained and in which all required waiting periods expire if such earliest
legal closing date is during the first 15 days of the month and on the last
business day of the month if the earliest legal closing date occurs after
the 15th day of a month. The parties agree to exert their best efforts to
cause the Closing to occur on or before June 30, 1994.
<PAGE>
2.6. Closing Deliveries. At the Closing:
a. Sellers shall deliver to Fourth:
(i) certificates representing all of the
Shares, endorsed for transfer to Fourth, free and clear
of all encumbrances, liens, security interests, claims,
and equities whatsoever;
(ii) such other documents including
officers' certificates as may be required by this
Agreement or reasonably requested by Fourth; and
(iii) the opinion of Housley Goldberg &
Kantarian, P.C., counsel to Sellers and the Bank,
substantially in the form of Exhibit "A" hereto.
b. Fourth shall deliver to Sellers:
(i) immediately available funds in the
total amount of the Purchase Price;
(ii) such documents including officers'
certificates as may be required by this Agreement or
reasonably requested by Sellers; and
(iii) the opinion of Foulston & Siefkin,
counsel to Fourth, substantially in the form of Exhibit
"B" hereto.
c. BANK IV and Northwest Tower Limited Partnership
shall execute and deliver a real estate lease substantially in the
form of Exhibit "C" hereto pursuant to which Bank will lease from
Northeast Tower Limited Partnership certain first-floor and other
space in the Equity Tower in Oklahoma City for a ten-year term,
with renewal options and options to rent additional space in such
building.
<PAGE>
Contemporaneously with the Purchase, the Bank shall be
merged into BANK IV pursuant to the Bank Merger Agreement.
2.7. Option to Acquire Certain Loans. Sellers shall have the
option, but not the obligation, to acquire any loan owned by the Bank that has
been charged off or written down for a purchase price equal to the net book
value of each loan that has been written down and for a purchase price of
$1.00 in the case of each loan that has been charged off.
2.8. Retained Assets, Retained Corporations, and Certain
Loans. Subject to all of the closing conditions set forth in Sections 5.1 and
5.2 having occurred and continuing in effect, Sellers shall purchase the
Retained Assets from the Bank at the Effective Time for the aggregate book
value thereof as of the Effective Time (or $1.00 in the case of each loan that
has been charged off), and Sellers shall purchase all of the capital stock of
all of the Retained Corporations from the Bank not later than the business day
immediately preceding the Effective Time for the aggregate book value thereof
as of such date. Each such purchase shall be effected by the payment to the
Bank of immediately available funds. All sales by the Bank of OREO Properties
shall be pursuant to a real estate contract substantially in the form of
Exhibit "D" hereto.
ARTICLE III
AGREEMENTS OF THE PARTIES
3.1. Agreements of Fourth.
a. Prior to the Effective Time, Fourth,
separately and with Sellers, shall use its best efforts
in good faith to take or cause to be taken as promptly
as practicable all such steps as shall be necessary to
obtain all of the Required Approvals.
b. Fourth shall promptly prepare and file all
applications necessary to obtain the Required Approvals
and shall afford Sellers at least four days'
opportunity to review and comment upon the drafts of
such applications prior to the filing thereof.
<PAGE>
c. Fourth shall observe the confidentiality
obligations set forth in Section 3.2.c, below.
d. Fourth shall consult with Sellers prior to
issuing any press release or other planned public
statement regarding the subject matter of this
Agreement or the termination thereof as to the contents
of such press release or statement.
e. Fourth agrees to take such action as may
be necessary to cause BANK IV to be well capitalized
upon the consummation of the transactions contemplated
by this Agreement at and immediately following the
Effective Time.
f. Fourth agrees to provide such information
as LSB may reasonably request in connection with the
preparation of material for the conduct of a meeting of
LSB's stockholders to approve this Agreement, and such
information furnished by Fourth will 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.
g. Following the Closing, in the event
Sellers or any of their Subsidiaries, officers,
directors, or affiliates shall be called upon to
provide an indemnity pursuant to the provisions of this
Agreement, or should otherwise be called upon to take
or defend against legal action with respect to matters
occurring prior to the Effective Time, Fourth shall
permit Sellers to examine (subject to reasonable
limitations) the former records of the Bank or the
Corporations.
h. BANK IV shall reimburse LSB for all out-of-
pocket COBRA liabilities incurred by LSB with respect
to employees of the Bank at the Effective Time who are
terminated after the Effective Time by BANK IV to the
extent not paid or reimbursed by re-insurance or stop
loss coverage; provided, however that such
reimbursement shall be net of all COBRA premiums paid
by such employees after the Effective Time and net of
the aggregate amount of all Bank employee forfeitures
under the Bank's cafeteria plan.
<PAGE>
3.2. Agreements of Sellers.
a. Prior to the Closing, except with respect
to those commitments binding as of the date of this
Agreement described in an exhibit to the Disclosure
Statement, or as otherwise provided in this Agreement,
Sellers shall not, without the prior written consent of
Fourth which shall not unreasonably be withheld, permit
any of the Corporations to:
(1) Amend its articles or certificate of
incorporation, bylaws, or other charter
documents, make any change in its authorized,
issued, or outstanding capital stock, grant any
stock options or right to acquire shares of any
class of its capital stock or any security
convertible into any class of capital stock,
purchase, redeem, retire, or otherwise acquire
(otherwise than in a fiduciary capacity) any
shares of any class of its capital stock or any
security convertible into any class of its
capital stock, or agree to do any of the
foregoing;
(2) Declare, set aside, or pay any
dividend or other distribution in respect of any
class of its capital stock;
(3) Adopt, enter into, or amend materially
any employment contract or any bonus, stock
option, profit sharing, pension, retirement,
incentive, or similar employee benefit program
or arrangement or grant any salary or wage
increase, except (a) normal individual increases
in compensation to employees in accordance with
established employee procedures of the
Corporations; (b) the Fourth Financial
Corporation Acquisition Severance Schedule
previously furnished to Seller; and (c)
severance agreements to be performed by Sellers
without any obligation of the Bank or Fourth;
<PAGE>
(4) Incur any indebtedness for borrowed
money (except for federal funds, repurchase
agreements entered into in the ordinary and
usual course of business, deposits received by
the Bank, endorsement, for collection or
deposit, of negotiable instruments received in
the ordinary and usual course of business, and
issuance of letters of credit by the Bank in the
ordinary and usual course of business), assume,
guarantee, endorse, or otherwise as an
accommodation become liable or responsible for
obligations of any other individual, firm, or
corporation;
(5) Pay or incur any obligation or
liability, absolute or contingent, other than
liabilities incurred in the ordinary and usual
course of business of the Corporations;
(6) Except for transactions in the
ordinary and usual course of business of the
Bank, mortgage, pledge, or subject to lien or
other encumbrance any of its properties or
assets;
(7) Except for transactions in the
ordinary and usual course of business of the
Bank (including, without limitation, sales of
assets acquired by the Bank in the course of
collecting loans) or as permitted by this
Agreement, sell or transfer any of its
properties or assets or cancel, release, or
assign any indebtedness owed to it or any claims
held by it;
(8) Make any investment of a capital
nature in excess of $25,000 for any one item or
group of similar items either by the purchase of
stock or securities (not including bonds or
collateralized mortgage obligations purchased in
the ordinary and usual course of business by the
Bank), contributions to capital, property
transfers, or otherwise, or by the purchase of
any property or assets of any other individual,
firm, or corporation other than certain planned
improvements being made to the Bank's Classen
and Portland branches;
(9) Enter into any other agreement not in
the ordinary and usual course of business;
<PAGE>
(10) Merge or consolidate with any other
corporation, acquire any stock (except in a
fiduciary capacity), solicit any offers for any
Bank Stock, or a substantial portion of the
assets of any of the Corporations or, except in
the ordinary course of business, acquire any
assets of any other person, corporation, or
other business organization, or enter into any
discussions with any person concerning, or agree
to do, any of the foregoing;
(11) Own at the Effective Time any bonds,
notes, loans, or other investment securities of
any kind which are not expressly enumerated in
the definition of "Securities Portfolio" in
Section 1.1 of this Agreement other than Bank's
investments in the other Corporations; or
(12) Except as permitted or contemplated by
this Agreement, enter into any transaction or
take any action which would, if effected prior
to the Effective Time, constitute a material
breach of any of the representations,
warranties, or covenants contained in this
Agreement.
