<PAGE> 1
This conforming paper format document is being submitted pursuant to Rule 901
(g) of Regulation S-T
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON .
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
NATIONAL CITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
6712
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
34-1111088
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
DAVID L. ZOELLER
Senior Vice President, General Counsel and Secretary
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
(216) 575-2978
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
------------------
COPIES TO:
CLAUDIA V. SWHIER
Barnes & Thornburg
1313 National City Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204-3599
(317) 231-7231
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective
and all other conditions to the merger of Central Indiana Bancorp ("CIB") with
and into the Registrant, pursuant to an Agreement and Plan of Merger dated as of
July 25, 1994, as amended, described in the enclosed Prospectus and Proxy
Statement, have been satisfied or waived.
------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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<CAPTION>
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(3)
- -------------------------
Common Stock, par value
$4.00 per share........ 1,874,455 shares $25.00 $46,861,375 $16,159.09
</TABLE>
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(1) Based upon the assumed number of shares that may be issued in the Merger
described herein. Such assumed number is based upon the maximum number of
CIB common shares that are expected to be outstanding immediately prior to
the Merger.
(2) Estimated solely for the purpose of computing the registration fee. Computed
in accordance with Rule 457(f)(1) on the basis of the average of the high
and low prices of CIB common stock reported on the NASDAQ National Market on
November 16, 1994, divided by 1.08, the number of shares of the Registrant's
common stock to be exchanged for each share of CIB common stock in the
Merger to which this Registration Statement relates.
(3) An amount equal to the registration fee of $16,159.09 has previously been
paid with respect to the proxy materials included herein pursuant to Section
14(g) of the Securities Act of 1934, as amended. In accordance with Rule
457(b), no additional fee will be payable herewith.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE> 2
NATIONAL CITY CORPORATION
CROSS REFERENCE SHEET PURSUANT TO RULE 404(A) OF THE SECURITIES ACT OF 1933
AND ITEM 501(B) OF REGULATION S-K, SHOWING THE LOCATION IN THE PROSPECTUS AND
PROXY STATEMENT OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN PROSPECTUS
ITEM OF FORM S-4 AND JOINT PROXY STATEMENT
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<S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus....... Facing Page of Registration Statement;
Cross Reference Sheet; Outside Front Cover
Page of Prospectus and Proxy Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Available Information; Incorporation of
Certain Documents by Reference; Inside
Front Cover Page of Prospectus and Proxy
Statement; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Summary as Applicable
4. Terms of the Transaction..................... Summary; Merger; Certain Regulatory
Considerations; Description of NCC Capital
Stock; Description of CIB Capital Stock;
General Comparison of NCC and CIB Capital
Stock
5. Pro Forma Financial Information.............. Pro Forma Condensed Combined Consolidated
Financial Information
6. Material Contacts with the Company Being
Acquired..................................... Summary; Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
Be Underwriters.............................. Not Applicable
8. Interests of Named Experts and Counsel....... Experts; Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
10. Information with Respect to S-3
Registrants.................................. Information about NCC; Incorporation of
Certain Documents by Reference
11. Incorporation of Certain Information by
Reference.................................... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Not Applicable
15. Information with Respect to S-3 Companies.... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................... Summary; Merger; Pro Forma Condensed
Financial Information (Unaudited);
National City Corporation Pro Forma
Balance Sheet; National City Corporation
Pro Forma Statement of Income; Information
about NCC; Incorporation of Certain
Investments by Reference.
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Summary; The Special Meeting; Management
After the Merger
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................ Not Applicable
</TABLE>
<PAGE> 3
CENTRAL INDIANA BANCORP
200 West Mulberry Street
P.O. Box 730
Kokomo, Indiana 46903-0730
November 20, 1994
Dear Shareholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Shareholders of Central Indiana Bancorp ("CIB") to be held at the Kokomo Country
Club, 1801 Country Club Drive, Kokomo, Indiana, on Tuesday, December 27, 1994,
commencing at 4:00 p.m. Eastern Standard Time.
At this important meeting, you will be asked to consider and vote on (i) an
amendment to the Articles of Incorporation of CIB to repeal Article 11 thereof
which prohibits the acquisition of beneficial ownership of more than 10% of any
class of equity security of CIB (the "Articles Amendment") and (ii) the
Agreement and Plan of Merger (the "Merger Agreement") providing for a merger
transaction (the "Merger") whereby CIB will be merged with and into National
City Corporation, a Delaware corporation ("NCC"), and the Merger provided for
therein.
In the Merger, you will receive 1.08 shares of NCC Common Stock, $4.00 par
value per share, ("NCC Common") plus cash in lieu of fractional shares, for each
of your shares of Common Stock of CIB, without par value ("CIB Common"). The
transaction is intended to be free from federal income taxation to the extent
you receive solely NCC Common in exchange for your shares of CIB Common (except
cash in lieu of fractional shares).
THE CIB BOARD OF DIRECTORS HAS APPROVED THE ARTICLES AMENDMENT AND THE
MERGER AGREEMENT AND THE MERGER PROVIDED FOR THEREIN AS BEING IN THE BEST
INTERESTS OF CIB AND ITS SHAREHOLDERS AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR
APPROVAL OF THE ARTICLES AMENDMENT, THE MERGER AGREEMENT AND THE MERGER. The
Merger presents you with the opportunity to participate in what we believe will
be a more diversified and more competitive institution.
A Notice of Special Meeting and a Prospectus and Proxy Statement containing
detailed information concerning the Merger are attached. We urge you to
carefully review these materials before completing the enclosed proxy card.
IT IS A CONDITION TO THE CONSUMMATION OF THE MERGER THAT THE MERGER
AGREEMENT AND THE MERGER RECEIVE THE APPROVAL OF THE HOLDERS OF A MAJORITY OF
THE OUTSTANDING SHARES OF CIB COMMON. A FAILURE TO VOTE WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE MERGER. Accordingly, it is
important that your shares be represented at the Special Meeting whether or not
you plan to attend the Special Meeting in person. Therefore, we urge you to
complete, sign and date the enclosed proxy card and return it in the
accompanying pre-addressed envelope, which requires no postage if mailed within
the United States. You are, of course, welcome to attend the Special Meeting and
to vote your shares in person.
Robert J. Heltzel, President
<PAGE> 4
CENTRAL INDIANA BANCORP
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Central
Indiana Bancorp, an Indiana corporation ("CIB"), will be held at the Kokomo
Country Club, 1801 Country Club Drive, Kokomo, Indiana, on Tuesday, December 27,
1994, at 4:00 p.m., Eastern Standard Time, for the following purposes:
(1) to consider and vote upon the approval of an amendment to the Articles
of Incorporation of CIB to repeal Article 11 thereof, which prohibits
the acquisition of beneficial ownership of more than 10% of any class
of equity security of CIB;
(2) to consider and vote upon the Agreement and Plan of Merger dated as of
July 25, 1994 (the "Merger Agreement") between CIB and National City
Corporation, a Delaware corporation ("NCC"), a copy of which Merger
Agreement is included in the accompanying Prospectus and Proxy
Statement as Appendix C, under the terms of which CIB would be merged
with and into NCC (the "Merger"), with NCC as the surviving
corporation, and each outstanding share of common stock of CIB, without
par value ("CIB Common"), would be converted into 1.08 shares of common
stock, par value $4.00 per share, of NCC, plus cash in lieu of
fractional shares, and the Merger provided for therein; and
(3) to transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Only holders of CIB Common Stock of record at the close of business on
November 14, 1994, will be entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof.
Your attention is directed to the Prospectus and Proxy Statement
accompanying this notice for a more complete statement regarding the matters to
be acted upon at the Special Meeting.
We urge you to execute and return the enclosed proxy as soon as possible in
order to ensure that your shares will be represented at the Special Meeting.
Your proxy may be revoked in the manner described in the accompanying Proxy
Statement and Prospectus at any time before it has been voted at the Special
Meeting. If you attend the Special Meeting, you may vote in person, and your
proxy will not be used.
By Order of the Board of Directors
Robert J. Heltzel, President
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN
AND MAIL THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE.
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 5
PROSPECTUS AND PROXY STATEMENT
NATIONAL CITY CORPORATION
1,874,455 SHARES OF COMMON STOCK
This Prospectus and Proxy Statement relates to the proposed merger of
CENTRAL INDIANA BANCORP, an Indiana corporation ("CIB"), with and into NATIONAL
CITY CORPORATION, a Delaware corporation ("NCC"). If the proposed merger is
consummated, the outstanding shares of common stock, without par value, of CIB
("CIB Common"), will be converted into shares of common stock, par value $4.00
per share, of NCC ("NCC Common") at a rate of 1.08 shares of NCC Common for each
share of CIB Common (the "Exchange Ratio") and cash in lieu of fractional
shares. The transaction is subject to various conditions, including approval by
the shareholders of CIB at their Special Meeting, described herein, and approval
by applicable regulatory authorities.
NCC Common is traded on the New York Stock Exchange ("NYSE"). The closing
price of NCC Common on the NYSE on November 17, 1994 was $26.375.
All information concerning NCC contained in this Prospectus and Proxy
Statement has been furnished by NCC, and all information concerning CIB has been
furnished by CIB. NCC has represented and warranted to CIB, and CIB has
represented and warranted to NCC, that the particular information so furnished
is true and complete. See "EXPERTS" with respect to the financial statements of
NCC and CIB.
------------------------
THE SHARES OF NCC COMMON TO BE ISSUED IN CONNECTION WITH THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS AND PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF NCC COMMON TO BE ISSUED IN CONNECTION WITH THE MERGER ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
------------------------
PROXY STATEMENT
Special Meeting
of Shareholders of
CENTRAL INDIANA BANCORP
to be held on December 27, 1994
THIS PROSPECTUS SERVES AS THE PROXY STATEMENT OF CENTRAL INDIANA BANCORP IN
CONNECTION WITH THE SOLICITATION OF PROXIES TO BE USED AT CIB'S SPECIAL MEETING
TO BE HELD FOR THE PURPOSES DESCRIBED HEREIN.
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The date of this Prospectus and Proxy Statement is November 20, 1994, and
is first being mailed to CIB shareholders,
together with notices and forms of proxy, on or about November 20, 1994.
<PAGE> 6
AVAILABLE INFORMATION
Each of NCC and CIB is subject to the information reporting requirements of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and,
accordingly, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected or copied at the public
reference facilities of the Commission located at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; at the Commission's Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and at its New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials may
also be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
reports, proxy statements and other information concerning NCC and CIB may be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005 and of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006, respectively.
This Prospectus and Proxy Statement does not contain all of the information
set forth in the Registration Statement on Form S-4 and the exhibits thereto
filed by NCC under the Securities Act of 1933, as amended (the "1933 Act"), with
the Commission relating to the shares of NCC Common offered hereby (the
"Registration Statement"), certain portions of which have been omitted pursuant
to the rules and regulations of the Commission and to which portions reference
is hereby made for further information with respect to NCC, CIB and the
securities offered hereby. The Registration Statement and the exhibits thereto
may be inspected without charge at the offices of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained from the
Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
NCC hereby incorporates in this Prospectus and Proxy Statement by reference
its Annual Report on Form 10-K for the year ended December 31, 1993, its
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994, June 30,
1994, and September 30, 1994, its Reports on Form 8-K dated March 2, 1994, March
4, 1994 and August 1, 1994, respectively, the description of NCC Common set
forth in the Restated Certificate of Incorporation of the Registrant, as amended
(filed as Exhibit 3.1 to its Annual Report on Form 10-K for the year ended
December 31, 1987), and the description of NCC's 8% Cumulative Convertible
Preferred Stock, without par value, set forth in the Certificate of Stock
Designation dated April 18, 1991 (filed as Exhibit 4.4 to its Annual Report on
Form 10-K for the year ended December 31, 1991), each as filed with the
Commission pursuant to the Exchange Act. NCC also incorporates into this
Prospectus and Proxy Statement the sections entitled "Nominees for Election as
Directors", "Beneficial Ownership", "Beneficial Security Ownership of
Management", "Executive Compensation", "Description of NCC's Benefit Plans" and
"Transactions with Management" set forth on pages 8 to 32 of NCC's Proxy
Statement for the Annual Meeting of Shareholders held April 25, 1994.
CIB hereby incorporates into this Prospectus and Proxy Statement by
reference the following documents:
1. CIB's Annual Report on Form 10-K for the year ended September 30,
1993;
2. CIB's Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1993, March 31, 1994, and June 30, 1994;
3. CIB's Reports on Form 8-K dated October 26, 1993, and July 25,
1994;
4. CIB's Form 10-C dated January 21, 1994; and
5. The Section entitled "Voting Securities and Principal Holders
Thereof" and the chart in the Section entitled "Proposal
1 -- Election of Directors" set forth on pages 2-4 of CIB's Proxy
Statement for the Annual Meeting of Shareholders held January 25,
1994. These sections have been incorporated by reference into CIB's
Annual Report on Form 10-K for the year ended September 30, 1993.
All documents filed by NCC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Prospectus and Proxy Statement and prior
to the Special Meeting of Shareholders of CIB shall be deemed to be incorporated
by reference in this Prospectus and Proxy Statement and to be a part hereof from
the respective
2
<PAGE> 7
dates of filing of such documents. 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 Prospectus and Proxy Statement to
the extent that such statement is modified or superseded by a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus and Proxy Statement.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NCC OR CIB. THIS PROSPECTUS AND
PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION WITHIN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION WITHIN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
AND PROXY STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF NCC OR CIB
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
THIS PROSPECTUS AND PROXY STATEMENT INCORPORATES DOCUMENTS OF NCC OR CIB BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE NCC
DOCUMENTS (OTHER THAN CERTAIN EXHIBITS TO ANY SUCH DOCUMENTS) ARE AVAILABLE TO
ANY PERSON TO WHOM A COPY OF THIS PROSPECTUS AND PROXY STATEMENT HAS BEEN
DELIVERED UPON WRITTEN OR ORAL REQUEST TO NATIONAL CITY CORPORATION, 1900 EAST
NINTH STREET, CLEVELAND, OHIO 44114, ATTENTION: THOMAS A. RICHLOVSKY, SENIOR
VICE PRESIDENT AND TREASURER, TELEPHONE NUMBER (216) 575-2126, AND WILL BE
FURNISHED WITHOUT CHARGE. THE CIB DOCUMENTS (OTHER THAN THE EXHIBITS TO ANY SUCH
DOCUMENTS) ARE AVAILABLE TO ANY PERSON TO WHOM A COPY OF THIS PROSPECTUS AND
PROXY STATEMENT HAS BEEN DELIVERED UPON WRITTEN OR ORAL REQUEST TO CENTRAL
INDIANA BANCORP, 200 WEST MULBERRY, P.O. BOX 730, KOKOMO, INDIANA 46903-0730,
ATTENTION: JAMES E. FRITZ, TELEPHONE NUMBER: (317) 457-5552, AND WILL BE
FURNISHED WITHOUT CHARGE. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY NCC OR CIB
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER 20, 1994.
3
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TABLE OF CONTENTS
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PAGE
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<S> <C>
AVAILABLE INFORMATION.................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 2
SUMMARY.................................................................. 6
THE SPECIAL MEETING...................................................... 14
Record Date and Voting Rights.......................................... 14
Voting and Revocation of Proxies....................................... 14
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION OF CIB............... 15
MERGER................................................................... 15
Background of and Reasons for the Merger -- CIB........................ 15
Background of and Reasons for the Merger -- NCC........................ 17
Opinions of CIB's Financial Advisor.................................... 18
Terms of the Merger.................................................... 20
Conversion of Shares of CIB Common..................................... 21
Assumption of Employee and Director Stock Options...................... 22
Conditions to the Merger............................................... 23
Regulatory Approvals................................................... 24
Waiver; Amendment; Termination......................................... 24
Effective Time......................................................... 26
Conduct of CIB's Business Pending the Merger........................... 26
Interest of Management in the Merger................................... 27
Employee Matters.................................................... 27
Indemnification and Insurance.......................................... 29
Certain Federal Income Tax Consequences................................ 29
Accounting Treatment................................................... 30
Resales by Affiliates.................................................. 30
Appraisal and Dissenters' Rights....................................... 30
The Option............................................................. 30
PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)........ 35
NCC PRO FORMA BALANCE SHEET.............................................. 36
NCC PRO FORMA STATEMENT OF INCOME........................................ 37
NOTES TO PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS............ 39
MANAGEMENT AFTER THE MERGER.............................................. 40
INFORMATION ABOUT NCC.................................................... 40
INFORMATION ABOUT CIB.................................................... 40
CIB SELECTED CONSOLIDATED FINANCIAL DATA................................. 41
MANAGEMENT'S DISCUSSION AND ANALYSIS..................................... 43
General................................................................ 43
Asset/Liability Management............................................. 43
Average Balances and Interest.......................................... 45
Interest Rate Spread................................................... 46
Year Ended September 30, 1994 Compared To Year Ended September 30,
1993................................................................ 48
Year Ended September 30, 1993 Compared To Year Ended September 30,
1992................................................................ 50
Liquidity and Capital Resources........................................ 51
Impact of Inflation.................................................... 52
Current Accounting Issues.............................................. 52
CERTAIN REGULATORY CONSIDERATIONS........................................ 53
General................................................................ 53
</TABLE>
4
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Payment of Dividends................................................... 54
Certain Transactions by Bank Holding Companies With Their Affiliates... 54
FDIC Insurance......................................................... 55
Capital................................................................ 55
Holding Company Support of Subsidiary Banks and Savings Banks.......... 56
FDICIA................................................................. 56
Recent and Proposed Legislation........................................ 57
DESCRIPTION OF NCC CAPITAL STOCK......................................... 57
Common Stock........................................................... 57
Preferred Stock........................................................ 58
DESCRIPTION OF CIB CAPITAL STOCK......................................... 60
GENERAL COMPARISON OF NCC AND CIB CAPITAL STOCK.......................... 62
General................................................................ 62
Directors.............................................................. 62
Limitation of Director Liability in Certain Circumstances.............. 62
Indemnification and Insurance.......................................... 63
Antitakeover Statutes.................................................. 64
Issuance of Preferred Stock............................................ 66
Cumulative Voting...................................................... 67
Action Without a Meeting............................................... 67
Special Meetings....................................................... 67
Voting, Appraisal Rights and Corporate Reorganizations................. 67
By-Laws................................................................ 68
Preemptive Rights...................................................... 68
Dividends.............................................................. 69
EXPERTS.................................................................. 69
LEGAL OPINIONS........................................................... 69
ANNUAL MEETING/SHAREHOLDER PROPOSALS..................................... 69
REPORT OF INDEPENDENT AUDITORS........................................... 70
CIB CONSOLIDATED BALANCE SHEETS.......................................... 71
CIB CONSOLIDATED STATEMENTS OF INCOME.................................... 72
CIB CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY........... 73
CIB CONSOLIDATED STATEMENTS OF CASH FLOWS................................ 74
CIB NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................... 76
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of McDonald & Company
APPENDIX C -- Option Agreement
</TABLE>
5
<PAGE> 10
SUMMARY
The following is a summary of certain information with respect to matters
to be considered at a Special Meeting of Shareholders of CIB and is not intended
to be a complete statement of all material facts regarding the matters to be
considered at that meeting. It is qualified in its entirety by reference to more
detailed information contained elsewhere in this Prospectus and Proxy Statement
(hereinafter sometimes referred to as this or the "Proxy Statement") or
incorporated by reference in this Proxy Statement, the accompanying appendices
and the documents referred to herein.