b. Except as otherwise provided in this
Agreement, prior to the Effective Time, each Seller
shall use its reasonable best efforts to cause each of
the Corporations to conduct its respective business in
the ordinary and usual course as heretofore conducted
and to use its reasonable best efforts (1) to preserve
its business and business organization intact, (2) to
keep available to BANK IV the services of the present
officers and employees of the Bank, (3) to preserve the
good will of customers and others having business
relations with the Bank, (4) to maintain its properties
in customary repair, working order and condition
(reasonable wear and tear excepted), (5) to comply in
all material respects with all Laws applicable to it
and the conduct of its businesses, (6) to keep in force
at not less than their present limits all existing
policies of insurance, (7) to make no material changes
in the customary terms and conditions upon which it
does business, (8) to continue its current practice of
selling loans secured by fixed rate mortgages on a
servicing-retained basis, (9) to duly and timely file
all reports, tax returns, and other material documents
required to be filed with federal, state, local and
other authorities, and (10) unless it is contesting the
same in good faith and has established reasonable
reserves therefor, to pay when required to be paid all
material taxes indicated by tax returns so filed or
otherwise lawfully levied or assessed upon it or any of
its properties and to withhold or collect and pay to
the proper governmental authorities or hold in separate
bank accounts for such payment all taxes and other
assessments which it believes in good faith to be
required by law to be so withheld or collected.
<PAGE>
c. Prior to the Effective Time, Sellers shall
cause the Corporations, to the extent permitted by Law,
to give Fourth and its counsel and accountants full
access, during normal business hours and upon
reasonable notice, to their respective properties,
books, and records, and to furnish Fourth during such
period with all such information concerning their
affairs as Fourth may reasonably request. Except for
matters expressly disclosed in the Disclosure
Statement, the availability or actual delivery of
information about the Corporations to Fourth shall not
affect the covenants, representations, and warranties
of Sellers contained in this Agreement. Except for
information disclosed in the course of obtaining
Required Approvals, Fourth shall treat as confidential
all confidential information disclosed to it by Sellers
or the Corporations in the same manner as Fourth treats
similar confidential information of its own and, if
this Agreement is terminated, Fourth shall continue to
treat all such confidential information obtained
through such disclosure and not otherwise known to
Fourth or already in the public domain, as confidential
and shall return such documents theretofore delivered
by Sellers to Fourth as Sellers shall request.
d. Sellers shall cause the Corporations,
separately and jointly with each other and with Fourth,
to each use reasonable efforts in good faith to take or
cause to be taken as promptly as practicable all such
steps as shall be necessary to obtain all Required
Approvals as promptly as practicable.
e. Sellers agree not to sell, pledge,
encumber, or otherwise hypothecate or transfer any
shares of Bank Stock prior to the Effective Time.
<PAGE>
f. At the Closing, BANK IV, as lessee, and
Northwest Tower Limited Partnership, as lessor, shall
execute and deliver a real estate lease substantially
in the form of Exhibit "C," to this Agreement. No
party hereto shall be liable to any other party if such
lessor fails to execute such lease.
g. Sellers agree to cause the Corporations to
cooperate with Fourth in Fourth's efforts to obtain
current title evidence or insurance, environmental
assessment reports, and surveys on such of the
Corporations' real properties as Fourth may desire.
h. Sellers will take, and will cause the Bank
to take, all such corporate action as may be required
to authorize, execute, and perform the Bank Merger
Agreement.
i. LSB agrees:
(1) To file all required federal, state,
and local income tax returns in a timely manner
for 1993 and 1994 or obtain appropriate
extensions for such filings and to pay, when
due, all income taxes due for such periods;
(2) To give Fourth written notice promptly
of any issues raised by any taxing authorities
which might reasonably result in an increase in
the income tax liabilities of the Bank for any
period in which it is or was a member of the
"Group" defined in Section 4.1.k of this
Agreement or which might reasonably affect the
amount of the Bank's net operating loss;
(3) To consult with Fourth and BANK IV
about the resolution of any such issues and not
to settle any such issues without giving Fourth
an opportunity to assume responsibility for the
resolution of such issues, at Fourth's expense,
if the effect of such settlement would be to
increase the liability of Fourth or any of its
affiliates for any tax for any period beginning
after the Effective Time or affect the amount of
the Bank's net operating loss unless Sellers
agree to pay and do pay to Fourth the full
amount of such increase in liability grossed up
for any federal or state tax attributable to
such payment; and
<PAGE>
(4) That all existing income tax sharing
or allocation agreements or arrangements of any
kind between the Corporations and LSB or any
other member of such Group, whether or not in
writing, shall automatically be terminated at
the Effective Time and no further payments shall
be made by Bank thereunder except to the extent
the amount thereof has been taken into account
in calculating the Tangible Book Value of the
Bank.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of Sellers.
Except as expressly disclosed in the Disclosure Statement,
Sellers jointly and severally represent and warrant to Fourth as
follows:
a. Organization, Good Standing, and Authority.
Each Seller is a savings and loan holding company duly
registered pursuant to the federal Home Owners' Loan
Act. Each of the Corporations is a corporation or
savings bank duly organized, validly existing, and in
good standing under the laws of the jurisdiction of
its incorporation, and each has all requisite corporate
power and authority to conduct its business as it is
now conducted, to own its properties and assets, and to
lease properties used in its business. None of the
Corporations is in violation of its charter documents
or bylaws, or of any applicable Law in any material
respect, or in default in any material respect under
any material agreement, indenture, lease, or other
document to which it is a party or by which it is
bound. The deposits of the Bank are insured by the
FDIC to the extent provided by the Federal Deposit
Insurance Act and the Bank has paid all assessments and
filed all reports required to be filed under the
Federal Deposit Insurance Act of which failure to do so
would have a material adverse effect upon the Bank.
<PAGE>
b. Binding Obligations; Due Authorization.
This Agreement constitutes the valid and binding
obligation of each Seller, enforceable against it in
accordance with the terms hereof, except as limited by
applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws and equitable
principles affecting creditors' rights generally.
c. Absence of Default. The execution and the
delivery of this Agreement, the sale of the Shares, and
the consummation of the other transactions contemplated
hereby, and the fulfillment of the terms hereof will
not (1) conflict with, or result in a breach of the
terms, conditions, or provisions of, or constitute a
default under the organizational documents or bylaws of
any of the Corporations or under any agreement or
instrument under which any of the Corporations or
either Seller is obligated, or (2) violate any Law to
which any of the Corporations or any Seller is subject.
d. Subsidiaries. LSB is the owner of all of
the issued and outstanding capital stock of all classes
of Prime. The only Subsidiaries of the Bank are the
following:
Name State of Incorporation
---- -----------------------
Northwest Financial Corporation Oklahoma
Northwest Energy Enterprises, Inc. Oklahoma
Credit Card Center, Inc. Oklahoma
Equity Financial Service Corp. Oklahoma
United BankCard, Inc. Oklahoma
Northwest Capital Corporation Oklahoma
e. Capitalization. The Bank is authorized to
issue 1,000,000 shares of capital stock, par value $.01
per share, of which 100,000 shares are issued and
outstanding. Prime is the owner, free and clear of all
encumbrances, liens, security interests, and claims
whatsoever, of all 100,000 shares of Bank Stock. The
capitalization of each of the Bank's Subsidiaries
excluding the Retained Corporations, is as follows:
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
----------------
Name Par Value Issued Outstanding
---- --------- ------ -----------
<S> <C> <C> <C>
Credit Card Center, Inc. $ 10.00 6,700 5,200
Equity Financial Service
Corp. 1.00 1,000 1,000
United BankCard, Inc. 1,000.00 250 250
</TABLE>
f. Charter Documents. True and correct copies
of the charter documents and bylaws of each of the
Corporations, with all amendments thereto, are included
in the Disclosure Statement as Exhibits "E-1" to "E-8."
g. Options, Warrants, and Other Rights. None
of the Corporations has outstanding any options,
warrants, or rights of any kind requiring it to sell or
issue to anyone any capital stock of any class and none
of the Corporations has agreed to issue or sell any
additional shares of its capital stock.
h. Financial Statements. Included in the
Disclosure Statement as Exhibits "H-1" through "H-6"
are copies of the following financial statements, all
of which are true and complete in all material respects
and have been prepared in all material respects in
accordance with GAAP and all applicable regulatory
accounting principles consistently followed throughout
the periods indicated, subject in the case of interim
financial statements, to normal recurring year-end
adjustments (the effect of which will not,
individually or in the aggregate, be materially
adverse) and the absence of notes (which if presented
would not differ materially from those included in the
most recent year-end financial statements):
(1) Audited Consolidated Financial
Statements of the Bank as of December 31, 1992,
and 1991, and for the fiscal years then ended
with auditors' report thereon and notes thereto,
which have been examined by Ernst & Young,
independent certified public accountants;
(2) Thrift Financial Reports filed by the
Bank with the OTS for the quarters ended
December 31, 1992, March 31, 1993, June 30,
1993, and September 30, 1993; and
<PAGE>
(3) Unaudited financial statements of the
Bank as of October 31, 1993 and for the period
then ended.
As soon as practicable between the date hereof and the
Effective Time, Sellers will deliver to Fourth copies
of monthly operating statements of the Bank and of all
reports filed by any of the Corporations with any
regulatory agencies. The books of account of each of
the Corporations and each of the Financial Statements
fairly and correctly reflect and, when delivered, will
reflect in all material respects in accordance with
GAAP and all applicable rules and regulations of
regulatory agencies applied on a consistent basis, the
respective financial conditions and results of
operations of each of the Corporations (except for the
absence in the monthly operating statements of the Bank
of certain information and footnotes normally included
in finan#ial statements prepared in accordance with
GAAP). There have been, and prior to the Effective
Time there will be, no material adverse changes in the
financial condition of the Corporations from December
31, 1992, other than changes made in the usual and
ordinary conduct of the businesses of the Corporations,
none of which has been or will be materially adverse
and all of which have been or will be recorded in the
books of account of the Corporations; and except as
specifically permitted by this Agreement, there have
been, and prior to the Effective Time there will be, no
substantial adverse changes in the respective
businesses, assets, properties, or liabilities,
absolute or contingent, of any of the Corporations, or
in their respective condition, financial or otherwise,
from the date of the most recent of the Financial
Statements that has been delivered to Fourth on the
date hereof other than changes occurring in the usual
and ordinary conduct of the business of the
Corporations, none of which has been or will be
materially adverse and all of which have been or will
be recorded in the respective books of account of the
Corporations. None of the Corporations has any
contingent liabilities, other than letters of credit
and similar obligations of the Bank incurred in the
ordinary course of business, that are not described in
or reserved against in the Financial Statements listed
above.
<PAGE>
i. Real Properties. Exhibit "I" to the
Disclosure Statement is a complete list of all real
estate owned or leased by any of the Corporations.
Each Corporation has good and marketable title in fee
simple to all lands and buildings described in the
Disclosure Statement as being owned by it, free and
clear of all liens, encumbrances, and charges, except
for Permitted Encumbrances. All leases of real
property to which any of the Corporations is a party as
lessee, complete copies of each of which with all
amendments thereto are included in Exhibit "I" to the
Disclosure Statement, are each valid and enforceable in
accordance with their respective terms except as
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar Laws and
equitable principles affecting creditors' rights
generally, and there has been no material default by
any party thereto. No zoning ordinance prohibits,
interferes with, or materially impairs the usefulness
of any of the Facilities owned or used by any
Corporation for the purposes for which it is now being
used; and all the Facilities owned or leased by any of
the Corporations are in good operating condition and
repair, normal wear and tear excepted.
j. Personal Property. Except for leased
properties, each of the Corporations has good and
marketable title to all of the machinery, equipment,
materials, supplies, and other property of every kind,
tangible or intangible, contained in its offices and
other facilities or shown as assets in its records and
books of account, free and clear of all liens,
encumbrances, and charges. All leases of personal
property to which any of the Corporations is a party as
lessee are valid and enforceable in accordance with
their terms, and there has been no material default by
any party thereto. The material items of personal
property owned or leased by any of the Corporations are
generally in good operating condition, normal wear and
tear excepted.
<PAGE>
k. Taxes. LSB, Prime, the Bank, the
Corporations, and the Retained Corporations are members
of the same "affiliated group" (the "Group"), as
defined in Section 1504(a)(1) of the Code. Each member
of the Group has filed or caused to be filed, or a
filing was made on its behalf, all tax returns and
reports required to have been filed by or for it, and
all material information set forth in such returns or
reports is accurate and complete. Each member of the
Group has paid or made adequate provision for all
taxes, additions to tax, penalties, and interest for
all periods covered by those returns or reports. There
are no material unpaid taxes, additions to tax,
penalties, or interest due and payable by any member of
the Group, except for taxes and any such related
liabilities being contested in good faith and disclosed
in Exhibit "K" to the Disclosure Statement. Each
member of the Group has collected or withheld all
amounts required to be collected or withheld by it for
any taxes, and all such amounts have been paid to the
appropriate governmental agencies or set aside in
appropriate accounts for future payment when due. Each
member of the Group is in material compliance with, and
its records contain all information and documents
(including, without limitation, IRS Forms W-9)
necessary to comply in all material respects with
applicable information reporting and tax withholding
requirements under federal, state, and local laws,
rules, and regulations, and such records identify with
specificity all accounts subject to backup withholding.