PARTIES TO THE MERGER
CIB. CIB is a registered savings and loan holding company under the Home
Owners' Loan Act of 1933, as amended (the "HOLA"), and is incorporated under the
laws of the State of Indiana. As of September 30, 1994, CIB owned all of the
outstanding stock of one federal savings bank in Indiana, and through this
savings bank operated five (5) offices in Indiana. CIB, through its federal
savings bank and other subsidiaries, offers a broad range of lending, deposit
and other financial services to retail and commercial customers in its market
areas. At September 30, 1994, CIB, its affiliate federal savings bank and other
subsidiary had consolidated total assets of $244 million and consolidated total
deposits of $201 million. See "SUMMARY -- Selected Financial Data"; "SUMMARY --
Comparative Per Share Data"; "PRO FORMA COMBINED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED) and "INFORMATION ABOUT CIB". The principal office of CIB
is located at 200 West Mulberry Street, P.O. Box 730, Kokomo, Indiana
46903-0730, and its telephone number is (317) 457-5552.
NCC. NCC is a registered multi-bank holding company under the Bank Holding
Company Act of 1933, as amended (the "BHCA") and is incorporated under the laws
of the State of Delaware. As of September 30, 1994, NCC owned substantially all
of the outstanding stock of 10 commercial banks in Ohio, Kentucky and Indiana,
and through these banks, operated 610 offices. NCC, through its subsidiaries,
offers a wide range of general commercial banking and other financial services,
such as credit card, retail payment and airline ticket processing, brokerage
services, trust and investment management, leasing, merchant and mortgage
banking, public finance, venture capital, small business and community
investment and credit life insurance. At September 30, 1994, NCC, its affiliate
banks and other subsidiaries had consolidated total assets of $31 billion and
consolidated total deposits of $23 billion. See "SUMMARY -- Selected Financial
Data"; "SUMMARY -- Comparative Per Share Data"; "PRO FORMA COMBINED CONSOLIDATED
FINANCIAL INFORMATION (UNAUDITED) and "INFORMATION ABOUT NCC"." The principal
office of NCC is located at 1900 East Ninth Street, Cleveland, Ohio 44114, and
its telephone number is (216) 575-2000.
REASONS FOR THE MERGER
After exploring various other strategic alternatives, including the
possibility of remaining independent and merging with other institutions, CIB
believes that the Merger offers the greatest potential for achieving long-term
value for CIB shareholders while providing superior banking services to its
customers.
Since establishing a major presence in Indiana by acquiring Merchants
National Corporation in 1992, NCC has sought to enhance its Indiana network
through internal growth and select acquisitions. Both NCC and CIB believe that
the Merger will result in a combined entity which will be greater than the sum
of NCC and CIB standing alone.
See "MERGER -- Background of and Reasons for the Merger -- CIB" and "--
Background of and Reasons for the Merger -- NCC."
TERMS OF THE MERGER
Pursuant to the Agreement and Plan of Merger dated July 25, 1994 by and
between CIB and NCC (the "Merger Agreement"), CIB will merge with and into NCC
and NCC will be the surviving or resulting corporation (the "Merger"). A copy of
the Merger Agreement is attached hereto as Appendix A and hereby incorporated
herein. At the time the Merger becomes effective (the "Effective Time"), each
outstanding share of CIB Common (except shares held by CIB, NCC or any of their
direct or indirect wholly owned subsidiaries
6
<PAGE> 11
(other than shares of CIB Common held in trust accounts, managed accounts or in
any similar manner as trustee or in a fiduciary capacity or acquired in
satisfaction of debts previously contracted)) will be converted into the right
to receive 1.08 shares of NCC Common.
No fractional shares of NCC Common will be issued in the Merger. In lieu
thereof, each holder of CIB Common who otherwise would have been entitled to a
fractional share of NCC Common will receive cash in an amount determined by
multiplying the fractional share interest to which such holder would otherwise
be entitled by the average of the per share closing price on the NYSE of NCC
Common for the 20 consecutive trading days ending at the end of the fifth
trading day immediately preceding the Closing Date (the "Market Price").
The closing price of NCC Common on the NYSE on November 17, 1994 was
$26.375 (which is the equivalent of $28.485 for 1.08 shares of NCC Common). In
the event the Market Price of NCC Common is less than $24.50 and the number
obtained by dividing the Market Price of NCC Common by $26.375 (the closing
price of NCC Common on the NYSE on July 22, 1994) is less than the number
obtained by dividing the Final Index Price by the Initial Index Price (as such
terms are defined in "MERGER -- Waiver; Amendment; Termination") and subtracting
0.10 from the quotient thereof, CIB may terminate the Merger Agreement. The
Initial Index Price will be the weighted average (weighted as described in
"MERGER -- Waiver; Amendment; Termination") of the closing prices on July 22,
1994 of the common stock of the 49 bank holding companies described on page 25
of this Proxy Statement. The Final Index Price will be the weighted average
(weighted as described in "MERGER -- Waiver; Amendment; Termination") of the
average of the daily closing sale prices of the common stock of each of such
bank holding companies during the period of 20 consecutive trading days ending
at the end of the fifth trading day immediately preceding the Closing Date. See
"MERGER -- Waiver; Amendment; Termination."
Following the Merger, the directors and officers of NCC at the Effective
Time will continue as the directors and officers of NCC.
CONDITIONS; TERMINATION; AMENDMENTS
Consummation of the Merger is subject to satisfaction of a number of
conditions, including (a) adoption by the shareholders of CIB of the proposal to
amend the Articles of Incorporation of CIB to delete Article 11 (the "Articles
Amendment"), (b) approvals by the shareholders of CIB of the Merger Agreement
and the Merger provided for therein, (c) approval by certain federal and state
banking authorities, (d) authorization for listing on the NYSE of the NCC Common
issuable in the Merger, (e) the issuance by the Commission of an order declaring
the Registration Statement effective, (f) the receipt by NCC and CIB of the
opinion of Barnes & Thornburg, special counsel to CIB, substantially to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and (h) the non-existence of a restraining
order, preliminary or permanent injunction or other order by any federal or
state court in the United States preventing the consummation of the Merger.
Substantially all of the conditions to consummation of the Merger (other than
required shareholder or regulatory approvals) may be waived, in whole or in
part, by the party for whose benefit they have been created, without the
approval of the shareholders of CIB or stockholders of NCC. In addition, the
Agreement may be terminated under certain circumstances, and such termination
would not require stockholder or shareholder approval. The Merger Agreement may
be amended or supplemented upon the written agreement of NCC and CIB at any
time, provided that no amendment may be made after any shareholder adoption of
the Merger Agreement which reduces or changes the form of the merger
consideration without further shareholder approval. See "MERGER -- Conditions to
the Merger" and "MERGER -- Waiver; Amendment; Termination."
REGULATORY APPROVALS
In order for the Merger to be consummated, approval must be obtained from
The Board of Governors of the Federal Reserve System ("FRB"). The Merger may not
be consummated until the 30th day after FRB approval is received. Application
requesting such approval has been filed with the FRB. The FRB approved the
Merger on October 20, 1994. See "MERGER -- Regulatory Approvals."
7
<PAGE> 12
THE SPECIAL MEETING
CIB. The Special Meeting of Shareholders of CIB will be held on December
27, 1994, at the Kokomo Country Club, 1801 Country Club Drive, Kokomo, Indiana
commencing at 4:00 p.m., Eastern Standard Time. The Board of Directors of CIB
has fixed the close of business on November 14, 1994, as the record date for
determination of shareholders entitled to notice of and to vote at the Special
Meeting of Shareholders of CIB. The purpose of the Special Meeting of
Shareholders of CIB is (a) to adopt the Articles Amendment, (b) to consider and
vote on a proposal to approve the Merger Agreement and the Merger, and (c) to
transact such other business as may properly come before the meeting.
For additional information with respect to the Special Meeting, see "THE
SPECIAL MEETING."
VOTES REQUIRED
The approval of the Articles Amendment requires the approval of more votes
cast in favor thereof than votes cast against the Articles Amendment. The
approval of the Articles Amendment is required in order for the Merger to occur
and is included in the Merger Agreement as a condition to the parties'
obligations to close.
The proposal to approve the Merger Agreement and the Merger to be
considered at the Special Meeting of Shareholders of CIB must be adopted by the
affirmative vote of holders of a majority of the outstanding shares of the CIB
Common. The approval of the Merger Agreement and the Merger by the shareholders
of CIB is required under Section 23-1-40-3 of the Indiana Business Corporation
Law (the "IBCL") and is included in the Merger Agreement as a condition to the
parties' obligations to close. As of November 14, 1994, the directors and
executive officers of CIB and their affiliates are entitled to vote
approximately 7.18% of the outstanding shares of CIB Common eligible to vote at
the Special Meeting. CIB has been advised that its directors and executive
officers intend to vote their shares in favor of the Articles Amendment, the
Merger Agreement and the Merger. The Merger Agreement provides that, absent
certain circumstances (none of which has occurred), CIB's Board of Directors
shall recommend that its shareholders vote in favor of and approve the Merger,
the Articles Amendment and the Merger Agreement at its Special Meeting. See "THE
SPECIAL MEETING -- Record Date and Voting Rights."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of CIB (a) has unanimously approved the Articles
Amendment and the Merger Agreement, (b) has unanimously recommended the approval
by shareholders of the Articles Amendment and the Merger Agreement, (c) believes
that the proposed Merger is in the best interests of CIB's shareholders, and (d)
unanimously recommends that CIB's shareholders vote FOR the approval of the
Articles Amendment and the Merger Agreement and the Merger. See "MERGER --
Background of and Reasons for the Merger -- CIB."
OPINIONS OF FINANCIAL ADVISOR
McDonald & Company Securities, Inc. ("McDonald & Company"), CIB's financial
advisor, has rendered its opinion to CIB's Board of Directors to the effect
that, as of the date of the Merger Agreement was signed and as of the date of
this Prospectus and Proxy Statement, the Exchange Ratio was fair, from a
financial point of view, to the shareholders of CIB. A copy of the fairness
opinion of McDonald & Company is attached hereto as Appendix B and should be
read in its entirety with respect to the assumptions and justification made and
other matters considered. See "MERGER -- Opinions of Financial Advisor."
APPRAISAL AND DISSENTERS' RIGHTS
Holders of NCC Common and CIB Common will not be entitled to any statutory
approval and dissenters' rights in connection with the Merger. See "MERGER --
Appraisal and Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES AND ACCOUNTING TREATMENT
The Merger, if completed as proposed, will be treated as a purchase for
accounting and financial reporting purposes. See "MERGER -- Accounting
Treatment."
8
<PAGE> 13
The Merger is structured to qualify as a tax-free reorganization under
Section 368(a) of the Code. The Merger Agreement provides as a condition to the
parties' obligations to consummate the Merger that NCC and CIB shall have
received the opinion of Barnes & Thornburg substantially to the effect, among
other things, that for United States federal income tax purposes no gain or loss
will be recognized by the shareholders of CIB who convert their shares of CIB
Common solely for shares of NCC Common pursuant to the Merger (except with
respect to cash received in lieu of a fractional interest in NCC Common). See
"MERGER -- Certain Federal Income Tax Consequences."
THE OPTION
As a condition to NCC's entering into the Merger Agreement, and in
consideration therefor, CIB and NCC entered into a Stock Option Agreement dated
as of July 25, 1994 (the "Option Agreement"). The Option Agreement is intended
to increase the likelihood that the Merger will be consummated by making it more
difficult and more expensive for another party to obtain control of or acquire
CIB. See "MERGER -- The Option." A copy of the Option Agreement is attached
hereto as Appendix C.
Pursuant to the Option Agreement, CIB granted NCC an option (the "Option")
to purchase up to 326,000 fully paid and nonassessable shares of CIB Common at a
price of $28.75 per share. In the event that any additional shares of CIB Common
are issued or otherwise become outstanding after the date of the Option
Agreement (other than pursuant to the CIB Option Plans (as hereinafter defined)
as provided for under the Merger Agreement), the number of shares of CIB Common
subject to the Option will be increased so that, after such issuance, it equals
19.9% of the number of shares of CIB Common then issued and outstanding without
giving effect to any shares subject or issued pursuant to the Option. NCC may
exercise the Option only upon the occurrence of certain events (none of which
has occurred) and upon obtaining any regulatory approvals necessary for the
acquisition of shares of CIB subject to the Option. In lieu of exercising the
Option, NCC can require CIB to repurchase for a formula price the Option and any
shares of CIB Common purchased upon exercise of the Option and owned by NCC at
that time. See "MERGER -- The Option." Until the Articles Amendment is adopted
by CIB's shareholders and becomes effective, NCC is prohibited from purchasing
shares which would cause it to own in excess of 10% of CIB's outstanding shares,
and would be prohibited from voting any shares in excess of the 10% limit.
In addition to other Exercise Termination Events (as such term is defined
in "MERGER -- The Option"), the Option Agreement provides that the Option shall
terminate upon the termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event (as such term is defined in "MERGER -- The Option").
The Agreement may be terminated at any time prior to the Effective Time by
either NCC or CIB if the Merger is not approved at the Special Meeting of
Shareholders of CIB (provided that the terminating party is not otherwise in
material breach of its obligations under the Merger Agreement). Accordingly, if
no Initial Triggering Event has occurred, in the event that the CIB shareholders
do not approve the Merger Agreement at the Special Meeting of Shareholders of
CIB, and either NCC or CIB terminates the Merger Agreement as a result thereof,
the Option shall terminate. See "MERGER -- The Option."
COMPARATIVE RIGHTS OF HOLDERS OF SHARES OF CIB COMMON AFTER THE MERGER
The rights of holders of shares of CIB Common currently are governed by the
IBCL, CIB's Articles of Incorporation ("CIB's Articles"), and CIB's By-Laws
("CIB's By-Laws"). At the Effective Time, CIB's shareholders will become NCC
stockholders, and their rights will be governed by the Delaware General
Corporation Law (the "DGCL"), NCC's Restated Certificate of Incorporation, as
amended ("NCC's Certificate"), and NCC's First Restatement of By-Laws dated
April 27, 1987 ("NCC's By-Laws"). See "GENERAL COMPARISON OF NCC AND CIB CAPITAL
STOCK."
MARKET AND MARKET PRICES
NCC Common is traded on the NYSE. Transactions with respect to CIB Common
are reported on the NASDAQ National Market ("NASDAQ"). Receipt of authorization
for listing on the NYSE of the shares of NCC Common issuable in connection with
the Merger is a condition to consummation of the Merger. See
9
<PAGE> 14
"MERGER -- Conditions to the Merger." The information set forth in the table
below presents (a) the closing price for NCC Common on the NYSE and the last
sales price for CIB Common on NASDAQ on July 22, 1994, the first business date
preceding the public announcement of the Merger, and on November 17, 1994, (b)
the high and low sale prices for NCC Common and CIB Common on such dates, and
(c) the CIB equivalent per share prices as of July 22, 1994 and November 17,
1994, calculated by multiplying the closing price of NCC Common on the NYSE on
such dates by the Exchange Ratio.
<TABLE>
<CAPTION>
EQUIVALENT
NCC CIB VALUE
COMMON COMMON PER SHARE
------------ ------------ ------------
<S> <C> <C> <C>
July 22, 1994
Closing Price............ $ 26.375 $ 24.75 $ 28.485
High..................... 26.625 25.75 --
Low...................... 26.000 24.75 --
November 17, 1994
Closing Price............ $ 26.375 $ 27.50 $ 28.485
High..................... 26.750 27.50 --
Low...................... 26.125 27.00 --
</TABLE>
No assurance can be given as to what the market price of NCC Common will be
if and when the Merger is consummated or when the shares of NCC Common are
actually issued in the Merger. If the Merger had been consummated on November
17, 1994, the estimated total value of the Merger would have been $49.4 million.