The Financial Statements fully and properly reflect, as
of the dates thereof, the accrued taxes, additions to
tax, penalties, and interest. No extension of time for
the assessment of deficiencies for any years is in
effect. No member of the Group has any knowledge of
any unassessed tax deficiency proposed or threatened
against any of them.
l. Contracts. Other than Permitted Contracts
and agreements with customers of the Bank and with
financial institutions entered into by the Bank in the
ordinary course of its banking business, attached to
the Disclosure Statement as Exhibit "L" is a list of
all material contracts and other agreements and
arrangements, both written and oral, to which Bank or
any of the other Corporations is a party and which
involve $10,000 or more, which affect or pertain to the
operation of their respective businesses. To the
knowledge of Sellers, all parties thereto have in all
material respects performed, and are in good standing
with respect to, all the material obligations required
to be performed under all such contracts and other
agreements and arrangements, and no obligation with
respect thereto is overdue. All of the material
agreements of the Corporations, including without
limitation the agreements disclosed in writing pursuant
to this clause (l), are valid, binding, and enforceable
in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization,
moratorium, or similar Laws and equitable principles
affecting creditors' rights generally. Except as
otherwise noted in Exhibit "L" to the Disclosure
Statement, no material contract, lease, or other
agreement or arrangement to which either Bank or one of
the other Corporations is a party or as to which any of
their assets is subject requires the consent of any
third party in connection with this Agreement. Except
as described in Exhibit "L" to the Disclosure
Statement, neither any Corporation nor any Seller has
any knowledge of any threatened cancellation of, any
outstanding disputes or default under, or of any basis
for any claim of breach or default of, any material
lease, contract, or other agreement or arrangement to
which any of the Corporations is a party. Except for
Permitted Contracts and except as set forth in Exhibit
"L" to the Disclosure Statement, neither the Bank nor
any of the other Corporations is a party to:
(1) Any contract for the purchase or sale
of any materials or supplies having an aggregate
purchase or sale price in excess of $10,000
which contains any escalator, renegotiation, or
redetermination clause or which commits it for a
fixed term;
(2) Any contract of employment with any
officer or employee not terminable at will
without liability on account of such
termination;
(3) Any management or consultation
agreement not terminable at will without
liability on account of such termination;
(4) Any license or royalty agreement
having an aggregate future commitment to pay at
least $10,000, or union agreement, or loan
agreement in which any of the Corporations is
the borrower;
(5) Any contract, accepted order, or
commitment for the purchase or sale of
materials, services, or supplies having a total
remaining contract price in excess of $10,000;
(6) Any contract containing any
restrictions on any party thereto competing with
the Bank, any of the other Corporations, or any
other person in the business of banking or
activities relating to banking;
<PAGE>
(7) Any other agreement which materially
affects the business, properties, or assets of
either Bank or one of the other Corporations, or
which was entered into other than in the
ordinary and usual course of business; or
(8) Any letter of credit or commitment to
make any loan or group of loans to related
parties in an amount in excess of $500,000.
None of LSB, Prime, or any of the Corporations has any
knowledge based upon which it has formed a conclusion
that a material loss is reasonably anticipated with
respect to any of the agreements described in clause
"l."
m. Labor Relations; Employees; ERISA. None of
the Corporations is a party to or affected by any
collective bargaining agreement, nor is any Corporation
a party to any pending or, to the knowledge of Sellers,
threatened labor dispute, organizational efforts, or
labor negotiations. Each of the Corporations has
complied in all material respects with all applicable
Laws relating to the employment of labor, including,
but not limited to, the provisions thereof relating to
wages, hours, collective bargaining, payment of social
security taxes, and equal employment opportunity, the
violation of which would have a materially adverse
impact on their respective businesses. None of the
Corporations is liable for any arrears of wages or any
taxes or penalties for failure to comply with any of
the foregoing in an amount which would have a material
adverse effect on the Bank or any of the Corporations.
None of the Corporations has any written or oral
retirement, pension, profit sharing, stock option,
bonus, or other employee benefit plan or practice other
than group health and accident insurance except that
Bank employees participate in Bank's and LSB's
cafeteria plans, which include health, disability
insurance (long and short term), life insurance, and
supplemental life insurance, and LSB's 401(k) plan, and
thirteen employees in the United BankCard division of
the Bank participate in a "frozen" 401(k) plan. The
Bank is in the process of attempting to terminate this
"frozen" plan. None of the Corporations has violated
any of the provisions of ERISA, and none of them has
engaged in any "prohibited transactions" as such term
is defined in Section 406 of ERISA in an amount which
would have a material adverse effect on the Bank or the
Corporations. There is no employee of any of the
Corporations whose employment is governed by a written
or oral employment agreement for a specific term of
employment.
<PAGE>
n. Government Authorizations. Each of the
Corporations has all permits, charters, licenses,
orders, and approvals of every federal, state, local,
or foreign governmental or regulatory body required in
order to permit it to carry on its business
substantially as presently conducted except where the
absence thereof would not have a material adverse
effect on the Bank or the affected Corporation. All
such licenses, permits, charters, orders, and approvals
are in full force and effect, and, to the knowledge of
the Corporations and Seller, no suspension or
cancellation of any of them is threatened and none of
the Corporations knows of any fact or circumstance that
will materially interfere with or materially adversely
affect the renewal of any of such licenses, permits,
charters, orders, or approvals; and none of such
permits, charters, licenses, orders, and approvals will
be affected by the consummation of the transactions
contemplated by this Agreement.
o. Insurance. Exhibit "O" to the Disclosure
Statement is a complete list of all insurance policies
presently in effect and in effect during the past three
years. All the insurance policies and bonds currently
maintained by any of the Corporations are in full force
and effect.
p. Litigation. Exhibit "P" to the Disclosure
Statement contains a true and complete list and brief
description of all pending or, to the knowledge of any
of the Corporations or any Seller, threatened,
Litigation to which any of the Corporations is or would
be a party or to which any of their assets is or would
be subject. Except as described on Exhibit "P" to the
Disclosure Statement, none of the Corporations is a
party to any Litigation other than routine litigation
commenced by the Bank to enforce obligations of
borrowers in which no counterclaims for any material
amounts of money have been asserted or, to the
knowledge of the Corporations or any Seller, threatened.
<PAGE>
q. Brokers or Finders. Except for an
agreement with Lazard Freres & Co., whose fee will be
paid by LSB, no broker, agent, finder, consultant, or
other party (other than legal and accounting advisors)
has been retained by either of the Sellers or any of
the Corporations or is entitled to be paid based upon
any agreements, arrangements, or understandings made by
either of the Sellers or any of the Corporations in
connection with any of the transactions contemplated by
this Agreement.
r. Environmental Compliance. Except as
disclosed in Exhibit "R", to Sellers' knowledge, each
of the Corporations is in material compliance with all
relevant Environmental Laws and none of the
Corporations has any material Environmental
Liabilities. None of the Facilities is now being used
or, to either Seller's knowledge, has at any time in
the past ever been used for the storage (whether
permanent or temporary), by any of the Corporations, or
to the knowledge of either Seller, by third parties,
disposal, or handling of any Hazardous Materials, nor
are any Hazardous Materials located in, on, under, or
at any of the Facilities. No Corporation has received
any notice of material violation of any Environmental
Law, or any notice of any material potential
Environmental Liabilities with respect to any of the
Facilities or to any other properties and assets in
which any Corporation has had an interest.
s. Employment of Aliens. Each Corporation is
in material compliance with the Immigration and Control
Act of 1986.
t. Notes and Leases. All promissory notes and
leases owned by the Bank or any other Corporation at
the Effective Time will represent bona fide
indebtedness or obligations to the Bank and are and
will be fully enforceable in accordance with their
terms without valid set-offs or counterclaims, except
as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws and
equitable principles affecting creditors' rights
generally; provided, however, no representation or
warranty is made in this Agreement as to the
collectibility of such notes and leases.
<PAGE>
u. Updating of Representations and Warranties
. Between the date hereof and the Effective Time,
Sellers will promptly disclose to Fourth in writing
any information of which either of them has actual
knowledge (1) concerning any event that would render
any representation or warranty of Sellers untrue if
made as to the date of such event, (2) which renders
any information set forth in this Agreement or the
Disclosure Statement no longer correct in all material
respects, or (3) which arises after the date hereof and
which would have been required to be included in this
Agreement or Disclosure Statement if such information
had existed on the date hereof.
v. True at Effective Time. Except as
otherwise specifically provided in this Agreement, all
of the representations and warranties of Sellers set
forth above will be true and correct at the Effective
Time with the same force and effect as though such
representations and warranties had been made at the
Effective Time.
4.2. Representations and Warranties of Fourth.
Fourth represents and warrants to Sellers as follows:
a. Organization, Good Standing, and Authority.
Fourth is a corporation duly organized, validly
existing, and in good standing under the laws of the
State of Kansas, and has all requisite corporate power
and authority to conduct its business as it is now
conducted, to own its properties and assets, and to
lease properties used in its business. Fourth is not
in violation of its charter documents or bylaws, or of
any applicable Law in any material respect, or in
default in any material respect under any material
agreement, indenture, lease, or other document to which
it is a party or by which it is bound.
b. Binding Obligations; Due Authorization.
This Agreement constitutes the valid and binding
obligations of Fourth, enforceable against it in
accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws and equitable
principles affecting creditors' rights generally. The
execution, delivery, and performance of this Agreement
and the transactions contemplated hereby have been
duly authorized by the board of directors of Fourth.
<PAGE>
c. Absence of Default. None of the execution
or the delivery of this Agreement, the consummation of
the transactions contemplated hereby, or the
fulfillment of the terms hereof, will (1) conflict
with, or result in a breach of the terms, conditions,
or provisions of, or constitute a default under the
charter documents or bylaws of Fourth or under any
agreement or instrument under which Fourth is
obligated, or (2) violate any Law to which it is
subject.
d. Brokers or Finders. No broker, agent,
finder, consultant, or other party (other than legal
and accounting advisors) has been retained by Fourth or
is entitled to be paid based upon any agreements,
arrangements, or understandings made by Fourth in
connection with any of the transactions contemplated by
this Agreement.
e. Required Approvals. Fourth knows of no
reason that would preclude obtaining the Required
Approvals in a timely manner, but various persons have
the right to object to the granting of Required
Approvals and the various governmental agencies
involved can be expected to conduct various types of
economic and other analysis, any one of which may cause
a delay or denial of a requested approval.
f. Capitalization of the Bank. Fourth will
contribute such additional capital to BANK IV as may be
necessary in order for BANK IV to be well capitalized
following consummation of the Purchase, the Merger, and
the other transactions contemplated or permitted by
this Agreement. Fourth has sufficient capital
resources to be able to make such additional capital
contribution and to perform its obligations under this
Agreement.
<PAGE>
ARTICLE V
CLOSING CONDITIONS
5.1. Conditions to Obligations of Fourth. The
obligations of Fourth to purchase the Shares shall be subject to
the following conditions which may, to the extent permitted by
Law, be waived by Fourth at its option:
a. Absence of Litigation. No order, judgment,
or decree shall be outstanding restraining or enjoining
consummation of the purchase of the Shares, the Merger,
or any of the other transactions permitted or
contemplated by this Agreement; and no Litigation
shall be pending or threatened in which it is sought to
restrain or prohibit the purchase of the Shares, the
Merger, or any of the other transactions permitted or
contemplated by this Agreement or to obtain other
substantial monetary or other relief against one or
more of the parties hereto in connection with this
Agreement.
b. Regulatory Approvals. All Required
Approvals shall have been procured (and shall continue
to be in effect) and all other requirements prescribed
by Law shall have been satisfied.
c. Minimum Tangible Book Value of Bank. The
Tangible Book Value of the Bank as of the Effective
Time, without taking into account any restructuring
charges described in Section 2.3(b) of this Agreement,
shall be not less than $41,000,000. Such amount shall
be substantiated by the total consolidated
stockholder's equity of the Bank as reflected in the
books of record and balance sheets of the Bank.
d. Opinion of Counsel. Fourth shall have
received the opinion of Housley Goldberg & Kantarian,
P.C., counsel to the Corporations and Sellers,
substantially in the form of Exhibit "A" hereto.
<PAGE>
e. Representations and Warranties; Covenants.
The representations and warranties of the Sellers
contained in this Agreement shall have been true and
correct in all material respects on the date made and
shall be true and correct in all material respects at
the Effective Time as though made at such time,
excepting any changes occurring in the ordinary course
of business, none of which shall have been materially
adverse, and excepting any changes contemplated or
permitted by this Agreement. Sellers shall have
performed all of their obligations under this
Agreement.
f. Certificates. Sellers shall have delivered
to Fourth a certificate, in form and substance
satisfactory to Fourth, dated the Effective Time and
signed by the chief executive officer and chief
financial officer of each of the Corporations,
certifying in such detail as Fourth may reasonably
request the fulfillment of the foregoing conditions.
g. Resignations. Sellers shall have delivered
to Fourth the written resignations, effective at the
Effective Time, of those officers and directors of the
Bank and the other Corporations as Fourth shall have
requested at least two business days prior to the
Effective Time.
h. 1993 Audit Report. Seller shall have
delivered to Fourth a copy of the Bank's audited
consolidated Financial Statements as of December 31,
1993 and for the year then ended, with auditor's report
thereon and notes thereto.
i. Lease of Equity Tower. Northwest Tower
Limited Partnership shall have entered into a lease as
lessor of the Equity Tower, substantially in the form
of Exhibit "C" hereto.
j. Satisfactory Environmental Reports. Fourth
shall have received environmental assessment reports
covering all of the Facilities, in form and substance
reasonably satisfactory to Fourth, which do not cause
Fourth reasonably to conclude that there are any
material Environmental Liabilities associated with any
of the Facilities.
<PAGE>
5.2. Conditions to Obligations of Sellers. The
obligation of Sellers to sell the Shares and to consummate the
transactions contemplated hereby shall be subject to the
following conditions which may, to the extent permitted by Law,
be jointly waived by Sellers at their option:
a. General. Each of the conditions specified
in clauses a and b of Section 5.1 shall have occurred
and be continuing.
b. Representations and Warranties; Covenants.
The representations and warranties of Fourth contained
in this Agreement shall have been true and correct in
all material respects on the date made and shall be
true and correct in all material respects at the
Effective Time as though made at such time. Fourth
shall have duly performed all of its obligations under
this Agreement.
c. Minimum Purchase Price. The Purchase Price
shall be not less than $92,000,000, which minimum
amount shall be reduced by the amount of the option
price described in clause c of Section 7.5 if such
option has been exercised by Sellers.
d. Fairness Opinion. LSB shall have received
by February 10, 1994, a written opinion from Lazard
Freres & Co. to the effect that the Purchase Price is
fair to Sellers from a financial point of view.
e. Opinion of Counsel. Sellers shall have
received the opinion of Foulston & Siefkin, counsel to
Fourth, substantially in the form of Exhibit "B"
hereto.
f. Certificates. Fourth shall have delivered
to Sellers a certificate, in form and substance
reasonably satisfactory to Sellers, dated the Effective
Time and signed by the chief executive officer and
chief financial officer of Fourth, certifying in such
detail as Sellers may reasonably request, the accuracy
of the representations and warranties and the
fulfillment of the covenants of Fourth hereunder.