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for (a)
NCC on a historical basis,
(b) CIB on a historical basis, and (c) NCC and CIB on an unaudited condensed or
combined pro forma basis. See "MERGER -- Accounting Treatment." This table
should be read in conjunction with the financial statements and other financial
information of NCC and CIB, respectively, incorporated herein by reference and
included herewith and the pro forma condensed combined consolidated financial
information giving effect to the Merger included elsewhere in this Prospectus
and Proxy Statement. See "AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" and "PRO FORMA COMBINED CONSOLIDATED FINANCIAL
INFORMATION (UNAUDITED)." The pro forma information presented below is not
necessarily indicative of the results which actually would have been obtained if
the Merger had been consummated in the past or which may be obtained in the
future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NCC:
Earnings (In millions,
except per share data)
Net interest income...... $ 918 $ 1,200 $ 1,152 $ 1,131 $ 1,094 $ 1,053
Provision for loan
losses................. 60 93 129 251 231 157
Net income............... 318 404 347 237 249 305
Net income per
common share........... 1.99 2.41 2.09 1.46 1.62 1.98
Dividends paid per
common share........... 0.88 1.06 0.94 0.94 0.94 0.84
Average Balances
(In millions)
Assets................... $30,328 $ 28,834 $28,635 $29,343 $28,564 $26,357
Earning assets........... 27,002 25,745 25,681 26,279 25,663 23,842
Deposits................. 22,641 21,646 21,967 22,474 21,757 20,144
Other borrowings......... 3,952 3,712 3,615 3,978 4,183 3,794
Corporate long term
debt................... 701 452 329 318 309 273
Stockholders' equity..... 2,623 2,606 2,362 2,156 1,922 1,774
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
NINE MONTHS ENDED -------------------------------------------------------------------------
SEPTEMBER 30, 1994 1994 1993 1992 1991(2) 1990
------------------ ------- ------ ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
CIB(1)
Earnings (In millions, except
per share data)
Net interest income................. $ 7 $ 9 $ 7 $ 7 $ 6 $ 5
Provision for loan losses........... 0 0 1 0 0 0
Income before cumulative
effect of change in
accounting......................... 2 3 2 2 2 2
Net income.......................... 2 3 2 2 2 2
Income per share before
cumulative effect of
change in accounting............... 1.35 1.73 1.40 1.31 .32 n/a
Net income per common
share.............................. 1.35 1.87 1.40 1.31 .32 n/a
Dividends paid per
common share....................... .3675 .4825 .365 .281 .056 n/a
Ending balances (In millions)
Assets.............................. 244 244 191 180 173 159
Earning assets...................... 219 219 173 170 155 147
Deposits............................ 201 201 159 149 143 141
Other borrowings.................... 0 0 0 0 0 0
Corporate long-term debt............ 0 0 0 0 0 0
Shareholders'
equity--substantially
restricted(3)...................... 36 36 30 29 28 16
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
PRO FORMA NCC(1)
Earnings (In millions, except share data)
Net interest income.......................................... $925 $1,208
Provision for loan losses.................................... 60 94
Income before cumulative effect of change in accounting...... 320 404
Net income................................................... 320 404
Income per share before cumulative effect of change in
accounting................................................ 1.98 2.38
Net income per common share.................................. 1.98 2.38
Average number of common shares outstanding.................. 155,973,353 162,974,847
Ending balances (In millions)
Assets....................................................... $31,373
Earning assets............................................... 27,336
Deposits..................................................... 23,118
Other borrowings............................................. 4,228
Corporate long-term debt..................................... 748
Stockholders' equity......................................... 2,690
</TABLE>
- ---------------
n/a -- not applicable
(1) CIB has a September 30 fiscal year. In accordance with Regulation S-X, Rule
3A-02(b)(1), the CIB results of operations for the year ended September 30,
1993 have been combined with the results of NCC for the year ended December
31, 1993 for purposes of preparing a pro forma statement of income for the
year ended December 31, 1993. For the nine months ended September 30, 1994,
the CIB fiscal 1994 results were adjusted to exclude the first quarter
activity (ended December 31, 1993) for purposes of preparing a pro
11
<PAGE> 16
forma statement of income for the nine months ended September 30, 1994. The
December 31, 1993 pro forma statement of income also includes the results of
First Federal Savings and Loan Association of Peru, which was acquired by
CIB in January 1994.
(2) CIB Common was issued in the conversion of CIB's federal savings bank
subsidiary from mutual to stock form on July 1, 1991. Income and net income
per share does not include any pro forma earnings on the conversion proceeds
prior to July 1, 1991.
(3) Shareholders' equity includes an amount in each year for which no deferred
income tax liability has been recognized. These amounts represent an
allocation of income to bad debt deductions for income tax purposes only.
Reductions of amounts so allocated for purposes other than tax bad debt
losses or adjustments arising from carryback of net operating losses would
create income for tax purposes only, which would be subject to the
then-current corporate tax rate. At September 30, 1994, such retained
earnings amounted to $6.3 million and the unrecorded deferred income tax
liability was $2.1 million. The tax impact of the recapture of this income
allocated to the bad debt deduction is taken into account in the pro forma
financial information below.
COMPARATIVE PER SHARE DATA
Based upon the Exchange Ratio of 1.08 shares of NCC Common for each share
of CIB Common outstanding immediately prior to the Merger, the following table
sets forth per common share book value, market value, cash dividends paid,
income before cumulative effect of change in accounting and net income of (a)
NCC on a historical basis, (b) NCC pro forma adjusted to give effect to the
Merger as if the Merger had been effected for the period presented, (c) CIB on a
historical basis, and (d) CIB pro forma equivalent of one share of CIB Common.
The following information should be read in conjunction with the historical
financial statements of NCC and CIB incorporated by reference in this Proxy
Statement and the pro forma condensed combined consolidated financial
information giving effect to the Merger included elsewhere in the Proxy
Statement. See "AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" and "PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)." The data presented below are not necessarily indicative of the
results which actually would have been obtained if the Merger had been
consummated in the past or which may be obtained in the future.
<TABLE>
<CAPTION>
CIB
NCC ---------------------------
------------------------ EQUIVALENT
PER COMMON SHARE(1) HISTORICAL PRO FORMA HISTORICAL PRO FORMA
- --------------------------------------------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Book value:
September 30, 1994...................... $16.33 $ 16.45 $22.04 $17.77
December 31, 1993....................... 16.15 16.27 21.30 17.57
Market value:
September 30, 1994...................... 28.13 28.13 27.50 30.38
December 31, 1993....................... 24.50 24.50 27.00 26.46
Cash dividends paid:
Nine months ended September 30, 1994.... .88 .88 .3675 .95
Year ended December 31, 1993............ 1.06 1.06 .3650 1.14
Income before cumulative effect of change in
accounting (2):
Nine months ended September 30, 1994.... 1.99 1.98 1.35 2.14
Year ended December 31, 1993............ 2.41 2.38 1.40 2.57
Net income:
Nine months ended September 30, 1994.... 1.99 1.98 1.35 2.14
Year ended December 31, 1993............ 2.41 2.38 1.40 2.57
</TABLE>
- ---------------
(1) CIB has a September 30 fiscal year. In accordance with Regulation S-X, Rule
3A-02(b)(1), the CIB results of operations for the year ended September 30,
1993 have been combined with the results of NCC for the year ended December
31, 1993 for purposes of preparing a pro forma statement of income for the
year ended December 31, 1993. For the nine months ended September 30, 1994,
the CIB fiscal 1994 results were
12
<PAGE> 17
adjusted to exclude the first quarter activity (ended December 31, 1993) for
purposes of preparing a pro forma statement of income for the nine months
ended September 30, 1994. The December 31, 1993 pro forma statement of
income also includes the results of First Federal Savings and Loan
Association of Peru, which was acquired by CIB in January 1994.
(2) Effective October 1, 1993, CIB adopted Statements of Financial Accounting
Standards No. 106 "Employers' Accounting For Postretirement Benefits Other
Than Pensions" and No. 109 "Accounting For Income Taxes."
INTERESTS OF MANAGEMENT IN THE MERGER
NCC will assume the employment agreements of certain members of management
of CIB upon the consummation of the Merger. In addition, NCC has agreed to
certain arrangements relating to retirement and other benefit plans and the
insurance and indemnification of officers and directors of CIB. See "MERGER --
Interests of Management in the Merger."
13
<PAGE> 18
THE SPECIAL MEETING
This Proxy Statement is being furnished to the shareholders of CIB in
connection with the solicitation of proxies by the Board of Directors of CIB for
its Special Meeting of Shareholders and at any adjournment or adjournments
thereof. The Special Meeting of Shareholders of CIB will be held on December 27,
1994, at the Kokomo Country Club, 1801 Country Club Drive, Kokomo, Indiana,
commencing at 4:00 p.m., Eastern Standard Time.
RECORD DATE AND VOTING RIGHTS
CIB. The Board of Directors of CIB has fixed the close of business on
November 14, 1994 as the record date for determination of shareholders entitled
to notice of and to vote at the Special Meeting of Shareholders of CIB. As of
the record date, CIB had outstanding and entitled to vote 1,645,213 shares of
CIB Common. Each share of CIB Common is entitled to one vote. The favorable vote
of the holders of more of the shares of CIB Common than are cast against the
Articles Amendment is required to adopt the Articles Amendment. The affirmative
vote of the holders of a majority of the outstanding shares of CIB Common is
required to approve the Merger Agreement and the Merger under the IBCL.
VOTING AND REVOCATION OF PROXIES
Proxies for use at the Special Meeting of the shareholders of CIB accompany
this Prospectus and Proxy Statement. A shareholder may use his or her proxy if
he or she is unable to attend the meeting in person or wishes to have his or her
shares voted by proxy even if he or she does attend the meeting. The proxy may
be revoked in writing by the person giving it at any time before it is exercised
by providing notice of such revocation to the Secretary of CIB, as the case may
be, or by submitting a proxy having a later date, or by such person appearing at
the meeting and electing to vote in person. All proxies validly submitted and
not revoked will be voted in the manner specified therein by the shareholder. If
no specifications are made, shares of CIB Common represented by proxy will be
voted FOR the approval of the Articles Amendment, the Merger Agreement, and the
Merger and for the other matters to be acted upon at the Special Meeting.
Because only the favorable vote of the holders of more of the shares of CIB
Common than are cast against the Articles Amendment is required to adopt the
Articles Amendment, abstentions and broker non votes will have no impact on the
adoption of the Articles Amendment. Because a majority of all of the outstanding
CIB Common must be voted in favor of the Merger Agreement and the Merger,
abstentions and broker non votes will have the effect of a vote against approval
of the Merger.
CIB will bear its own cost of solicitation of proxies from its
shareholders. In addition to using the mails, proxies may be solicited by
personal interview, telephone and wire. It is anticipated that banks, brokerage
houses and other institutions, nominees or fiduciaries will be requested to
forward their proxy soliciting material to their principals and to obtain
authorizations for the executions of proxies. Officers and regular employees of
CIB or its subsidiaries, acting on behalf of CIB, as the case may be, may
solicit proxies personally or by telephone or wire. CIB has retained Morrow &
Co., Inc. to assist in such solicitation. The fee of Morrow & Co., Inc. is
estimated not to exceed $4,000, plus reasonable out-of-pocket costs and
expenses. CIB does not expect to pay any other compensation for the solicitation
of proxies, but may, upon request, pay the standard charges and expenses of
banks, brokerage houses, and other institutions, nominees and fiduciaries for
forwarding proxy materials to and obtaining proxies from their principals.
However, no such payment will be made to any of CIB's subsidiaries acting
through their nominees or acting as fiduciaries.
The Board of Directors of CIB is not aware of any matter other than the
matters set forth in this Prospectus and Proxy Statement that may be presented
for action at the Special Meeting, but if other matters do properly come before
the respective meetings or any adjournments thereof then it is intended that the
shares represented by the accompanying proxy will be voted by the persons named
in the proxy in accordance with their best judgment pursuant to the
discretionary authority granted by the proxy.
14
<PAGE> 19
PROPOSED AMENDMENT TO THE ARTICLES
OF INCORPORATION OF CIB
Article 11 of the Articles of Incorporation of CIB provides, in part, that
"no person shall directly or indirectly offer to acquire or acquire beneficial
ownership of more than ten percent (10%) of any class of equity security of the
Corporation." In the event that someone acquires shares in violation of Article
11, such party shall not be entitled to vote any shares in excess of the 10%
limit in connection with any matters submitted to the shareholders of CIB for a
vote. Because NCC is indirectly acquiring all of CIB's outstanding shares in
connection with the Merger, it is necessary to repeal Article 11 in order to
consummate the Merger.
Article 11 would prohibit NCC from exercising the Option for more than 10%
of the outstanding shares of CIB Common. In the absence of a repeal or other
amendment of Article 11, if NCC were to exercise the Option for more than 10% of
the shares of CIB Common, NCC would not be permitted to vote any of such shares
in excess of 10% of the total number of outstanding shares of CIB Common Stock
on any matter submitted to the shareholders of CIB for a vote. See "THE
MERGER -- The Option."
Article 11 provides that the affirmative vote of the holders of at least
80% of the outstanding shares of CIB Common is required to amend or repeal
Article 11 at any time prior to July 1, 1996, unless at least two-thirds of the
current directors of CIB who were directors on March 15, 1991, or directors
recommended for appointment or election by a majority of such directors, have
approved the proposed action prior to the submission of the proposed action to
the shareholders for their vote. All of the directors of CIB have approved the
proposed Articles Amendment, and those directors satisfy the requirements in
Article 11. Accordingly, only the favorable vote of the holders of more of the
shares of CIB Common than are cast against the Articles Amendment is required to
adopt the Articles Amendment.
THE BOARD OF DIRECTORS OF CIB BELIEVES THE ARTICLES AMENDMENT IS IN THE
BEST INTERESTS OF THE SHAREHOLDERS OF CIB AND, THEREFORE, RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL OF THE ARTICLES AMENDMENT.
MERGER
This section of the Prospectus and Proxy Statement describes certain
aspects of the Merger. The following description of the Merger does not purport
to be complete and is qualified in its entirety by reference to the Merger
Agreement and the Option Agreement which are attached as Appendices A and C,
respectively, to this Prospectus and Proxy Statement and are incorporated herein
by reference. Shareholders of CIB are urged to read the Merger Agreement and the
Option Agreement in their entirety.
BACKGROUND OF AND REASONS FOR THE MERGER -- CIB
In recent years, there has been, and there continues to be, substantial
consolidation in the United States banking and financial services industry. This
trend is necessarily of concern to smaller institutions, like CIB, because
larger entities that emerge from consolidations may acquire substantial
competitive advantages, including greater diversity in their loan portfolios,
cost savings through the integration of overlapping operations and support
functions, improved access to capital and funding and the ability to spread
costs of new products, services and research and development over a wider
customer base. CIB has been dedicated to the goal of providing superior banking
services primarily in Howard and Miami Counties in Indiana, and in analyzing
strategic alternatives has always sought to ensure that the alternatives being
considered can reasonably be expected to result in improved services as well as
enhanced shareholder value.
In March, 1994, CIB employed McDonald & Company to provide it with an
independent valuation as to the fair market value, on a control basis, of CIB
Common. In May, 1994, CIB engaged McDonald & Company to contact a number of
institutions on behalf of CIB. Institutions contacted included companies which
CIB and McDonald & Company believed would have a strategic interest in CIB and
the financial ability to acquire CIB. After the execution of appropriate
confidentiality agreements and receipt of preliminary indications of interest,
subject to due diligence, four companies were offered the opportunity to conduct
a business review of CIB in order to formulate a firm offer which would not be
conditioned upon the performance of a further business review by the offeror.
All four of the companies availed themselves of this opportunity. In June, 1994,
each of the four conducted in-depth examinations of the books, records and
operations of CIB.
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Upon conclusion of their examinations, each of the companies that had
conducted a business review submitted an offer. CIB, with the assistance of
McDonald & Company, analyzed each offer and determined that the proposal
submitted by NCC offered the greatest value to CIB shareholders and could
reasonably be expected to result in the continuation and enhancement of the
quality banking services which CIB traditionally provided in Howard and Miami
Counties, Indiana. In addition, the Exchange Ratio proposed by NCC would produce
a dividend rate for CIB shareholders who became NCC stockholders that would be
substantially higher than the dividend rate on CIB Common at the time and the
dividend rate under the proposals made by the other three financial
institutions.
After consulting with McDonald & Company and with legal counsel, CIB
determined that it would negotiate a definitive agreement with NCC. While such
negotiations were taking place, one of the other offerors revised its bid
upward, but NCC's offer, in the opinion of CIB and McDonald & Company, continued
to be superior. On July 25, 1994, NCC and CIB completed negotiations of the
Merger Agreement and of the Option Agreement, which NCC required as a condition
to entering into the Merger Agreement.
In reaching the determination that the Merger is fair to, and in the best
interests of, CIB and its shareholders, the CIB Board of Directors consulted
with CIB management, as well as its financial and legal advisors, and considered
a number of factors, including, without limitation, the following:
(a) CIB's business, operations, earnings, prospects and financial
condition;
(b) the business, operations, earnings, prospects and financial
condition of NCC as determined from the business review conducted by CIB
management, the enhanced opportunities for operating efficiencies
(particularly in terms of integration of operations and support functions)
that could result from the Merger, and the enhanced opportunities for
growth that the Merger would make possible;
(c) the opinion of McDonald & Company that as of July 25, 1994, the
Exchange Ratio was fair to CIB shareholders from a financial point of view;
(d) the bidding process conducted by CIB with the assistance of
McDonald & Company and CIB's counsel, and the bids made by other financial
institutions;
(e) the value implicit in the Exchange Ratio in relation to the then
current market value, book value and earnings of CIB, and the increased
dividend rate that CIB shareholders who become NCC stockholders are
expected to enjoy as a result of the Merger, and the fact that CIB would be
unlikely to match or exceed such value in the foreseeable future by
remaining independent;
(f) comparisons to median transaction multiples of other pending
thrift acquisitions in terms of premium to book value and earnings;
(g) the terms of the Merger Agreement and the Option Agreement;
(h) NCC's record as an institution that is consistently ranked near
the top of its peer group of regional bank holding companies in terms of
asset quality, reserve coverage, capital adequacy and profitability;
(i) the market prices at which NCC Common has been trading in recent
periods;
(j) alternatives to the Merger (including the alternatives of
remaining independent and growing internally and remaining independent for
a period of time and then selling CIB) and the competitive problems that
CIB was likely to encounter as an independent company;
(k) the apparent absence of any significant problems in obtaining
regulatory approvals for the Merger and the fact that the pro forma capital
position of the combined companies would be well in excess of all
applicable regulatory capital requirements;
(l) the expectation that the Merger will be a tax-free transaction to
CIB and will generally be a tax-free transaction to its shareholders who
receive solely NCC Common (except cash in lieu of fractional shares) (see
"MERGER -- Certain Federal Income Tax Consequences"); and
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(m) the current and prospective economic environment and competitive
constraints facing financial institutions, including CIB.