<PAGE>
g. LSB's Stockholder Approval. The
stockholders of LSB shall have approved this Agreement
and the Purchase.
h. Change in Treasury Regulations. The United
States Department of the Treasury shall not have
finally adopted the proposed changes to the Treasury
Regulations, at Sec. 1.1502-33 (56 FR 47379, Sept. 19,
1991, revised 57 FR 53550, Nov. 12, 1992, revised, 57
FR 62251, Dec. 30, 1992), nor shall have any other
change in the Law occurred with the effect, in the
reasonable judgment of Sellers based upon the advice of
their tax advisors, that the tax basis of LSB or Prime
in the Bank Stock shall be significantly reduced.
i. Conveyance of Retained Corporations and
Retained Assets. On or before the Effective Time, all
of the Retained Assets and all of the Bank's interests
in the Retained Corporations shall have been
transferred to Sellers or their designee or designees
as provided in this Agreement.
ARTICLE VI
TERMINATION OF AGREEMENT
6.1. Mutual Consent; Termination Date. This
Agreement shall terminate at any time when the parties hereto
mutually agree in writing. This Agreement may also be terminated
at the election of either Sellers (acting jointly) or Fourth,
upon written notice from the party electing to terminate this
Agreement to the other party if, without fault on the part of the
party electing to terminate this Agreement, there has been a
denial of a Required Approval or the imposition of one or more
terms (not including a requirement to divest a single branch of
the Bank not located in Oklahoma City) reasonably deemed onerous
by Fourth or Sellers as a condition to obtaining a Regulatory
Approval. Unless extended by written agreement of the parties,
this Agreement shall terminate if all conditions to the
obligations of the parties hereto have not occurred on or before
June 30, 1994.
<PAGE>
6.2. Election by Fourth. This Agreement shall
terminate at Fourth's election, upon written notice from Fourth
to Sellers if any one or more of the following events shall occur
and shall not have been remedied to the satisfaction of Fourth
within 30 days after written notice is delivered to Seller: (a)
there shall have been any uncured material breach of any of the
obligations, covenants, or warranties of the Sellers hereunder;
or (b) there shall have been any written representation or
statement furnished by the Sellers hereunder which at the time
furnished is false or misleading in any material respect in
relation to the size and scope of the transactions contemplated
by this Agreement.
6.3. Election by Sellers. This Agreement shall
terminate at the election of Sellers (acting jointly) upon
written notice from Sellers to Fourth if any one or more of the
following events shall occur and shall not have been remedied to
its satisfaction within 30 days after written notice is delivered
to Fourth: (a) there shall have been any uncured material breach
of any of the obligations, covenants, or warranties of Fourth
hereunder; or (b) there shall have been any written
representation or statement furnished by Fourth hereunder which
at the time furnished is false or misleading in any material
respect in relation to the size and scope of the transactions
contemplated by this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1. Effect of Closing. Except as provided in this
Section, closing of the transactions contemplated by this
Agreement shall not prejudice any claim for damages which any of
the parties hereto may have hereunder in law or in equity, due to
an uncured material default in observance or the due and timely
performance of any of the covenants and agreements herein
contained or for the material breach of any warranty or
representation hereunder, unless such observance, performance,
warranty, or representation is specifically waived in writing by
the party making such claim. If any warranty or representation
contained herein is or becomes untrue or breached in any material
respect (other than by reason of any willful misrepresentation or
breach of warranty) and such breach or misrepresentation is
promptly communicated to the other parties in writing prior to
the Effective Time, such non-breaching parties shall have the
right (jointly in the case of Sellers), at their sole option,
either to waive such misrepresentation or breach in writing or to
terminate this Agreement, but in either such event, the breaching
parties shall not be liable to the other parties for any such
damages, costs, expenses, or otherwise by reason of such breach
or misrepresentation. If such non-breaching parties elect to
close the transactions contemplated by this Agreement
notwithstanding the written communication of such breach or
misrepresentation, they shall be deemed to have waived such
breach or misrepresentation in writing. Similarly, if Fourth
receives an environmental assessment report on the Facilities
pursuant to Section 5.1(j) indicating the existence of any
Environmental Liability and elects to close the transactions
contemplated by this Agreement, it shall be deemed to have waived
all right to indemnification with respect thereto.
<PAGE>
7.2. General Indemnification. Subject to the
limitations on the liability of Sellers contained in Section 7.1
and this Section 7.2, Sellers shall be jointly and severally
liable for, and shall defend, save, indemnify, and hold harmless
Fourth, BANK IV, the Corporations, and their respective
successors, officers, directors, employees, and agents, and each
of them (hereinafter individually referred to as an "Indemnitee"
and collectively as "Indemnitees") against and with respect to
any losses, liabilities, claims, diminution in value, litigation,
demands, damages, costs, charges, reasonable legal fees, suits,
actions, proceedings, judgments, expenses, or any other losses
(herein collectively referred to as "Indemnifying Losses") that
may be sustained, suffered, or incurred by, or obtained against,
any Indemnitee arising from or by reason of the material uncured
breach or nonfulfillment of any of the warranties, agreements, or
representations made by the Sellers, in this Agreement; provided,
however that the liability of Sellers to defend, save, indemnify,
and hold harmless any of the Indemnitees for any liabilities,
claims, or demands indemnified under this Section 7.2 (but not
under Section 7.5, 7.6, or 7.7) or any damages, costs, charges,
reasonable legal fees, suits, actions, proceedings, or judgments
received, incurred, filed, or entered thereon, shall be limited
to the amount by which all such liabilities, claims, and demands
so discovered or made, and all damages, costs, charges,
reasonable legal fees, suits, actions, proceedings, judgments,
expenses, and other losses recovered, incurred, filed, or entered
thereon or in connection therewith, exceed $1,000,000 in the
aggregate, net of income tax effect and such liability shall not
exceed $25,000,000. Indemnitees shall be obligated to exhaust
all reasonably available remedies as a condition to being
indemnified hereunder but not as a condition to giving notice
pursuant to Sections 7.3 and 7.4. It is agreed that the
indemnification obligations of Sellers hereunder shall be solely
for the benefit of the Indemnitees and may not be enforced by any
insuror under any subrogation or similar agreement or arrangement
or by any governmental agency except as a receiver for an
Indemnitee.
<PAGE>
7.3. Procedure. If any claim or demand shall be made
or liability asserted against any Indemnitee, or if any
Litigation, suit, action, or administrative or legal proceedings
shall be instituted or commenced in which any Indemnitee is
involved or shall be named as a defendant either individually or
with others, and if such Litigation, claim, demand, liability,
suit, action, or proceeding, if successfully maintained, will
result in any Indemnifying Losses as defined in Section 7.2,
Fourth shall give Sellers written notice thereof as soon as
practicable but within 20 days (ten days in the case of legal
process) after it acquires knowledge thereof. If the
Indemnifying Loss arises otherwise, Fourth shall give notice to
Sellers within 20 days of the discovery of the basis therefor.
If, within 20 days after the giving of such notice, Fourth
receives written notice from Sellers stating that Sellers dispute
or intend to defend against or prosecute, as the case may be,
such claim, demand, liability, suit, action, or proceeding, then
Sellers shall have the joint right to select counsel of their
choice and to dispute or defend against, prosecute, or settle
such claim at their expense, and the Indemnitees shall fully
cooperate with Sellers in such dispute, prosecution, defense or
settlement so long as Sellers are conducting such dispute,
defense, or prosecution diligently and in good faith. If no such
notice of intent to dispute or defend is received by Fourth
within the aforesaid 20-day period, of if such diligent and good
faith defense is not being, or ceases to be, conducted, Fourth
shall have the right, directly or through one or more of the
Indemnitees, to dispute and defend against the claim, demand, or
other liability at the cost and expense of Sellers, to settle
such claim, demand, or other liability, together with interest or
late charges thereon, and in either event to be indemnified as
provided in this Agreement so long as Fourth conducts such
defense diligently and in good faith. If any event shall occur
that would entitle Indemnitees to a right of indemnification
hereunder, any loss, damage, or expense subject to
indemnification shall be the after-tax net loss to the
Indemnitees (in excess of $1,000,000 but not to exceed
$25,000,000, as provided in the preceding section) after due
allowance for the income tax effect, if any, of amounts to be
received by the Indemnitees hereunder, insurance, or offsetting
income or assets resulting therefrom.