The CIB Board of Directors did not assign any specific or relative weight
to the foregoing factors in its consideration.
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
OF CIB UNANIMOUSLY RECOMMENDS THAT CIB SHAREHOLDERS VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT AND RELATED MERGER.
BACKGROUND OF AND REASONS FOR THE MERGER -- NCC
Since establishing a major presence in Indiana by acquiring Merchants
National Corporation, now known as National City Bank, Indiana, in 1992, NCC has
sought to enhance its Indiana network through internal growth and select
acquisitions. NCC was contacted by McDonald & Company in May 1994 and was
informed that CIB was considering affiliating with another financial
institution. CIB was an attractive candidate, offering an opportunity to fill in
a gap in NCC's central Indiana franchise. In May 1994, upon executing a
confidentiality agreement and receiving confidential information, NCC submitted
a non-binding indication of interest for CIB. NCC was then chosen to participate
in a business review of CIB in June 1994. Due diligence teams from NCC focused
on asset and credit quality, risk management, consolidation and centralization
opportunities, cost savings and revenue enhancement opportunities and management
issues. The due diligence review verified the confidential information which had
been provided by CIB and used by NCC as the basis for its May 1994 non-binding
indication of interest and discovered nothing that warranted NCC abandoning the
transaction. NCC also used the due diligence process to identify potential cost
savings of approximately $2 million (or 38% of CIB's non-interest expense base)
once CIB is totally integrated with National City Bank, Indiana, which
integration is anticipated to be completed in the second quarter of 1995. NCC
submitted a revised bid on July 8, 1994, subject to a definitive agreement. On
July 25, 1994, the parties executed and delivered the Merger Agreement and the
Option Agreement.
In negotiating the terms of the Merger, NCC's management reviewed a number
of factors with a view to maximizing stockholder value in the intermediate and
long term future, including earnings potential, realization of economies of
scale, and geographic diversification. In addition, NCC's Board of Directors
consulted with NCC management, as well as its legal advisors, and considered
other factors, including, without limitation, the following: (a) the business,
operations, earnings prospects and financial condition of CIB as determined from
the business review conducted by NCC management; (b) the terms of the Merger
Agreement and the Option Agreement; and (c) regulatory approval requirements.
NCC believes that the affiliation of CIB with NCC and the acquisition of
its savings bank subsidiary now owned by CIB will enhance NCC's presence in
central Indiana and expand its customer base and assets.
NCC has had substantial prior experience in effecting successful mergers
including four major bank holding company mergers (BancOhio Corporation in 1984,
First Kentucky National Corporation in 1988, Merchants National Corporation in
1992 and Ohio Bancorp in 1993), as well as thrift and other non-bank
acquisitions. At this time, NCC has completed virtually all of its own
standardization and consolidation projects and believes it can effectively
integrate and consolidate the operations of CIB into NCC within six months after
the consummation of the Merger, thereby realizing the full benefits of the
Merger within a relatively short time period. NCC's Board of Directors believes
that the Merger will result in a combined entity with increased financial
resources and greater financial strength than either NCC or CIB standing alone.
The realization of anticipated cost savings, coupled with revenue enhancements
at CIB, should make the Merger accretive to NCC's earnings per share in 1995,
assuming no unexpected delays in consummating the Merger. There can be no
assurance that such integration or consolidation of the operations of CIB and
NCC will occur in such period or at any time in the future.
It is anticipated that, simultaneously with the merger of CIB into NCC,
CIB's savings bank subsidiary, First Federal Savings Bank of Kokomo ("Kokomo"),
may merge with and into National City Bank, Indiana ("NCB"), one of NCC's bank
subsidiaries based in Indianapolis, Indiana. But as indicated above, the
integration of Kokomo's operations with those of NCB may not be completed until
a later time.
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OPINIONS OF CIB'S FINANCIAL ADVISOR
CIB has retained McDonald & Company as its financial advisor in connection
with the Merger and requested that McDonald & Company render its opinion with
respect to the fairness, from a financial point of view, of the Exchange Ratio
to the holders of CIB Common. McDonald & Company rendered its oral opinion to
the CIB Board of Directors on July 25, 1994, which it subsequently confirmed in
writing, that as of the date of such opinion, the Exchange Ratio pursuant to the
Merger was fair, from a financial point of view, to the holders of CIB Common.
McDonald & Company updated its July 25, 1994 opinion as of the date of this
Prospectus and Proxy Statement. The updated opinion is attached as Appendix B to
this Prospectus and Proxy Statement. The Merger Agreement contains as a
condition to closing the requirement that McDonald & Company also update its
opinion as of the date of the Special Meeting.
In arriving at its July 25, 1994 opinion, McDonald & Company reviewed,
among other things, the Merger Agreement together with exhibits and schedules
thereto, certain publicly available information relating to the business,
financial condition and operations of CIB and NCC as well as certain other
non-public information, primarily financial in nature, furnished to it by CIB
and NCC relating to the respective businesses, earnings, assets, financial
forecasts and prospects. McDonald & Company also held discussions with members
of senior management of CIB and NCC concerning their respective businesses,
assets, financial forecasts and prospects. McDonald & Company also reviewed
certain publicly available information concerning the trading of, and the
trading market for, CIB Common and NCC Common and certain publicly available
information concerning comparable companies and transactions, all as more fully
set forth in McDonald & Company's opinion.
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties or facilities of either CIB or NCC,
and was not engaged to and has not made, obtained or been furnished with any
independent evaluation or appraisal of any such assets, properties or facilities
or any of the liabilities of CIB or NCC. McDonald & Company has assumed and
relied, without independent investigation, upon the accuracy and completeness of
the financial and other information provided to it or publicly available, has
relied upon the representations and warranties of CIB and NCC contained in the
Merger Agreement, and has not independently attempted to verify any of such
information. McDonald & Company has also assumed that all of the conditions to
the Merger as set forth in the Merger Agreement, including the tax-free
treatment of the Merger to the shareholders of CIB Common, would be satisfied
and that the Merger would be consummated on a timely basis in the manner
contemplated by the Merger Agreement. No limitations were imposed by CIB upon
McDonald & Company with respect to the scope of its investigation nor were any
specific instructions given to McDonald & Company in connection with its
opinion.
In connection with rendering its opinion dated July 25, 1994, McDonald &
Company considered a variety of financial analyses which are summarized below.
McDonald & Company believes that its analyses must be considered as a whole and
that selecting portions of such analyses and factors may create an incomplete
view of the analytical process underlying McDonald & Company's opinion. In its
analyses, McDonald & Company made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters. Any estimates
contained in McDonald & Company's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates.
The following is a summary of selected analyses considered by McDonald &
Company in connection with McDonald & Company's opinion dated July 25, 1994:
COMPARISON WITH SELECTED COMPANIES. McDonald & Company compared the
financial performance and stock market valuation of CIB with corresponding data
for the following selected thrifts: Ameriana Bancorp, FirstFed Bancshares, FFW
Corp., Financial Security Corp., Kankakee Bancorp, Inc., Liberty Bancorp, Marion
Capital Holdings, Inc., Peoples Bancorp, Westco Bancorp, and Workingmens Capital
Holdings, Inc. In addition, McDonald & Company compared such data of NCC with
the following selected banking companies: Barnett Banks, Inc., Boatmen's
Bancshares, Inc., CoreStates Financial Corp., First Bank Systems, Inc., Fleet
Financial Group, First Union Corp., KeyCorp, Mellon Bank Corp., NBD Bancorp,
Inc., Norwest Corp., Banc One Corp., PNC Bank Corp., SunTrust Banks, Inc., U.S.
Bancorp, and Wachovia Corp. At the time, none of the companies listed above had
announced a merger transaction or disclosed a possible interest in pursuing a
possible merger transaction which would have significantly affected its stock
market valuation.
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PRO FORMA MERGER ANALYSIS. McDonald & Company analyzed the changes in the
per share amount of earnings, book value and indicated dividend represented by
one share of CIB Common after the Merger. The analysis was performed on the
basis of financial information for both companies as of and for the three months
ended March 31, 1994 and the twelve month periods ended December 31, 1993 and
1992. The analysis indicated, among other things, that exchanging one share of
CIB Common at the Exchange Ratio for shares of NCC Common on a pro forma basis
would have resulted in a 54.5% increase in earnings per share for each share of
CIB Common for the three months ended March 31, 1994, a 13.3% decrease in book
value per share for each share of CIB Common as of March 31, 1994, and a 164%
increase in dividends per share for each share of CIB Common based on CIB's and
NCC's indicated annual dividend rate as of July 25, 1994.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. McDonald & Company reviewed five
groups of selected pending thrift acquisition transactions involving (i) mergers
with transaction values between $40 million and $60 million, (ii) selling
thrifts having equity to assets ratios greater than 10%, (iii) selling thrifts
having a return on average assets greater than 1.00%, (iv) selling thrifts
having non-performing assets as a percent of total assets less than 0.75%, and
(v) selling thrifts headquartered in the Midwest region of Iowa, Illinois,
Indiana, Kansas, Kentucky, Michigan, Minnesota, Missouri, North Dakota,
Nebraska, Ohio, South Dakota, and Wisconsin. McDonald & Company reviewed the
ratios of the offer value to stated book value and tangible book value, the
multiple of the last 12 months earnings of the acquired company, and the ratio
of the offer value to assets in each such transaction and computed the mean and
median ratios and multiples for each group. The calculations yielded ranges of
median ratios of price to stated book value and tangible book value of 152% to
166%, and 152% to 171%, respectively. Median multiples of earnings among the
five groups ranged from 12.4x to 14.8x; and median ratios of offer value to
assets ranged from 14% to 19%. Based on the Exchange Ratio and the CIB
equivalent per share price as of July 22, 1994 of $28.485, the ratio of price to
stated book value and tangible book value were each 133%, the multiple of price
to the last 12 months earnings of CIB through March 31, 1994 was 17.0x and the
ratio of price to assets at March 31, 1994 was 19%.
NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSES AS A COMPARISON IS
IDENTICAL TO CIB, NCC, OR THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE RESULTS OF
THE FOREGOING NECESSARILY INVOLVES COMPLEX CONSIDERATIONS AND JUDGMENTS
CONCERNING THE DIFFERENCES IN FINANCIAL AND OPERATING CHARACTERISTICS OF THE
COMPANIES AND OTHER FACTORS THAT COULD AFFECT THE PUBLIC TRADING VALUES OR
ACQUISITION VALUES OF THE COMPANIES TO WHICH THEY ARE BEING COMPARED.
MATHEMATICAL ANALYSIS (SUCH AS DETERMINING THE MEAN OR MEDIAN) IS NOT, IN
ITSELF, A MEANINGFUL METHOD OF USING COMPARABLE COMPANY OR COMPARABLE
TRANSACTION DATA.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis,
McDonald & Company estimated the present value of the future streams of
after-tax cash flows that CIB could produce over a five year period from 1995
through 1999, under various assumptions, based upon CIB's management forecasts.
McDonald & Company estimated the terminal value of CIB after the five year
period by two methods: (i) projecting a perpetual growth rate of the terminal
year's after-tax cash flows, and (ii) applying multiples ranging from 10x to 14x
the terminal year's earnings. The cash flow streams and terminal values were
then discounted to present values using different discount rates chosen to
reflect different assumptions regarding the required rates of return of
prospective buyers of CIB. On the basis of such varying assumptions, this
discounted cash flow analysis indicated a reference range of $20.14 to $30.19
per share of CIB Common. This analysis was based upon management projections
including variations and assumptions made by McDonald & Company which included
adjustments to reflect the anticipated effects of potential merger-related cost
savings estimated by CIB, as well as the effects of the potential tax liability
for conversion of Kokomo to a commercial bank charter. Management's projections
are based upon many factors and assumptions, many of which are beyond the
control of CIB or NCC. As indicated above, this analysis is not necessarily
indicative of actual values or actual future results and does not purport to
reflect the prices at which any securities may trade at the present time or at
any time in the future.
In performing its analyses, McDonald & Company made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters. The analyses performed by McDonald & Company are not
necessarily indicative of actual values, which may be significantly more or less
favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of McDonald & Company's opinion. The term "fair from a
financial point of view" is a standard phrase contained in investment
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banker fairness opinions and refers to the fact that McDonald & Company's
opinion as to the fairness of the Exchange Ratio is addressed solely to the
financial attributes of the Exchange Ratio. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold.
In addition, as described above, McDonald & Company's opinion and presentation
to the CIB Board of Directors were one of many factors taken into consideration
by the CIB Board of Directors in making its determination to approve the Merger
Agreement. Consequently, the McDonald & Company analyses described above should
not be viewed as determinative of the CIB Board of Directors' conclusions with
respect to the value of CIB or of the decision of the CIB Board of Directors to
agree to the Exchange Ratio.
McDonald & Company's opinions are based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date of such opinion. In addition, the opinions do not address CIB's underlying
business decision to effect the Merger or any other terms of the Merger.
McDonald & Company is not rendering any opinion as to the value of CIB Common or
NCC Common at the Effective Time.
In connection with its opinion dated as of the date of this Prospectus and
Proxy Statement, McDonald & Company performed procedures to update certain of
its analyses and reviewed the assumptions on which such analyses were based and
the factors considered therewith.
McDonald & Company, as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions. CIB's Board
of Directors selected McDonald & Company as its financial advisor because of
McDonald & Company's industry expertise with respect to financial institutions
and because of its substantial experience in transactions similar to the Merger.
McDonald & Company is not affiliated with either CIB or NCC.
In the ordinary course of business, McDonald & Company makes a market in
CIB's Common and may actively trade the securities of CIB and NCC for its own
account and for the accounts of its customers. Accordingly, at any time McDonald
& Company may hold a long or short position in such securities. In addition,
McDonald & Company from time to time has provided investment banking services to
CIB and NCC and may provide such services to NCC in the future.
For its services as financial advisor, CIB has paid McDonald & Company a
retainer of $50,000 and a fee of $75,000 upon the rendering of the oral fairness
opinion. Additional fees equal to $275,000 will be payable to McDonald &
Company, with $45,000 due upon shareholder approval and $230,000 due upon
consummation of the Merger. CIB has also agreed to reimburse McDonald & Company
for its reasonable out-of-pocket expenses and to indemnify McDonald & Company,
its officers, directors and controlling persons against certain liabilities,
including certain liabilities under federal securities law.
THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY UPDATED AS OF THE DATE
OF THIS PROSPECTUS AND PROXY STATEMENT, WHICH SETS FORTH CERTAIN ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN, IS ATTACHED
AS APPENDIX B TO THIS PROSPECTUS AND PROXY STATEMENT, AND SHOULD BE READ IN ITS
ENTIRETY. THE SUMMARY OF THE OPINION OF MCDONALD & COMPANY SET FORTH IN THIS
PROSPECTUS AND PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
OPINION. MCDONALD & COMPANY'S OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF CIB
COMMON STOCK AS A RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE
SPECIAL MEETING.
TERMS OF THE MERGER
The Merger Agreement provides for the merger of CIB with and into NCC. Upon
consummation of the Merger, (a) the separate corporate existence of CIB will
cease, (b) NCC will be the surviving corporation and will continue to be
governed by the laws of Delaware, (c) the name of the surviving corporation will
continue to be National City Corporation, (d) the Certificate of Incorporation
and By-Laws of NCC in effect immediately prior to the Effective Time will become
the Certificate of Incorporation and By-Laws of NCC, (e) the directors and
officers of NCC will continue as the directors and officers of NCC, and (f) the
title to all real estate and other
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property owned by CIB will be vested in NCC, and all proceedings, rights of
creditors against and any liens upon the property of CIB will become the
obligations of NCC.
CONVERSION OF SHARES OF CIB COMMON
Conversion of Shares of CIB Common. At the Effective Time, (a) each then
outstanding share of CIB Common not owned by NCC or any direct or indirect
wholly owned subsidiary of NCC (except for any such shares of CIB Common held in
trust accounts, managed accounts or in any similar manner as trustee or in a
fiduciary capacity ("Trust Account Shares") or acquired in satisfaction of debt
previously contracted ("DPC Shares") shall not be deemed owned by NCC), other
than those shares of CIB Common held in the treasury of CIB, will be cancelled,
retired and converted into the right to receive 1.08 shares of NCC Common; (b)
each then outstanding share of CIB Common owned by NCC or any direct or indirect
wholly owned subsidiary of NCC (except for any shares that are Trust Account
Shares or DPC Shares) will be cancelled and retired; and (c) each share of CIB
Common issued and held in CIB's treasury will be cancelled and retired. If
between July 25, 1994 and the Effective Time, the shares of NCC Common are
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or if a stock
dividend thereon shall be declared with a record date within such period, the
Exchange Ratio will be adjusted accordingly.