7.4. Survival of Representations and Warranties.
Notwithstanding any rule of law or provision of this Agreement to
the contrary, the representations and warranties of Sellers
contained in this Agreement shall survive the Closing and the
Purchase and the closing of the transactions described in this
Agreement; provided, however, that (except for the
indemnification obligations contained in Sections 7.6 and 7.7
hereof, as to which there shall be no time limit) no claim for
indemnification or breach of warranty under this Agreement shall
be valid unless an Indemnitee shall have given written notice of
its assertion or claim to Seller:
<PAGE>
(a) within three years from the Effective Time
in the case of a claim for breach of any representation
or warranty contained in Section 4.1.k of this
Agreement;
(b) by the earlier of October 31, 1998 or 30
days after the date on which the Internal Revenue
Service completes its examination of Fourth's 1994
federal income tax return and gives Fourth written
notice of any proposed adjustments (provided that both
such periods shall be extended by a period of time
equal to 30 days plus the length of in each case any
periods for which LSB shall have agreed to a tolling of
any limitation period applicable to the assertion
against LSB or any member of the Group described in
Section 4.1.k of any deficiency by the Internal Revenue
Service) in the case of a claim under Section 7.5 of
this Agreement; and
(c) within two years of the Effective Time in
all other cases.
7.5. Special Indemnification.
(a) Separate and apart from the indemnification
provisions in the preceding sections of this Article
VII, and not subject to the deductibility and maximum
liability provisions contained in Section 7.2, Sellers
jointly and severally agree to indemnify BANK IV and
Fourth from any reduction in the aggregate amount of
the Bank's net operating loss carryforward for federal
income tax purposes (to the extent an adjustment has
not already been made pursuant to Section 2.4(b)),
below $64,000,000; provided, however, that such
reduction results from either (i) a reduction required
by final action related to an audit or adjustment by
the Internal Revenue Service and made retroactive to
the period prior to the Effective Time or (ii) a
reduction in the net operating loss carryforward of the
Bank at the Effective Time attributable to the
consolidated taxable income of LSB (after taking into
account the taxable income or loss of each member of
the consolidated group contained in the consolidated
return of LSB and taking into account the allocations
of consolidated income, gain, and loss affecting such
net operating loss carryforward), including the effects
of the sale of the Retained Assets and Retained
Corporations to Sellers and all extraordinary items.
The payment to be made by Sellers shall be equal to the
product of (a) the dollar amount of the reduction
required in (i) above and/or the reduction determined
in (ii) above, and (b) a fraction, the numerator of
which shall be $10,500,000, and the denominator of
which shall be $64,000,000. However, to the extent
that an adjustment merely postpones the related tax
benefit to BANK IV or Fourth to a later, reasonably
ascertainable period, then such adjustment shall not be
subject to this special indemnification.
<PAGE>
(b) If there is an audit or similar inquiry of
the Internal Revenue Service of any tax return which
may have the effect of reducing the Bank's net
operating loss as of or for a period prior to the
Closing, all parties to this Agreement shall cooperate
with each other as to the determination of the
adjustments under such audit, shall make available to
each other as may reasonably be requested all
information, records, and documents until the
expiration of any applicable statute of limitations or
extensions thereof.
(c) Sellers shall have the right and option,
exercisable at any time prior to the business day next
preceding the Effective Time, by giving written notice
to Fourth, to elect to have the Purchase Price reduced
by $600,000 in consideration of the termination of
Section 7.5(a) of this Agreement, in which event the
provisions of Section 7.5(a) shall thereupon be of no
further force and effect.
7.6. Separate Indemnification for Environmental
Matters. Separate and apart from the indemnification provided in
the preceding sections of this Article VII, and not subject to
the $1,000,000 deductibility and $25,000,000 maximum liability
provisions contained in Section 7.2, Sellers shall be jointly and
severally liable for, and shall forever defend, save, indemnify,
and hold harmless Fourth, Bank, and BANK IV from and against, any
and all Environmental Liabilities that may be incurred or
sustained by, or rendered against Fourth, Bank, or BANK IV
arising in any manner out of the direct or indirect ownership or
operation at any time by the Bank or by any of its current or
former Subsidiaries of any current or former Non-Bank Facility
(as hereinafter defined). "Non-Bank Facility" means any interest
in real property, building, plant, structure, or equipment which
is not (i) currently or formerly owned or operated by the Bank in
the ordinary course of its banking business as a banking facility, (ii) the
Equity Tower, (iii) property located at Coffee Creek Road and Kelly
Avenue, Edmond, Oklahoma, (iv) an OREO Property, or (v)
collateral held as security for loans or participations.
<PAGE>
7.7. Separate Indemnification for Barki Litigation,
COMAC, and 401(k) Plan. Separate and apart from the
indemnification provided in the preceding sections of this
Article VII, and not subject to the $1,000,000 deductibility and
$25,000,000 maximum liability provisions contained in Section
7.2, Sellers shall be jointly severally liable for, and shall
forever defend, save, indemnify, and hold harmless Fourth, BANK
IV, and Bank from and against any and all losses, expenses
(including amounts reasonably paid in settlement), liabilities,
costs, penalties, damages, and judgments that may be incurred or
sustained by, or rendered against, Fourth, BANK IV, or Bank
arising out of or associated in any manner with (i) the United
BankCard division "frozen" 401(k) plan described in Section
4.1(m) of this Agreement, (ii) Mai-Li Barki vs. Equity Bank for
Savings, F.A. et al., Case No. CJ-91-90852, filed in the District
Court of Oklahoma County, Oklahoma or otherwise out of the claims
contained in such case, or (iii) the pending Internal Revenue
Service examination of COMAC Financial Services Ltd Partnership
described in Exhibit "K" to the Disclosure Statement; provided,
however, BANK IV shall be responsible for the payment of one-half
of the out-of-pocket attorneys' fees and costs incurred in
connection with the Barki litigation. Sellers shall have the
right to defend the Barki action in accordance with the
provisions of Section 7.2 of this Agreement.
7.8. Director and Officer Indemnification. From and
after the Effective Time, Fourth shall indemnify, defend, and
hold harmless each person who is now, or has been at any time
prior to the date hereof or who becomes prior to the Effective
Time, an officer, director, or employee of any of the
Corporations (the "Bank Indemnified Parties") against all losses,
claims, damages, costs, expenses (including attorney's fees),
liabilities, or judgments or amounts that are paid in settlement
(which settlement shall require the prior written consent of
Fourth, which consent shall not be unreasonably withheld) of or
in connection with any claim, action, suit, proceeding, or
investigation (each a "Claim") in which a Bank Indemnified Party
is, or is threatened to be made, a party based in whole or in
part on or arising in whole or in part out of the fact that such
person is or was a director, officer, or employee of a
Corporation if such Claim pertains to any matter or fact arising,
existing, or occurring prior to the Effective Time (but excluding
the transactions expressly contemplated by this Agreement),
regardless of whether such Claim is asserted or claimed prior to,
or at or after, the Effective Time (the "Indemnified
Liabilities") to the full extent required under applicable law in
effect as of the date hereof or as amended applicable to a time
prior to the Effective Time or as required under the Bank's
charter and bylaws (and Fourth shall pay expenses in advance of
the final disposition of any such action or proceeding to each
Bank Indemnified Party to the full extent permitted by
applicable law in effect as of the date hereof or as amended
applicable to a time prior to the Effective Time upon receipt of
any undertaking required by applicable law). Any Bank
Indemnified Party wishing to claim indemnification under this
Section 7.8 upon learning of any Claim, shall notify Fourth (but
the failure so to notify Fourth shall not relieve Fourth from any
liability which it may have under this Section 7.8 except to the
extent such failure materially prejudices Fourth) and shall
deliver to Fourth copies of all demand letters, notices,
summonses, pleadings, and other documents which such party may
have received relating to such Claim. The obligations of Fourth
described in this Section 7.8 continue in full force and effect,
without any amendment thereto, for a period of three years from
the Effective Time; provided, however, that all rights to
indemnification in respect of any Claim asserted or made within
such period shall continue until the final disposition of such
Claim.
ARTICLE VIII
MISCELLANEOUS
8.1. Expenses. Whether or not the Purchase is
effected and whether or not this Agreement is terminated, all
costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party
incurring such expense.
8.2. Notices. All notices or other communications
required or permitted hereunder shall be sufficiently given if
personally delivered or if sent by certified or registered mail,
postage prepaid, return receipt requested, addressed as follows:
(a) If to Fourth, addressed to Ronald L. Baldwin, Executive Vice
President, Post Office Box 2360, Tulsa, Oklahoma 74101-2360; and
(b) if to the Sellers, addressed to Tony M. Shelby, Senior Vice
President, Post Office Box 754, 16 South Pennsylvania, Oklahoma
City, Oklahoma 73107, or to such other person or such other
address as shall have been furnished in writing in the manner
provided herein for giving notice.
<PAGE>
8.3. Time. Time is of the essence of this Agreement.
8.4. Law Governing. This Agreement shall, except to
the extent federal law is applicable, be construed in accordance
with and governed by the laws of the State of Kansas, without
regard to the principles of conflicts of laws thereof.
8.5. Entire Agreement; Amendment. This Agreement
contains and incorporates the entire agreement and understanding
of the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations, agreements, letters of
intent, and understandings. This Agreement may only be amended
by an instrument in writing duly executed by Fourth and Sellers
and all attempted oral waivers, modifications, and amendments
shall be ineffective.
8.6. Successors and Assigns. The rights and
obligations of the parties hereto shall inure to the benefit of
and shall be binding upon the successors and permitted assigns of
each of them; provided, however, that this Agreement or any of
the rights, interests, or obligations hereunder may not be
assigned by any of the parties hereto without the prior written
consent of the other parties hereto.
8.7. Cover, Table of Contents, and Headings. The
cover, table of contents, and the headings of the sections and
subsections of this Agreement are for convenience of reference
only and shall not be deemed to be a part hereof or thereof or
taken into account in construing this Agreement.
8.8. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original but which together shall constitute but one agreement.
8.9. No Third Party Beneficiaries. Except as
specifically provided herein, nothing in this Agreement shall
entitle any person other than Sellers and Fourth to any claim,
cause of action, remedy, or right of any kind.
8.10. Severability. Whenever possible, each provision
of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of
this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed.
FOURTH FINANCIAL CORPORATION
By
-----------------------
Darrell G. Knudson,
Chairman of the Board
"Fourth"
PRIME FINANCIAL CORPORATION LSB INDUSTRIES, INC.
By By
------------------------- -----------------------
"Prime" "LSB"
"Sellers"
Draft of January 20, 1994
Form of Opinion
EXHIBIT "B"
March __, 1994
The Board of Directors
LSB Industries, Inc.
16 South Pennsylvania Avenue
Oklahoma City, Oklahoma 73107
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to LSB Industries, Inc. ("LSB") of the consideration
to be received in connection with the proposed purchase (the "Stock Purchase")
by Fourth Financial Corporation ("Fourth") of Equity Bank for Savings, F.A.
(the "Bank"), after giving effect to the purchase by LSB from the Bank of a
mortgage loan secured by the Equity Tower building and certain other assets
(the "Retained Assets") and certain special purpose subsidiaries (the
"Retained Corporations"), pursuant to the Stock Purchase Agreement dated as of
February 9, 1994 (the "Agreement"), among LSB and its wholly-owned
subsidiary, Prime Financial Corporation ("Prime"), as sellers, and Fourth, as
purchaser. As set forth more fully in the Agreement, Fourth will purchase all
of the issued and outstanding shares of capital stock of the Bank from Prime
for a purchase price (the "Purchase Price"), calculated as provided in the
Agreement, of approximately $92 million in cash, subject to certain
adjustments to reflect changes in the Bank's consolidated statement of
condition between the date hereof and the closing date. LSB shall have no
obligation to consummate the Agreement if the Purchase Price is determined to
be less than $92 million.
As an investment banker, we are continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, distributions of securities and similar
activities. We have acted as financial advisor to LSB in connection with the
Stock Purchase. In connection therewith, we have been paid a fee of $75,000
and will be paid an additional fee for our services as financial advisor which
is contingent upon the consummation of the Stock Purchase. In the course of
our activities, we have provided investment banking services to LSB from time
to time, including acting as managing underwriter of LSB's public offering of
$3.25 Convertible Exchangeable Class C Preferred Stock, Series 2 on May 19,
1993. We may, in the ordinary course of our business, trade securities of LSB
for our own account or for the accounts of our customers and, thus, may hold
long or short positions in such securities at any time.
In connection with this opinion, we have reviewed, among other
things, a draft, dated March ____, 1994, of LSB's Proxy Statement,
relating to the Stock Purchase; the Agreement; audited consolidated financial
statements of the Bank for the three years ended December 31, 1992; and
certain financial and other information regarding the Bank, including
financial forecasts for the Bank, which were furnished to us by LSB and the
Bank or were publicly available. We have held discussions with members of the
senior management of the Bank with respect to its past and current business
operations and financial condition, regulatory relationships and future
prospects. We also have held discussions with the independent auditors of the
Bank regarding its financial and accounting affairs. In addition, we have
compared certain financial and stock market information for the Bank with
similar information for other companies the securities of which are publicly
traded, and reviewed the financial terms of certain recent merger and
acquisition transactions involving savings institutions specifically and in
other industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied, without independent verification, upon the
accuracy and completeness of all of the financial and other information
reviewed by us for purposes of this opinion, and have not attempted
independently to verify any of such information. In that regard, we have not
conducted a physical inspection of any of the properties or assets of the
Bank, nor have we made or obtained any independent evaluation or appraisals of
any properties, assets or liabilities of the Bank. In addition ,we have
assumed, with your consent, that the financial forecasts furnished to us had
been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of the Bank. This opinion does not address the
relative merits of the Stock Purchase as compared to any alternative business
strategies that might exist for LSB. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information
made available to us as of, the date hereof.
It is understood that this letter is for the information of the
Board of Directors of LSB only, and may not be used for any other purpose or
disclosed or otherwise referred to without our prior written consent, except
as may otherwise be required by law or by a court of competent jurisdiction.
Based upon and subject to the foregoing, it is our view as
investment bankers that as of the date hereof the Purchase Price is fair, from
a financial point of view, to LSB.
Very truly yours,
IHS:\K-M\LSB\LAZ-OL.BF