No Fractional Shares. No certificates or scrip representing fractional
shares of NCC Common will be issued in the Merger. No dividends or distributions
of NCC will be payable on or with respect to any fractional share and any such
fractional share interest will not entitle the owner thereof to vote as to any
rights of stockholders of NCC. In lieu thereof, each holder of CIB Common who
otherwise would have been entitled to a fractional share of NCC Common will
receive cash in an amount determined by multiplying the fractional share
interest to which such holder would otherwise be entitled by the average of the
per share closing price on the NYSE of NCC Common for the 20 consecutive trading
days ending at the end of the fifth trading day immediately preceding the
Closing Date.
Manner of Exchanging CIB Certificates for NCC Certificates. NCC has
designated NCB to act as exchange agent (the "Exchange Agent") and Kokomo to act
as forwarding agent in connection with the Merger. Promptly after the Effective
Time, the Exchange Agent will mail to each holder of record of a certificate (a
"Certificate") which immediately prior to the Effective Time represented
outstanding shares of CIB Common a notice advising the holder of the
effectiveness of the Merger accompanied by a letter of transmittal. The letter
of transmittal will contain instructions with respect to the procedures to be
followed in effecting the surrender of the Certificate for exchange therefor and
will specify that delivery will be effected, and risk of loss and title to such
Certificate will pass, only upon proper delivery of the Certificate to the
Exchange Agent. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal duly executed and completed in accordance with
the instructions thereon, and such other documents as may reasonably be
requested, the Exchange Agent promptly will deliver to the person entitled
thereto a certificate(s) representing 1.08 shares of NCC Common for each share
of CIB Common so represented by the Certificate surrendered by such holder
thereof (and cash in lieu of a fractional share of NCC Common), and such
Certificate will then be cancelled. If delivery of all or part of the shares of
NCC Common is to be made to a person other than the person in whose name a
surrendered Certificate is registered, it will be a condition to such delivery
or exchange that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
delivery or exchange shall have paid any transfer and other taxes required by
reason of such delivery or exchange in a name other than that of the registered
holder of the Certificate so surrendered or shall have established to the
reasonable satisfaction of the Exchange Agent that such tax either has been paid
or is not payable.
CERTIFICATES FOR SHARES OF CIB COMMON SHOULD NOT BE FORWARDED TO THE
EXCHANGE AGENT UNTIL A CIB SHAREHOLDER HAS RECEIVED A TRANSMITTAL LETTER AND
SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY.
Right to Shares of NCC Common. Until surrendered and exchanged in
accordance with the procedures set forth in the letter of transmittal, after the
Effective Time, each Certificate shall represent solely the right to receive
1.08 shares of NCC Common, multiplied by the number of shares of CIB Common
evidenced by such Certificate, together with any dividends or other
distributions as provided in "Distribution with Respect to
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Unexchanged Certificates" below, and shall have no other rights except as
described in "Voting With Respect to Unexchanged Certificates" below. One
hundred eighty (180) days following the Effective Time, the Exchange Agent will
deliver to NCC any shares of NCC Common and funds (including any interest
received with respect thereto) which NCC has made available to the Exchange
Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to NCC (subject to abandoned
property, escheat or other similar laws) with respect to the shares of NCC
Common and cash in lieu of fractional shares deliverable or payable upon due
surrender of their Certificates. Neither the Exchange Agent, NCC, nor CIB shall
be liable to any holder of shares of CIB Common for any shares of NCC Common (or
dividends, distributions or interest with respect thereto) or cash in lieu of
fractional shares delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Distribution with Respect to Unexchanged Certificates. Whenever a dividend
or other distribution is declared by NCC on the NCC Common, the record date for
which is at or after the Effective Time, the declaration will include dividends
or other distributions on all shares issuable in the Merger, provided that no
dividends or other distributions declared or made with respect to NCC Common
with a record date that is more than 30 days after the mailing of the notice and
letter of transmittal described in "Manner of Exchanging CIB Certificates for
NCC Certificates" will be paid to the holder of any unsurrendered Certificate
with respect to the shares of NCC Common represented thereby until the holder of
such Certificate has surrendered such Certificate in accordance with the
instructions set forth in the letter of transmittal. NCC will pay any dividends
and make any other distributions with a record date prior to the Effective Time
which may have been declared or made by CIB on CIB Common in accordance with the
terms of the Merger Agreement on or prior to the Effective Time and which remain
unpaid at the Effective Time.
Voting With Respect to Unexchanged Certificates. Holders of unsurrendered
Certificates will not be entitled to vote after a date that is more than 30 days
after the mailing of the notice and letter of transmittal described in "Manner
of Exchanging CIB Certificates for NCC Certificates" at any meeting of NCC
stockholders with respect to the number of shares of NCC Common represented by
such Certificates, or exercise his other rights as a stockholder of NCC with
respect thereto, unless and until he has surrendered those Certificates in
accordance with the terms of the Merger Agreement.
Lost Certificates. Any CIB shareholder who has lost or misplaced a
Certificate for any of his or her shares of CIB Common should immediately call
Bank One, Indianapolis, NA (telephone number: (317) 321-8110) for information
regarding the procedures to be followed for replacing the lost certificate.
Until such lost or replaced Certificate is found or a replacement Certificate is
obtained, the CIB shareholder will be unable to properly submit the transmittal
letter.
ASSUMPTION OF EMPLOYEE AND DIRECTOR STOCK OPTIONS
The Merger Agreement provides that all rights under any stock option
granted by CIB pursuant to CIB's Stock Option Plan and CIB's 1993 Stock Option
Plan (collectively, the "CIB Option Plans") that remain unexercised immediately
prior to the Effective Time ("Unexercised Options") will be assumed by NCC, but
will thereafter represent the right to acquire that number of shares of NCC
Common to which the optionee would have been entitled pursuant to the Exchange
Ratio if immediately prior to the Merger the optionee had fully exercised the
option and had been a shareholder of record of CIB. The option price of each
option will be adjusted to the extent necessary to assure that the rights and
benefits of the optionee under such option shall not be increased or decreased
by reason of the Merger Agreement, and, in addition, each option which is an
incentive stock option shall be adjusted as required by Section 424 of the Code,
and the regulations promulgated thereunder, so as not to constitute a
modification, extension or renewal of the option within the meaning of Section
424(h) of the Code. On or before the Effective Time, NCC will file, and maintain
the effectiveness of, a registration statement with the Commission covering the
Unexercised Options and the sale of the NCC Common issued upon the exercise of
the Unexercised Options. At the Effective Time, all of the CIB Option Plans will
be terminated with respect to the granting of any additional options or option
rights. See pages 27 through 28 for the description of the impact of the Merger
on CIB's other employee benefit plans.
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CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations. The respective obligations of each
of NCC and CIB to effect the Merger are subject to the fulfillment or waiver of
certain conditions, including, but not limited to, the following conditions:
(a) The Articles Amendment and the Merger Agreement and the Merger
shall have been approved and adopted by the shareholders of CIB;
(b) The NCC Common issuable in the Merger shall have been authorized
for listing on the NYSE, upon official notice of issuance;
(c) All material authorizations, consents, orders or approvals of, and
all expirations of waiting periods imposed by, all or any government
agency, including, without limitation, the FRB and the OTS, which are
necessary for the consummation of the Merger, shall have been obtained or
shall have occurred and shall be in full force and effect at the Effective
Time; provided, however, that no such authorization, consent, order or
approval shall be deemed to have been received if it shall include any
conditions or requirements which would so reduce the economic or business
benefits of the transactions contemplated by the Merger Agreement so as to
render inadvisable, in the reasonable opinion of the Boards of Directors of
either NCC or CIB, the consummation of the Merger;
(d) The Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect;
(e) No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court in the United
States which prevents the consummation of the Merger shall have been issued
and remain in effect; and
(f) Barnes & Thornburg shall have delivered to CIB and NCC their
opinion substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. See "MERGER -- Certain
Federal Income Tax Consequences."
Conditions to CIB's Obligations. The obligation of CIB to effect the Merger
also is subject to the fulfillment or waiver of additional conditions,
including, but not limited to, the following conditions:
(a) NCC shall have performed in all material respects its covenants
contained in the Merger Agreement to be performed by it at or prior to the
Effective Time;
(b) The representations and warranties of NCC contained in the Merger
Agreement shall be true in all material respects as of the Effective Time
as if made at and as of the Effective Time, except as expressly
contemplated or permitted by the Merger Agreement and except for
representations and warranties relating to a time or times other than the
Effective Time which were or will be true in all material respects at such
time or times;
(c) CIB shall have received all officers' certificates of NCC required
by the Merger Agreement; and
(d) CIB shall have received an opinion from McDonald & Company dated
as of the date of the Special Meeting stating that the Exchange Ratio is
fair to CIB's shareholders from a financial point of view.
Conditions to NCC's Obligations. The obligation of NCC to effect the Merger
also is subject to the fulfillment or waiver of additional conditions,
including, but not limited to, the following conditions:
(a) CIB shall have performed in all material respects its covenants
contained in the Merger Agreement to be performed by it at or prior to the
Effective Time;
(b) The representations and warranties of CIB contained in the Merger
Agreement shall be true in all material respects as of the Effective Time
as if made at and as of the Effective Time, except as expressly
contemplated or permitted by the Merger Agreement and except for
representations and warranties relating
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to a time or times other than the Effective Time which were or will be true
in all material respects at such time or times; and
(c) NCC shall have received all officers' certificates of CIB required
by the Merger Agreement.
REGULATORY APPROVALS
The Merger is subject to approval by the FRB under the BHCA. The BHCA
prohibits the FRB from approving the Merger if (a) it would result in a
monopoly; (b) it would be in furtherance of any combination or conspiracy to
monopolize the business of banking in any part of the United States; (c) its
effect in any section of the country may be substantially to lessen competition
or to tend to create a monopoly; or (d) it would be in any other manner in
restraint of trade, unless the FRB finds that any anticompetitive effects of the
Merger are clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the communities to be
served. The Merger may not be consummated until the 30th day after approval by
the FRB, during which time the Merger may be challenged on antitrust grounds by
the Department of Justice.
In addition, the BHCA requires that the FRB take into consideration, among
other facts, the financial and managerial resources and future prospects of the
institutions and the convenience and needs of the communities to be served. The
FRB has the authority to deny an application if it concludes that the combined
organization would have an inadequate capital position or if the acquiring
organization does not meet the requirements of the Community Reinvestment Act of
1977.
NCC (with the assistance of CIB) filed an application for the FRB approval
of the Merger, and the Merger was approved by the FRB on October 20, 1994.
NCC and CIB are not aware of any other governmental approvals or actions
that are required for consummation of the Merger, except as described above.
Should any such approval or action be required, it is presently contemplated
that such approval or action would be sought. There can be no assurance that any
such approval or action, if needed, could be obtained and would not be
conditioned in a manner that would cause NCC to abandon the Merger.
WAIVER; AMENDMENT; TERMINATION
Waiver. Any party to the Merger Agreement may, by written notice to the
other parties thereto, (a) extend the time for the performance of any of the
obligations or other actions of the other party under the Merger Agreement; (b)
waive any inaccuracies in the representations or warranties of the other parties
contained in the Merger Agreement or in any document delivered pursuant to the
Merger Agreement; (c) waive compliance with any of the conditions or covenants
of the other party contained in the Merger Agreement; or (d) waive or modify
performance of any of the obligations of the other party under the Merger
Agreement. Notwithstanding these provisions, the Merger cannot be consummated
unless the shareholders of CIB approve the Articles Amendment, the Merger
Agreement, and the Merger by the requisite affirmative votes. See "MERGER --
Regulatory Approvals" and "THE ANNUAL MEETING -- Record Date and Voting Rights."
Amendment. Subject to the applicable provisions of the DGCL and the IBCL,
the Merger Agreement may be amended or supplemented upon the written agreement
of NCC and CIB at any time, provided that an amendment may not be made after any
shareholder approval of the Merger Agreement which reduces or changes the form
of the Merger consideration without further shareholder approval.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after the approval by shareholders of CIB
of the Merger Agreement, under the following circumstances:
(a) by the mutual consent of the Board of Directors of NCC and the
Board of Directors of CIB;
(b) by the Board of Directors of either NCC or CIB if the Merger shall
not have been consummated on or before June 30, 1995 or if the Merger
Agreement is not approved by the CIB shareholders at CIB's Special Meeting
(provided the terminating party is not otherwise in material breach of its
obligations under the Merger Agreement);
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(c) by the Board of Directors of CIB if any of the conditions to CIB's
obligation to consummate the Merger have not been met or waived by CIB at
such time as such conditions can no longer be satisfied. See "MERGER --
Conditions to the Merger -- Conditions to Each Party's Obligations" and
"Conditions to CIB's Obligations";
(d) by the Board of Directors of NCC if any of the conditions to NCC's
obligation to consummate the Merger have not been met or waived by NCC at
such time as such conditions can no longer be satisfied. See "MERGER --
Conditions to the Merger -- Conditions to Each Party's Obligations" and
"Conditions to NCC's Obligations"; and
(e) by CIB if both of the following conditions are met:
(i) the Market Price of NCC Common is less than $24.50; and
(ii) the number obtained by dividing the Market Price of NCC Common
by $26.375 (the closing price of NCC Common on the NYSE on July 22,
1994, the trading day immediately preceding the public announcement of
the Agreement) is less than the number obtained by dividing the Final
Index Price (as defined below) by the Initial Index Price (as defined
below) and subtracting 0.10 from the quotient. For purposes of the
Agreement:
(A) the term "KBW 49" means the 50 bank holding companies listed
in the Keefe Bruyette & Woods, Inc. KBW 50 Total Return Index
excluding NCC. In the event that the companies comprising the KBW 49
are changed, the weights attributed to the resulting companies shall
be adjusted proportionately for purposes of determining both the
Initial Index Price and Final Index Price.
(B) the term "Initial Index Price" means the
market-capitalization-weighted average of the closing prices on July
22, 1994 of the common stock of the companies comprising the KBW 49;
(C) the term "Final Price" of any company belonging to the KBW
49 means the average of the daily closing sale prices of a share of
the common stock of such company, reported in the consolidated
transaction reporting system for the market or exchange on which such
common stock is principally traded, during the period of 20
consecutive trading days ending at the end of the fifth trading day
immediately preceding the Closing Date; and
(D) the term "Final Index Price" means the
market-capitalized-weighted average of the Final Prices for all of
the companies comprising the KBW 49.
The Agreement provides that if NCC or any company belonging to the Index
Group declares a stock dividend or effects a reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction between July 25, 1994 and the fifth trading date prior to the
Closing Date, the closing prices for the common stock of such company will
be appropriately adjusted for purposes of the foregoing definitions so as
to be comparable to the price on July 25, 1994.
Expenses. (a) If the Merger is consummated, it is estimated that the costs
and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be $1.0 million in the aggregate.
(b) In the event the Merger Agreement is terminated by NCC or CIB because
of the willful breach by the other party of any representation, warranty,
covenant, undertaking or restriction contained in the Agreement, and if the
terminating party is not in material breach of any representation, warranty,
covenant, undertaking or restriction contained in the Merger Agreement, then the
breaching party shall pay all costs and expenses of the terminating party;
provided, however, that if the Merger Agreement is terminated under
circumstances other than the ones described above in this paragraph, all costs
and expenses incurred in connection with the Merger Agreement, and the
transactions contemplated thereby will be paid by the party incurring such costs
and expenses. If termination is due to a willful breach, the payment of expenses
pursuant to the Merger Agreement shall not constitute the non-breaching party's
sole legal remedy. Final settlement with respect to payment of fees and expenses
by the parties shall be made within 30 days of the termination of the Merger
Agreement.
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Assignment. Without the prior written consent of the other parties to the
Agreement, neither NCC nor CIB may assign any of its rights or delegate any of
its obligations under the Agreement.
EFFECTIVE TIME
As soon as practicable after satisfaction or waiver of all conditions to
the Merger under the Merger Agreement, NCC and CIB shall cause a certificate of
merger complying with the requirements of the DGCL (the "Certificate of Merger")
to be filed with the Secretary of State of the State of Delaware and articles of
merger complying with the requirements of the IBCL (the "Articles of Merger") to
be filed with the Secretary of State of the State of Indiana, respectively. The
Merger will become effective at the later of (a) the times at which such filings
are made with the Secretaries of State of the States of Delaware and Indiana
(the "Effective Time") or (b) such later dates as are specified in such filings.
NCC and CIB currently anticipate that the Merger will be completed late in the
fourth calendar quarter of 1994 or early in the first calendar quarter of 1995.
Delays in the completion of the Merger could occur, however, as a result of
delays in obtaining the necessary regulatory approvals. See "MERGER --
Regulatory Approvals." In the event the Merger is not consummated on or before
June 30, 1995, either NCC or CIB may terminate the Merger Agreement. See "MERGER
- -- Waiver; Amendments; Termination -- Termination."
CONDUCT OF CIB'S BUSINESS PENDING THE MERGER
General. The Merger Agreement requires that from July 25, 1994 to the
Effective Time, CIB and its subsidiaries conduct their respective business only
in, and not take any action except in, the ordinary course of business
consistent with past practice. CIB has covenanted to use reasonable efforts to
preserve intact the business organization of CIB and each of its subsidiaries,
to keep available the services of its and their present key officers and
employees and to preserve the goodwill of those having business relationships
with CIB or its subsidiaries. In addition, the Merger Agreement restricts CIB
and its subsidiaries from engaging in certain transactions during the interim
period from July 25, 1994 to the Effective Time, unless approved in writing by
NCC, including, among other things, (a) incurring any indebtedness for borrowed
money (other than in the ordinary course of business consistent with past
practice or short term indebtedness incurred to refinance short term
indebtedness and indebtedness of CIB or any of its subsidiaries), assuming,
guaranteeing, endorsing or otherwise as an accommodation becoming responsible
for the obligations of any other person or entity, or making any loan or
advance, other than in the ordinary course of business consistent with past
practice; (b) making any change or amendment to their respective articles of
incorporation or by-laws (or comparable governing instruments); (c) issuing or
selling any shares of capital stock or any other securities (other than pursuant
to the exercise of stock options outstanding as of July 25, 1994 issued under
the CIB Option Plans) or issuing any securities convertible into or exchangeable
for, or options, warrants to purchase, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or entering into any
contract, understanding or arrangement with respect to the issuance of, any
shares of capital stock or any other securities of any of the foregoing or
entering into any arrangement or contract with respect to the purchase or voting
of shares of their capital stock, or adjusting, splitting, combining or
reclassifying any of their capital stock or other securities or making any other
changes in their capital structures; (d) granting any additional options under
any CIB Option Plans; (e) declaring, setting aside, paying or making any
dividend or other distribution or payment (whether in cash, stock or property)
with respect to, or purchasing or redeeming, any shares of their capital stock,
other than (i) regular quarterly cash dividends on CIB Common in an amount not
to exceed $0.1275 per share of CIB Common for the quarter ending September 30,
1994, not to exceed $0.1325 per share of CIB Common for the quarter ending
December 31, 1994 and not to exceed $0.1375 per share of CIB Common for the
quarter March 31, 1995 or later (the parties agreeing that they will cooperate
so that there will not be any duplication or omission of a dividend payment to
CIB shareholders during any quarter) and (ii) dividends paid by any CIB
subsidiary to another CIB subsidiary or CIB with respect to its capital stock
between July 25, 1994 and the Effective Time; (f) adopting or amending (except
as required by law or amending existing employment contracts to provide for a
June 30, 1997 termination date) any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment, welfare benefit or other employee benefit agreements,
trusts, plans, funds or other arrangements for the benefit or welfare of any
director, officer or employee, or (except for normal merit increases in the
ordinary course of business consistent with past practice) increasing the
compensation or fringe benefits of any director, officer or employee or paying
any benefit not
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required by any existing plan or arrangement (including, without limitation, the
granting of stock options or stock appreciation rights) or taking any action or
granting any benefit not required under the terms of any existing agreements,
trusts, plans, funds or other such arrangements or entering into any contract,
agreement, commitment or arrangement to do any of the foregoing.
Certain Policies. The Merger Agreement requires CIB to use its best efforts
to modify and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and level of reserves) prior to the
Effective Time so as to be consistent on a mutually satisfactory basis with
those of NCC and generally accepted accounting principles; provided, however,
that CIB shall not be required to modify or change any such policies or
practices until (a) such time as NCC acknowledges that all conditions to its
obligation to consummate the Merger have been waived or satisfied and (b)
immediately prior to the Effective Time. CIB's representations, warranties or
covenants contained in the Merger Agreement shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any such
modifications or changes. CIB does not currently anticipate that such changes or
modifications, assuming the Merger is consummated during the fourth calendar
quarter of 1994, will in the aggregate result in any material change in the
valuation of CIB's assets.
Acquisition Proposals. The Merger Agreement provides that each of CIB and
its subsidiaries shall not, and shall instruct and otherwise use its best
efforts to cause their respective officers, directors, employees, agents or
advisors or other representatives or consultants not to, directly or indirectly,
(a) solicit or initiate any proposals or offers from any other person or entity
relating to any acquisition or purchase of all or a material amount of the
assets of, or any securities of, or any merger, consolidation or business
combination with, CIB or any of its subsidiaries (each such transaction an
"Acquisition Event") or (b) except to the extent that the Board of Directors of
CIB is required in the exercise of its fiduciary duties in accordance with
applicable law (based on the written advice of its legal counsel), participate
in any discussions or negotiations regarding, or furnish to any other person or
entity any information with respect to, an Acquisition Event. CIB has agreed to
cease any existing activities, discussions or negotiations with any other
parties conducted prior to the execution of the Merger Agreement with respect to
any Acquisition Event. CIB has agreed to notify NCC immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, CIB.
INTEREST OF MANAGEMENT IN THE MERGER
EMPLOYEE MATTERS
The Agreement provides that upon consummation of the Merger, NCC shall
honor, on and after the Effective Time, without deduction, counterclaims,
interruptions or deferment (other than withholding under applicable law), all
vested benefits of any person under all of CIB's employee plans or agreements.
Moreover, former CIB and Kokomo employees will be provided direct compensation
and fringe benefits, including NCC's "Flex" program and 401(k) Savings and
Investment Plan, on terms no less favorable than those benefits provided to
other employees of National City Bank, Indiana ("NCB").
NCC will assume, and NCB will guarantee, the existing employment agreements
between Kokomo and Robert J. Heltzel, Donald L. McCauley, Timothy A. Renie and
James E. Fritz, four of CIB's executive officers. Those employment agreements
will be amended prior to the Effective Date to provide for termination dates of
June 30, 1997, and will not be renewed thereafter.
Under the employment agreements, the employee receives an initial salary
equal to his current salary, subject to increases approved by CIB's Board of
Directors. The employee may terminate his employment upon sixty days' written
notice to his employer. The employer may discharge the employee for "cause" (as
defined in the contract) at any time or in certain events specified by OTS
regulations. If the employer terminates the employee's employment for other than
"cause" or if the employee terminates his own employment for "cause" (as defined
in the contract), the employee will receive his base compensation under the
contract (a) for an additional three years if the termination follows a change
of control, or (b) for the remaining term of the contract if the termination
does not follow a change of control. Moreover, within a period of three months
after such termination following a change of control, the employee will have the
right to cause his employer to purchase any stock options he holds for a price
equal to the fair market value (as defined in the contract) of the shares
subject
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to such options minus their option price. The term "change of control" does not
include an acquisition approved in advance by CIB's Board of Directors.
Upon the Effective Time, NCB will assume, and NCC will guarantee, all
obligations of CIB and Kokomo to former officers, directors and employees of
First Federal Savings and Loan Association of Peru ("Peru"), and their spouses,
set forth in the Merger Agreement dated September 8, 1993, among CIB, Kokomo and
Peru (the "Peru Merger Agreement") concerning, among other things, the creation
and continuation of an advisory board of directors comprised of former Peru
directors until the death of such persons, the provision of group medical
insurance to former Peru advisory directors, directors, employees and retirees
and their spouses, and the provision of life insurance to former directors,
officers and employees of Peru for such periods and in such amounts and subject
to such terms as are provided for in the Peru Merger Agreement, as though NCB
were a party thereto.
Upon consummation of the merger of Kokomo into NCB, each of CIB's current
directors will become an advisory director of NCB's Logansport, Kokomo and Peru
branch operations and will continue to serve as such, subject to physical and
mental fitness, as long as he is willing to do so until reaching age 70. As
advisory directors, they shall be paid the same fees they are currently earning
as directors of CIB, subject to inflationary or merit increases made at NCB's
discretion. Fred McClung, an advisory director of Kokomo, will also become an
advisory director of NCB and shall serve as such until December 31, 1995,
receiving 90% of the advisory director fees paid to CIB's directors following
the merger of Kokomo into NCB.
Kokomo's Financial Institutions Retirement Fund will be frozen following
the Effective Time and all employees of CIB and Kokomo will be eligible to
participate in NCC's retirement plan after such freezing, receiving credit for
past service for vesting and eligibility purposes under that NCC plan. Kokomo's
Financial Institutions Thrift Plan will also be frozen sometime after the
Effective Time. Participants will be given the opportunity to roll their fully
vested accounts under Kokomo's Financial Institutions Thrift Fund into NCC's
401(k) Savings and Investment Plan or to continue to participate in the frozen
thrift plan. Past service credit for vesting and eligibility will be provided to
former CIB and Kokomo employees under NCC's 401(k) Savings and Investment Plan.
The 12 employees of Kokomo who have attained age 55 and have at least 15
years of services with CIB or Kokomo (including two executive officers of CIB)
will be provided a cash payment equal to the actuarial equivalent present value
of the increased benefits such employees would have received under Kokomo's
Financial Institutions Retirement Fund had it remained in effect for three years
following the Effective Time (taking into account any cost of living payments
which would have accrued with respect to the increased payments provided in
Kokomo's Financial Institutions Retirement Fund) reduced by the actuarial
equivalent present value of the projected benefit to be received by such
employees for participation in the NCC retirement plan during such 3-year
period.
CIB's Employee Stock Purchase Plan will be terminated at the Effective Time
or shortly thereafter, and benefits paid out in accordance with the terms of
that plan.
Any employees of CIB or Kokomo not retained by NCC or its subsidiaries
following the Merger will be entitled to severance pay pursuant to NCC severance
pay programs.
NCC's group insurance program will be provided to former CIB and Kokomo
employees and to present and specified future retirees to the extent such
retirees were entitled to such insurance under arrangements of CIB or Kokomo in
effect at the time the Merger Agreement was executed.
Deferred directors' fees held in accounts of Kokomo for former CIB director
Fred McClung and current CIB director, Stephen A. Kiley, will be held in similar
accounts by NCB following the Effective Time, will continue to accrue interest
as provided in CIB's Unfunded Deferred Compensation Plan and will be paid out in
accordance with the terms of such Plan (although in Mr. Kiley's case, those fees
will become payable when he ceases to be an advisory director of NCB).
For the treatment of CIB stock options in the Merger, see
"MERGER -- Assumption of Employee and Director Stock Options."
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INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that, from and after the Effective Time, NCC
will assume and honor any obligation of CIB immediately prior to the Effective
Time with respect to the indemnification of each person who was on July 25,
1994, or has been at any time prior to July 25, 1994, or who becomes prior to
the Effective Time, a director or officer of CIB or any of its subsidiaries or
was serving at the request of CIB as a director, officer of any domestic or
foreign corporation, joint venture, trust, employee benefit plan or other
enterprise (collectively, the "Indemnitees") arising out of CIB's Articles or
CIB's By-Laws or any indemnification (to the maximum extent available
thereunder) against any and all losses in connection with or arising out of any
claim which is based upon, arises out of or in any way relates to any actual or
alleged act or omission occurring at or prior to the Effective Time in the
Indemnitee's capacity as a director or officer (whether elected or appointed) of
CIB or any of its subsidiaries. The Merger Agreement further provides that, for
a period of two years after the Effective Time, NCC will provide to the officers
and directors of CIB directors and officers insurance coverage (up to
$20,000,000) with respect to claims not known by CIB prior to the Effective Date
but which arise from factors or events which occur before the Effective Time.
Following the Effective Time, NCB will provide CIB and CIB Subsidiary employees
who become officers of NCB with the same directors and officers liability
coverage and indemnification that NCB provides to other NCB officers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Pursuant to the terms of the Merger Agreement, NCC and CIB have received
the opinion of Barnes & Thornburg to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion or contained in this
Prospectus and Proxy Statement or certificates of officers of CIB and NCC
(including, among others, representations that (a) to the best knowledge of CIB,
there is no agreement or plan on the part of the shareholders of CIB to dispose
of any shares of NCC Common received in the Merger, (b) there is no agreement or
plan for NCC to reacquire any of the NCC Common issued pursuant to the Merger,
and (c) there is no agreement or plan on the part of NCC's management to dispose
of any significant assets of CIB after the Merger other than the contemplated
merger of Kokomo into NCB, the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
and that, accordingly, for United States federal income tax purposes:
(i) no gain or loss will be recognized by NCC or CIB as a result of
the Merger;
(ii) no gain or loss will be recognized by shareholders of CIB who
exchange their shares of CIB Common solely for shares of NCC Common
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in NCC Common);
(iii) the tax basis of shares of NCC Common received by shareholders
of CIB who exchange all of their shares of CIB Common solely for shares of
NCC Common in the Merger will be the same as the tax basis of the shares of
CIB Common surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received); and
(iv) the holding period of the shares of NCC Common received in the
Merger will include the period during which the shares of CIB Common
surrendered in exchange therefor were held, provided such shares of CIB
Common were held as capital assets at the Effective Time.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT
LAW. SUCH DISCUSSION MAY NOT BE APPLICABLE TO A CIB SHAREHOLDER WHO ACQUIRED
SHARES OF CIB COMMON PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR
OTHERWISE AS COMPENSATION. EACH CIB SHAREHOLDER IS URGED TO CONSULT HIS OR HER
OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
SHAREHOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
OTHER TAX LAWS AND ANY PROPOSED CHANGES IN SUCH TAX LAWS.
29
<PAGE> 34
ACCOUNTING TREATMENT
The Merger, if completed as proposed, will be treated as a purchase for
accounting and financial reporting purposes. Under the purchase method of
accounting, all identifiable tangible and intangible assets and liabilities of
CIB will be recorded by NCC at their respective fair values at the Effective
Time of the Merger as determined solely by NCC from its perspective as the
purchaser of those assets. The expected excess of the consideration paid by NCC
at the Effective Time over the fair value of CIB's tangible and intangible
assets as adjusted by NCC less the liabilities will be accounted for as
goodwill, and will be amortized over 20 years. See "PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION."
RESALES BY AFFILIATES
The shares of NCC Common issued to CIB shareholders pursuant to the Merger
Agreement will have been registered under the Securities Act of 1933, as amended
(the "1933 Act"), but such registration does not cover resales by shareholders
of CIB who may be deemed to be "affiliates" of CIB, as that term is used in
paragraphs (c) and (d) of Rule 145 promulgated under the 1933 Act.
APPRAISAL AND DISSENTERS' RIGHTS
NCC. Because NCC Common is listed on the NYSE and is held of record by
more than 2,000 stockholders, and because no vote of the holders of NCC Common
is required for approval of the Merger, stockholders of NCC are not entitled to
appraisal or dissenters' rights under the DGCL in connection with the Merger.
CIB. Section 23-1-44-8(b) of the IBCL provides that no dissenters' rights
under the IBCL shall be available for the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which a merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares of
that class or series were registered on a United States securities exchange
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or traded on NASDAQ or a similar market. Because CIB Common is traded on
NASDAQ, shareholders of CIB are not entitled to appraisal or dissenters' rights
in connection with the Merger.
THE OPTION
As a condition to NCC's entering into the Merger Agreement, and in
consideration therefor, CIB entered into the Option Agreement, pursuant to which
CIB granted NCC the Option on July 25, 1994. The Option Agreement is intended to
increase the likelihood that the Merger will be consummated by making it more
difficult and more expensive for another party to obtain control of or acquire
CIB.
Grant of Option. The Option entitles NCC to purchase up to 326,000 fully
paid and non-assessable shares of CIB Common, representing 19.9% of the shares
of CIB Common issued and outstanding as of July 25, 1994 without giving effect
to any shares subject or issued pursuant to the Option, at a price of $28.75 per
share; provided, however, that in the event CIB issues or agrees to issue any
shares of CIB Common (other than as permitted pursuant to the CIB Option Plans
as provided under the Agreement) at a price less than $28.75 per share (as
adjusted as described below), such price shall be equal to such lesser price
(such price, as adjusted if applicable, the "Option Price"); provided further,
that in no event may the number of shares for which the Option is exercisable at
any time exceed 19.9% of the issued and outstanding shares of CIB Common without
giving effect to any shares subject or issued pursuant to the Option. The
aggregate purchase price for the shares of CIB Common that may be purchased upon
the exercise of the Option at the original Option Price is $9,372,500.
Triggering Events; Exercise of Option. The Option Agreement provides that
NCC may exercise the Option, in whole or in part, if both an Initial Triggering
Event (as defined below) and a Subsequent Triggering Event (as defined below)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
defined below), provided that NCC shall have sent to CIB written notice of such
exercise within 30 days following such Subsequent Triggering Event (or such
later date as is necessary to obtain all regulatory approvals for the exercise
30
<PAGE> 35
of the Option and for the expiration of all statutory waiting periods, and to
avoid liability under Section 16(b) of the Exchange Act by reason of such
exercise).
For purposes of the Option Agreement:
(a) The term "Initial Triggering Event" means any of the following events
or transactions occurring after July 25, 1994:
(i) CIB, or any of its subsidiaries, without having received NCC's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term
"person" for purposes of the Option Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Exchange Act and the rules
and regulations promulgated thereunder), or the Board of Directors of CIB
shall have recommended that the shareholders of CIB approve or accept any
Acquisition Transaction other than the Merger. For purposes of the Option
Agreement, the term "Acquisition Transaction" means (A) a merger or
consolidation, or any similar transaction, involving CIB or its thrift
subsidiary (the "Significant Subsidiary"), (B) a purchase, lease or other
acquisition of all or substantially all of the assets of CIB or the
Significant Subsidiary, or (C) a purchase or other acquisition (including
by way of merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of CIB or the Significant
Subsidiary; provided, however, the term "Acquisition Transaction"
specifically does not include any merger or consolidation among CIB and/or
its subsidiaries;
(ii) The Board of Directors of CIB does not recommend that the
shareholders of CIB approve the Articles Amendment or the Merger Agreement;
(iii) Any person other than NCC, any stockholder of NCC who, at July
25, 1994, beneficially held 10% or more of the outstanding shares of NCC
Common, any subsidiary of NCC or any subsidiary of CIB acting in a
fiduciary capacity shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares of
CIB Common (the term "beneficial ownership" for purposes of the Option
Agreement having the meaning assigned thereto in Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder);
(iv) Any person other than NCC or any subsidiary of NCC shall have
made a bona fide proposal to CIB or its shareholders by public announcement
or written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to CIB or its
shareholders to engage in an Acquisition Transaction, CIB shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (A) would entitle NCC to terminate the Merger Agreement and (B)
shall not have been cured prior to the date of the notice of the exercise
of the Option; or
(vi) Any person other than NCC or any subsidiary of NCC, other than in
connection with a transaction to which NCC has given its prior written
consent, shall have filed an application with the FRB or other governmental
agency for approval to engage in an Acquisition Transaction.
(b) The term "Subsequent Triggering Event" means either of the following
events or transactions occurring after July 25, 1994:
(i) The acquisition by any person of beneficial ownership of 15% or
more of the then outstanding shares of CIB Common other than by any person
who, at July 25, 1994, beneficially owned more than 15% of the outstanding
shares of CIB Common; or
(ii) The occurrence of the Initial Triggering Event described above in
clause (a)(i), except that the percentage referred to in subclause
(a)(i)(C) shall be 15%.
(c) Each of the following events constitutes an "Exercise Termination
Event":
(i) immediately prior to the Effective Time;
(ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event; or
31
<PAGE> 36
(iii) the passage of nine months after termination of the Merger
Agreement if such termination follows the occurrence of an Initial
Triggering Event; provided, that if an Initial Triggering Event continues
or another Initial Triggering Event occurs beyond such termination, the
Exercise Termination Event shall be nine months from the expiration of the
Last Triggering Event but in no event more than 18 months after such
termination. For purposes of the Option Agreement, the term "Last
Triggering Event" means the last Initial Triggering Event to occur.
As of the date hereof, no Initial Triggering Event or Subsequent Triggering
Event has occurred.
The Merger Agreement may be terminated at any time prior to the Effective
Time by either NCC or CIB if the Merger is not approved at the Special Meeting
of Shareholders of CIB (provided that the terminating party is not otherwise in
material breach of its obligations under the Agreement). Accordingly, if no
Initial Triggering Event has occurred, in the event that the CIB shareholders do
not approve the Merger Agreement at the Special Meeting, and either NCC or CIB
terminates the Merger Agreement as a result thereof, the Option shall terminate.
In the event of any change in CIB Common by reason of a stock dividend,
split-up, merger, recapitalization, combination, subdivision, conversion,
exchange of shares or similar transaction, the type and number of shares of CIB
Common subject to the Option and the purchase price therefor will be adjusted
appropriately.
Whenever the number of shares of CIB Common purchasable upon exercise of
the Option is adjusted as provided in the preceding paragraph, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of CIB Common purchasable prior
to the adjustment and the denominator of which shall be equal to the number of
shares of CIB Common purchasable after the adjustment.
Repurchase of Option. Upon the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Event, at the request of NCC,
delivered within 30 days of the Subsequent Triggering Event (or such later date
as is necessary to obtain all regulatory approvals and for the expiration of all
statutory waiting periods, and to avoid liability under Section 16(b) of the
Exchange Act), CIB (a) shall repurchase the Option from NCC at a price (the
"Option Repurchase Price") equal to (i) the amount by which (A) the market/offer
price (as defined below) exceeds (B) the Option Price, multiplied by the number
of shares for which the Option may then be exercised, plus (ii) NCC's
Out-of-Pocket Expenses (as defined below) (to the extent not previously
reimbursed) and (b) shall repurchase such number of shares of CIB Common issued
upon total or partial exercise of the Option (the "Option Shares") from NCC as
NCC shall designate at a price (the "Option Share Repurchase Price") equal to
(i) the market/offer price multiplied by the number of Option Shares so
designated plus (ii) NCC's Out-of-Pocket Expenses (to the extent not previously
reimbursed).
For purposes of the Option Agreement:
(a) The term "Out-of-Pocket Expenses" means NCC's reasonable out-of-pocket
expenses incurred in connection with the transactions contemplated by the Merger
Agreement, including, without limitation, legal, accounting and investment
banking fees.
(b) The term "market/offer price" means the highest of
(i) the price per share of CIB Common at which a tender offer or
exchange offer therefor has been made after July 25, 1994;
(ii) the price per share of CIB Common to be paid by any third party
pursuant to an agreement with CIB;
(iii) the highest closing price for shares of CIB Common within the
30-day period immediately preceding the date NCC gives notice of the
required repurchase of the Option or the Option Shares, as the case may be;
or
(iv) in the event of a sale of all or substantially all of CIB's
assets, the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of CIB as determined by a
nationally recognized investment banking firm selected by NCC, divided by
the number of shares of CIB Common outstanding at the time of such sale. In
determining the market/offer price, the value of
32
<PAGE> 37
consideration other than cash will be determined by a nationally recognized
investment banking firm selected by NCC, whose determination will be
conclusive and binding on all parties.
Substitute Option. The Option Agreement provides that in the event that
prior to an Exercise Termination Event, CIB enters into an agreement (a) to
consolidate or merge with any person, other than NCC or one of its subsidiaries,
and CIB is not the continuing or surviving corporation of such consolidation or
merger, (b) to permit any person, other than NCC or one of its subsidiaries, to
merge into CIB and CIB is the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of CIB Common are
changed into or exchanged for stock or other securities of any other person or
cash or any other property or the then outstanding shares of CIB Common after
such merger represent less than 50% of the outstanding shares and share
equivalents of the merged company, or (c) to sell or otherwise transfer all or
substantially all of its assets to any person, other than NCC or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction must make proper provision so that the Option shall, upon the
consummation of any such transaction, be converted into, or exchanged for, an
option (the "Substitute Option"), at the election of NCC, of either (i) the
Acquiring Corporation (as defined below) or (ii) any person that controls the
Acquiring Corporation. For purposes of the Option Agreement, the term "Acquiring
Corporation" means (A) the continuing or surviving corporation of a
consolidation or merger with CIB (if other than CIB), (B) CIB in a merger in
which CIB is the continuing or surviving corporation, and (C) the transferee of
all or substantially all of CIB's assets.
The Substitute Option shall have the same terms as the Option; provided,
however, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to NCC. The Option Agreement provides that CIB may not
enter into any transaction described above triggering a Substitute Option unless
the Acquiring Corporation and any person that controls the Acquiring Corporation
assumes in writing all the obligations of CIB under the Option Agreement. The
Option Agreement further provides that the issuer of the Substitute Option shall
enter into an agreement with NCC in substantially the same form as the Option
Agreement, which agreement shall be applicable to the Substitute Option and
shall provide for the repurchase of the Substitute Option and any shares of the
issuer issued pursuant thereto on terms similar to the repurchase of the Option
and the Option Shares.
The Substitute Option will be exercisable for such number of shares of
common stock of the issuer of the Substitute Option ("Substitute Common Stock")
as is equal to the market/offer price multiplied by the number of shares of CIB
Common for which the Option is then exercisable, divided by the Average Price.
For purposes of the Option Agreement, the term "Average Price" means the average
closing price of a share of Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no event higher
than the closing price of a share of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided, however, that if CIB is
the issuer of the Substitute Option, the Average Price will be computed with
respect to a share of common stock issued by the person merging into CIB or by
any company which controls or is controlled by such person, as NCC may elect.
The exercise price of the Substitute Option per share of Substitute Common Stock
will then be equal to the Option Price multiplied by a fraction, the numerator
of which will be the number of shares of CIB Common for which the Option is then
exercisable and the denominator of which will be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
The Option Agreement provides that the Substitute Option may not be
exercisable for more than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise of the Substitute Option. In the event that the
Substitute Option would be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise, the issuer of the
Substitute Option will be required to make a cash payment to NCC equal to the
excess of (a) the value of the Substitute Option without giving effect to the
foregoing limitation over (b) the value of the Substitute Option after giving
effect to the foregoing limitation. Such difference in value will be determined
by a nationally recognized investment banking firm selected by NCC.
Registration Rights. Within 30 days after the occurrence of a Subsequent
Triggering Event (or such later date as is necessary to obtain all regulatory
approvals and for the expiration of all statutory waiting periods, and to avoid
liability under Section 16(b) of the Exchange Act), NCC may request CIB to
prepare and file a registration statement with the Commission if such
registration is necessary to permit the sale or other disposition of the shares
of CIB Common purchased upon exercise of the Option. CIB is required to use its
best efforts to
33
<PAGE> 38
cause such registration statement to become effective and then to remain
effective for 180 days or such shorter time as may be reasonably necessary to
effect such sales or dispositions. NCC has the right to demand two such
registrations. CIB also will permit NCC to include the sale of some or all
shares of CIB Common purchased upon exercise of the Option in certain
registration statements initiated by CIB.
Assignment of Option. Neither NCC nor CIB may assign any of its rights or
obligations under the Option Agreement or the Option to any other person without
the express written consent of the other party, except that in the event a
Subsequent Triggering Event occurs prior to an Exercise Termination Event, NCC
may assign, in whole or in part, its rights and obligations under the Option
Agreement or the Option within 30 days following such Subsequent Triggering
Event (or such later date as is necessary to obtain all regulatory approvals and
for the expiration of all statutory waiting periods, and to avoid liability
under Section 16(b) of the Exchange Act); provided, however, that until the date
30 days following the date at which the FRB approves an application by NCC under
the BHCA to acquire the shares of CIB Common subject to the Option, NCC may not
assign its rights under the Option except in (a) a widely dispersed public
distribution, (b) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of CIB, (c) an assignment to a
single party (e.g., a broker or investment banker) for the purpose of conducting
a widely dispersed public distribution on NCC's behalf, or (d) any other manner
approved by the FRB.
Termination of Option. The option will terminate upon the occurrence of an
Exercise Termination Event. In the event that the holder of the Option or the
owner of Option Shares or any affiliate thereof is a person making an offer or
proposal to engage in an Acquisition Transaction (other than the Merger), then
(a) in the case of a holder of the Option or any affiliate thereof, the Option
held by it will immediately terminate, and (b) in the case of an owner of Option
Shares or any affiliate thereof, the Option Shares held by it will be
immediately repurchasable by CIB at the Option Price.
Additional Provisions. Certain rights and obligations of NCC and CIB under
the Option Agreement are subject to receipt of required regulatory approvals.
Among other things, the approval of the FRB is required for the acquisition by
NCC of more than 5% of the outstanding shares of CIB Common. Accordingly, an
application for FRB approval of the exercise of the Option has been filed as
part of the application referred to on page 65 above. Article 11 of CIB's
Articles of Incorporation prohibits any person from acquiring over 10% of CIB's
outstanding shares of Common Stock, subject to certain limited exceptions.
Shares acquired in violation of this provision may not be voted.
State Takeover Law. Under the IBCL, without prior approval of its board of
directors, an issuing public corporation is prohibited from engaging in any
"business combination" with an "interested shareholder" for a five-year period
after the date upon which the shareholder attains this status. See "GENERAL
COMPARISON OF NCC AND CIB CAPITAL STOCK -- Antitakeover Statutes -- Indiana
Business Combination Statute." Neither the grant nor the exercise of the Option
has made (or would make) NCC subject to this five-year prohibition because CIB's
Board of Directors approved NCC becoming an "interested shareholder" by reason
of the Option and the grant of the Option to NCC prior to the date of the
granting of the Option.
Indiana law also restricts the voting rights of "control shares" acquired
in a "control share acquisition" to those voting rights granted by a resolution
approved by a majority of the outstanding voting shares excluding certain
"interested shares." See "GENERAL COMPARISON OF NCC AND CIB CAPITAL STOCK --
Antitakeover Statutes -- Indiana Control Share Acquisitions Statute." The
application of the Indiana Control Share Acquisitions Statute were to be
reinstated and NCC exercises the Option and purchases 326,000 shares of CIB
Common, representing 19.9% of the shares of CIB Common issued and outstanding as
of July 25, 1994, such acquisition would not fall within the minimum range
(which begins at 20%) resulting in the restriction of voting rights under this
statute.
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<PAGE> 39
PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited financial information on the following pages presents (a) the
historical consolidated balance sheets of both NCC and CIB at September 30, 1994
and the pro forma condensed combined consolidated balance sheet as of September
30, 1994, giving effect to the Merger as if it had occurred on that date; and
(b) the historical consolidated statements of income of both NCC and CIB and the
pro forma condensed combined consolidated statements of income for the nine
months ended September 30, 1994 and the year ended December 31, 1993, giving
effect to the Merger as if it had occurred at January 1, 1993.
The financial information assumes all of the outstanding shares of CIB
Common are converted into shares of NCC Common. The pro forma information is
based on the historical financial statements, giving effect to the Merger under
the purchase method of accounting. The pro forma statements do not reflect any
direct costs or potential savings which may result from the consolidation of the
operations of CIB and NCC, and may not be indicative of the results that
actually would have occurred had the Merger been consummated on the dates
indicated, or which may be attained in the future.
35
<PAGE> 40
NCC
PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PRO FORMA NCC
Dollars in Thousands NCC CIB ADJUSTMENTS PRO FORMA
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Total loans.............................. $22,298,612 $163,190 ($1,000) $22,460,802
Allowance for loan losses................ (467,272) (2,320) (469,592)
----------- -------- ----------- -----------
Net loans............................. 21,831,340 160,870 (1,000) 21,991,210
Securities............................... 4,905,335 52,113 (713) 4,956,735
Federal funds sold and security resale
agreements............................ 388,925 388,925
Cash and other money market
instruments........................... 2,150,283 27,001 2,177,284
Properties and equipment, net............ 386,974 1,664 388,638
Other assets............................. 1,451,056 2,190 17,396 1,470,642
----------- -------- ----------- -----------
TOTAL ASSETS........................ $31,113,913 $243,838 $15,683 $31,373,434
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Interest bearing deposits................ $ 4,726,733 $200,812 $ 4,927,545
Noninterest bearing deposits............. 18,190,677 18,190,677
----------- -------- ----------- -----------
Total deposits........................ 22,917,410 200,812 23,118,222
Federal funds borrowed and security
repurchase agreements................. 2,395,827 2,395,827
Borrowed funds........................... 1,832,172 1,832,172
Accrued expenses and other liabilities... 579,926 6,782 $ 2,254 588,962
Corporate long term debt................. 748,104 748,104
----------- -------- ----------- -----------
TOTAL LIABILITIES................... 28,473,439 207,594 2,254 28,683,287
STOCKHOLDERS' EQUITY
Preferred stock.......................... 189,290 189,290
Common stock............................. 600,595 7,498 608,093
Capital surplus.......................... 99,712 13,134 29,041 141,887
Retained earnings........................ 1,760,907 23,110 (23,110) 1,760,907
Unallocated shares held by ESOP.......... (10,030) (10,030)
----------- -------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY.......... 2,640,474 36,244 13,429 2,690,147
----------- -------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................... $31,113,913 $243,838 $15,683 $31,373,434
========== ======== ========== ==========
</TABLE>
See notes to pro forma consolidated combined financial statements.
36
<PAGE> 41
NCC
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
Dollars in Thousands, except per share PRO FORMA NCC
amounts NCC CIB ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans................................... $ 1,284,498 $ 9,767 $ 1,294,266
Securities.............................. 179,217 1,458 (345) 180,420
Other................................... 22,374 920 23,203
----------- --------- ----------- -----------
Total interest income.............. 1,486,089 $ 12,145 (345) 1,497,889
INTEREST EXPENSE
Deposits................................ 422,189 5,414 427,603
Other borrowings........................ 110,143 110,143
Corporate long-term debt................ 35,278 35,278
----------- --------- ----------- -----------
Total interest expense............. 567,610 5,414 573,024
----------- --------- ----------- -----------
Net interest income................ 918,479 6,731 (345) 924,865
Provision for loan losses................. 59,748 340 60,088
----------- --------- ----------- -----------
Net interest income after provision
for loan losses................. 858,731 6,391 (345) 864,777
NONINTEREST INCOME
Item processing revenues................ 228,299 228,299
Trust fees.............................. 114,728 114,728
Service charges on deposits............. 94,668 94,668
Credit card fees........................ 59,464 59,464
Mortgage banking revenues............... 45,052 45,052
Other................................... 80,496 760 81,256
----------- --------- ----------- -----------
Fees and other income................ 622,707 760 623,467
Security gains.......................... 9,464 9,464
----------- --------- ----------- -----------
Total noninterest income........... 632,171 760 632,931
NONINTEREST EXPENSE
Salaries and employee benefits.......... 488,399 1,762 490,161
Net occupancy........................... 68,707 202 68,909
Equipment............................... 67,599 175 67,774
Other................................... 407,972 1,469 579 410,020
----------- --------- ----------- -----------
Total noninterest expense.......... 1,032,677 3,608 579 1,036,864
----------- --------- ----------- -----------
Income before income taxes.............. 458,225 3,543 (924) 460,844
Income tax expense...................... 140,166 1,286 (121) 141,331
----------- --------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING............... $ 318,059 $ 2,257 $ (803) $ 319,513
========== ======== ========== ==========
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING APPLICABLE TO
COMMON STOCK....................... $ 306,610 $ 2,257 $ (803) $ 308,064
========== ======== ========== ==========
INCOME PER COMMON SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING -- PRIMARY................... $ 1.99 $ 1.35 $ 1.98
========== ======== ==========
AVERAGE COMMON SHARES OUTSTANDING......... 154,166,306 1,673,192 155,973,353
========== ======== ==========
</TABLE>
See notes to pro forma consolidated combined financial statements.
37
<PAGE> 42
NCC
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Dollars in Thousands, except per PRO FORMA NCC
share amounts NCC CIB PERU ADJUSTMENTS PRO FORMA
----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans............................ $ 1,582,106 $ 11,730 $ 2,637 $ 1,596,473
Securities....................... 276,286 1,069 788 (690) 277,453
Other............................ 31,772 834 49 32,655
----------- ----------- ------- ----------- -----------
Total interest income......... 1,890,164 13,633 3,474 (690) 1,906,581
INTEREST EXPENSE
Deposits......................... 542,165 6,254 2,179 550,598
Other borrowings................. 119,568 119,568
Corporate long-term debt......... 28,377 28,377
----------- ----------- ------- ----------- -----------
Total interest expense........ 690,110 6,254 2,179 698,543
----------- ----------- ------- ----------- -----------
Net interest income........... 1,200,054 7,379 1,295 (690) 1,208,038
Provision for loan losses.......... 93,089 684 181 93,954
----------- ----------- ------- ----------- -----------
Net interest income after
provision for loan losses... 1,106,965 6,695 1,114 (690) 1,114,084
NONINTEREST INCOME
Item processing revenues......... 267,962 267,962
Trust fees....................... 152,609 152,609
Service charges on deposits...... 122,597 122,597
Credit card fees................. 92,966 92,966
Mortgage banking revenues........ 58,678 58,678
Other............................ 105,003 462 310 105,775
----------- ----------- ------- ----------- -----------
Fees and other income......... 799,815 462 310 800,587
Security gains................... 11,922 129 12,051
----------- ----------- ------- ----------- -----------
Total noninterest income...... 811,737 591 310 812,638
NONINTEREST EXPENSE
Salaries and employee benefits... 623,472 1,806 1,073 626,351
Net occupancy.................... 89,729 201 77 90,007
Equipment........................ 89,005 192 105 89,302
Other............................ 545,534 1,299 298 1,158 548,289
----------- ----------- ------- ----------- -----------
Total noninterest expense..... 1,347,740 3,498 1,553 1,158 1,353,949
----------- ----------- ------- ----------- -----------
Income before income taxes....... 570,962 3,788 (129) (1,848) 572,773
Income tax expense............... 166,965 1,679 (43) (242) 168,360
----------- ----------- ------- ----------- -----------
NET INCOME.................... $ 403,997 $ 2,109 $ (86) $(1,607) $ 404,413
========== ========== ======= ========== ==========
NET INCOME APPLICABLE TO
COMMON STOCK................ $ 388,031 $ 2,109 $ (86) $(1,607) $ 388,447
========== ========== ======= ========== ==========
NET INCOME PER COMMON SHARE -
PRIMARY.......................... $ 2.41 $ 1.40 $ 2.38
========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING.. 161,163,816 1,501,056 162,974,847
========== ========== ==========
</TABLE>
- ---------------
See notes to pro forma consolidated combined financial statements.
38
<PAGE> 43
NOTES TO PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS
(1) CIB has a September 30 fiscal year. In accordance with Regulation S-X, Rule
3A-02(b)(1), the CIB results of operations for the year ended September 30,
1993 have been combined with the results of NCC for the year ended December
31, 1993 for purposes of preparing a pro forma statement of income for the
year ended December 31, 1993. For the nine months ended September 30, 1994,
the CIB fiscal 1994 results were adjusted to exclude the first quarter
activity (ended December 31, 1993) for purposes of preparing a pro forma
statement of income for the nine months ended September 30, 1994. The
December 31, 1993 pro forma statement of income also includes the results of
First Federal Savings and Loan Association of Peru ("Peru"), which was
acquired by CIB in January 1994.
In January 1994, CIB completed the acquisition of Peru in a purchase
transaction. Prior to the acquisition, Peru was a mutual federal savings and
loan association and reported on a calendar year basis. In the acquisition
CIB issued 175,825 of its common shares to the owners of Peru. For purposes
of preparing a pro forma statement of income for the year ended December 31,
1993, the Peru results have been added to NCC and CIB, and the shares of CIB
issued in the transaction have been adjusted for the Exchange Ratio in the
proposed acquisition of CIB by NCC. The pro forma results of operations for
the nine months ended September 30, 1994 do not show a separate Peru
contribution as this entity is included in CIB for that period.
(2) The pro forma statement of income for the nine months ended September 30,
1994 excludes the change in accounting for income taxes and post retirement
benefits originally reported by CIB, as required by the Commission's
Regulation S-X.
(3) The following is an explanation of the pro forma accounting adjustments
included in the September 30, 1994 pro forma balance sheet:
- The CIB balance sheet is recorded at fair value as required under APB
Opinion No. 16. As such, securities and loans are recorded at their
estimated fair values. The ultimate fair values of all assets and
liabilities will be determined at the closing of the transaction.
- The acquisition of Peru by CIB was completed in January 1994, and as such
the accounts of Peru are already included in CIB at September 30, 1994.
- Negative goodwill of $3.9 million from the Peru acquisition has been
written off in purchase accounting.
- Expenses of the transaction totalling $2.6 million have been accrued in the
pro forma balance sheet.
- A tax liability of $2.1 million has been accrued into the opening balance
sheet to recognize taxes that will become due upon the conversion of CIB
from a federal savings bank to a national bank. The taxes relate to
preferential treatment allotted to the provision for loan losses for
savings banks that is not available to commercial banks.
- The CIB Capital Surplus and retained earnings have been eliminated in the
pro forma balance sheet.
(4) The following is the calculation of payment for the acquisition of CIB by
NCC. The calculation assumes a market value for NCC Common of $26.50 per
share. The actual transaction value will be determined at the date of
closing.
<TABLE>
<S> <C>
CIB shares outstanding including stock options............ 1,735,606
Exchange Ratio............................................ 1.08
-----------
NCC Common to be issued................................. 1,874,455
Estimated market value of stock........................... $26.50
-----------
Transaction value.................................... $49,673,057
===========
</TABLE>
(5) The pro forma adjustments to the statements of income represent the
amortization of goodwill (over 20 years) and other purchase accounting
adjustments as if the acquisition had been consummated on January 1, 1993.
These adjustments are not materially different from the adjustments that
would arise based upon a September 30, 1994 acquisition date.
39
<PAGE> 44
MANAGEMENT AFTER THE MERGER
Following the Merger, the directors and officers of NCC will continue as
the directors and officers of NCC.
INFORMATION ABOUT NCC
At September 30, 1994, NCC was the third largest bank holding company
headquartered in the State of Ohio and approximately the 26th largest in the
United States on the basis of total assets. NCC owns and operates 10 commercial
banks in Ohio, Kentucky and Indiana. As of September 30, 1994, NCC, through
these banks, operated 610 offices. NCC's four largest commercial banking
subsidiaries are National City Bank; National City Bank, Columbus; National City
Bank, Indiana; and National City Bank, Kentucky. These banks and the other
subsidiaries and divisions of NCC conduct a variety of financial services
businesses. In addition to a general commercial banking business, NCC or its
subsidiaries are engaged in credit card, retail payment and airline ticket
processing, brokerage services, trust and investment management, leasing,
merchant and mortgage banking, public finance, venture capital, small business
and community investment, credit life insurance and other financially related
businesses.
NCC was organized under Delaware law in 1972, and had, along with its
subsidiaries, 20,098 full-time equivalent employees at September 30, 1994.
As of December 31, 1993, the four largest commercial banking subsidiaries
of NCC had offices and total assets, loans, deposits and equity capital, as
follows:
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS)
------------------------------------------------------
TOTAL EQUITY
OFFICES ASSETS LOANS DEPOSITS CAPITAL
------- ------ ------ -------- -------
<S> <C> <C> <C> <C> <C>
National City Bank (Cleveland).......... 96 $8,395 $5,283 $5,521 $ 553
National City Bank, Columbus............ 124 6,346 3,362 4,333 363
National City Bank, Indiana............. 126 4,921 3,127 3,710 376
National City Bank, Kentucky............ 90 6,346 4,261 4,196 453
</TABLE>
For more detailed information about NCC, reference is made to the NCC
Annual Report on Form 10-K for the year ended December 31, 1993, which is
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
INFORMATION ABOUT CIB
CIB was incorporated under the laws of the State of Indiana and became a
unitary savings and loan holding company upon conversion on July 1, 1991 of
Kokomo from a federal mutual savings bank to a federal stock savings bank. The
principal asset of CIB consists of 100% of the issued and outstanding shares of
common stock, $.01 par value per share, of Kokomo.
Kokomo is the second largest financial institution headquartered in Howard
County, while two banks operating in Howard County have greater total deposits.
Kokomo is one of the leading residential mortgage lenders in Howard County, with
a significant share of the market for residential construction mortgage loans.
Kokomo's principal business is to attract deposits from the general public
and to originate mortgage loans secured primarily by one-to-four family
residential real property in Howard County and surrounding counties. In
addition, in recent years Kokomo has emphasized home equity loans and consumer
loans such as installment loans, auto loans, home improvement loans, loans
secured by deposits, and education loans. Kokomo also makes multi-family,
non-residential real estate, and residential and development and construction
loans, as well as other secured and unsecured commercial loans. Kokomo derives
most of its funds for its lending from deposits of its customers consisting
primarily of savings accounts, checking accounts and certificates of deposit. It
also offers, indirectly through its service corporation subsidiary, tax-deferred
annuities, on an agency basis.
40
<PAGE> 45
CIB
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of CIB is qualified in
its entirety by, and should be read in conjunction with, the consolidated
financial statements, including notes thereto, included elsewhere in this
Prospectus and Proxy Statement.
<TABLE>
<CAPTION>
AT SEPTEMBER 30
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF FINANCIAL CONDITION DATA:
Total assets.................................. $243,838 $190,876 $179,929 $172,812 $159,212
Loans receivable, net......................... 159,113 134,565 131,323 118,124 111,865
Mortgage-backed securities.................... 10,549 9,428 11,496 11,325 8,486
Cash and cash equivalents..................... 20,862 14,596 7,726 14,563 7,889
Interest-earning time deposits in other
financial institutions...................... 6,140 16,843 16,859 12,475 12,173
Investment securities......................... 41,564 6,569 7,381 10,412 11,703
Deposits...................................... 200,812 158,719 148,704 143,100 141,335
Common stock and additional paid-in
capital(1).................................. 13,134 9,510 10,014 10,014 --
Retained earnings, substantially restricted... 23,110 20,824 19,237 17,681 16,103
Per share:
Book value(1)............................... 22.04 21.30 20.08 19.01 N/A
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATING DATA:
Total interest income......................... $ 15,440 $ 13,633 $ 14,635 $ 15,398 $ 15,198
Total interest expense........................ 6,903 6,254 8,058 9,732 10,146
-------- -------- -------- -------- --------
Net interest income......................... 8,537 7,379 6,577 5,666 5,052
Provisions for loan losses.................... 455 684 487 281 155
-------- -------- -------- -------- --------
Net interest income after provision for loan
losses.................................... 8,082 6,695 6,090 5,385 4,897
Total noninterest income...................... 879 591 454 419 381
Total noninterest expense..................... 4,494 3,498 3,128 3,010 2,815
-------- -------- -------- -------- --------
Income before income tax expense and
cumulative effect of change in accounting
principles.................................. 4,467 3,788 3,416 2,794 2,463
Income tax expense............................ 1,645 1,679 1,451 1,134 949
-------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principles....................... 2,822 -- -- -- --
Cumulative effect of change in accounting for
income taxes................................ 326 -- -- -- --
Cumulative effect of change in accounting for
post-retirement benefit plans, net of income
tax......................................... (93) -- -- -- --
-------- -------- -------- -------- --------
Net income.................................. $ 3,055 $ 2,109 $ 1,965 $ 1,660 $ 1,514
========= ========= ========= ========= =========
Per share
Income before cumulative effect of change... $ 1.73 $ 1.40 $ 1.31 $ .32 N/A
Cumulative effect of change in accounting
for income taxes........................ .20 -- -- -- --
Cumulative effect of change in accounting
for post-retirement benefit plans, net
of income tax........................... (.06) -- -- -- --
-------- -------- -------- -------- --------
Net income.................................. $ 1.87 $ 1.40 $ 1.31 $ .32 N/A
========= ========= ========= ========= =========
Net income - primary(1)..................... $ 1.87 $ 1.40 $ 1.31 $ .32 N/A
Cash dividends(1)........................... .483 .365 .281 .056 N/A
</TABLE>
- ---------------
(1) CIB Common was issued in the conversion of Kokomo to stock form on July 1,
1991. Net income per share does not include any pro forma earnings on the
conversion proceeds prior to July 1, 1991. All per share amounts are
adjusted to reflect a 4 for 3 stock split effected by the CIB on April 30,
1993.
41
<PAGE> 46
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Interest rate spread during period............ 3.49% 3.61% 3.06% 2.85% 2.91%
Net yield on interest earning assets(1)....... 3.92 4.20 3.85 3.55 3.41
Return on assets(2)........................... 1.36 1.15 1.11 1.01 .98
Return on equity(3)........................... 9.00 7.08 6.89 8.30 9.89
Equity to assets(4)(5)........................ 14.86 15.89 16.26 16.03 10.11
Average equity to average assets.............. 15.15 16.28 16.13 12.17 9.86
Average interest-earning assets to average
interest-bearing liabilities................ 116.55 116.45 116.69 111.46 107.26
Nonperforming assets to total assets(5)....... .16 .25 .68 .87 1.38
Allowance for loan losses to total loans
outstanding(5).............................. 1.46 1.25 .78 .47 .16
Operating expenses to average assets(6)....... 2.00 1.91 1.77 1.83 1.81
Dividend payout ratio(7)...................... 25.17 24.71 20.85 17.33 N/A
Number of full service offices................ 5 4 4 4 4
</TABLE>
- ---------------
(1) Net interest income divided by average interest-earning assets.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Total equity divided by total assets.
(5) At end of period.
(6) Noninterest expense less state taxes divided by average total assets.
(7) Dividends declared divided by net income. The dividend payout ratio does not
include any earnings prior to July 1, 1991.
42
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
CIB's principal business has historically consisted of attracting deposits
from the general public and making loans secured by residential and other real
estate. CIB is significantly affected by prevailing economic conditions, as well
as by government policies and regulations concerning, among other things,
monetary and fiscal affairs, housing and financial institutions. Deposit flows
are influenced by a number of factors, including interest rates paid on
competing investments, account maturities and level of personal income and
savings. In addition, deposit growth is also affected by how customers perceive
the stability of the financial services industry amid various current events
such as regulatory changes, failures of other thrifts and financing of the
deposit insurance fund. Lending activities are influenced by the demand for and
supply of housing lenders, the availability and cost of funds and various other
items. Sources of funds for lending activities include deposits, payments on
loans, proceeds from sales of loans, borrowings, and funds provided from
operations.
CIB's earnings are primarily dependent upon Kokomo's net interest income,
the difference between interest income and interest expense. Interest income is
a function of the balance of loans and investments outstanding during a given
period and the yield earned on such loans and investments. Interest expense is a
function of the amounts of deposits and borrowings outstanding during the same
period and the rates paid on such deposits and borrowings. Kokomo's earnings are
also affected by gains and losses on sales of loans and investments, provisions
for loan losses, service charges, income from subsidiary activities, operating
expenses and income taxes.
On an annual basis, CIB updates its strategic business plan. This plan
includes, among other things, CIB's commitment to maintaining a strong capital
base and continuing to improve the organization's return on assets. Continued
careful monitoring of CIB's interest rate risk is also cited as an important
goal. As a result, continued origination of short-term commercial and
installment loans as well as adjustable rate mortgage loans is planned, with
fixed-rate real estate loans with original terms in excess of 10 years,
underwritten to secondary market standards, being sold or held for sale.
ASSET/LIABILITY MANAGEMENT
Kokomo like other financial institutions, is subject to interest rate risk
to the extent that its interest-bearing liabilities with short and
intermediate-term maturities reprice more rapidly, or on a different basis, than
its interest-earning assets. Management of Kokomo believes it is critical to
manage the relationship between interest rates and the effect on Kokomo's net
portfolio value ("NPV"). This approach calculates the difference between the
present value of expected cash flows from assets and the present value of
expected cash flows from liabilities, as well as cash flows from off-balance
sheet contracts. Management of Kokomo's assets and liabilities is done within
the context of the marketplace, regulatory limitations and within limits
established by the Board of Directors on the amount of change in NPV which is
acceptable given certain interest rate changes.
The Office of Thrift Supervision ("OTS") recently issued a regulation,
effective January 1, 1994, which uses a net market value methodology to measure
the interest rate risk exposure of thrift institutions. Under OTS regulations,
an institution's "normal" level of interest rate risk in the event of an assumed
change in interest rates is a decrease in the institution's NPV in an amount not
exceeding 2% of the present value of its assets. Beginning July 1, 1994, thrift
institutions with over $300 million in assets or less than a 12% risk-based
capital ratio are required to file OTS Schedule CMR. Data from Schedule CMR is
used by the OTS to calculate changes in net portfolio value (and the related
"normal" level of interest rate risk) based upon certain interest rate changes
(discussed below). Institutions which do not meet either of the filing
requirements are not required to file OTS Schedule CMR, but may do so
voluntarily. As Kokomo does not currently meet either of these requirements it
is not required to file Schedule CMR, but it currently does so on a voluntary
basis. Institutions which are required to file must take a deduction (the
interest rate risk capital component) from their total capital available to
calculate their risk based capital requirement if their interest rate exposure
is greater than "normal". Voluntary filers (such as Kokomo) are not subject to
an interest rate risk capital component. The amount of that deduction is
one-half of the difference between (a) the institution's actual calculated
exposure to a 200 basis point interest rate increase or decrease (whichever
results in the greater pro forma decrease in NPV) and (b) its "normal" level of
43
<PAGE> 48
exposure which is 2% of the present value of its assets. Utilizing this
measurement concept, at June 30, 1994, Kokomo's interest rate risk was
considered "normal" under the OTS regulations and no additional risk-based
capital would have been required had Kokomo met the reporting requirements.
Presented below, as of June 30, 1994, is an analysis of Kokomo's interest
rate risk as measured by changes in NPV for instantaneous and sustained parallel
shifts in the yield curve, in 100 basis point increments, up and down 300 basis
points and compared to Board policy limits and in accordance with OTS
regulations, based on the assumptions described below. Such limits have been
established with consideration of the dollar impact of various rate changes and
Kokomo's strong capital position. As illustrated in the table, NPV is more
sensitive to rising rates than declining rates. This occurs principally because,
as rates rise, the market value of fixed-rate loans and mortgage backed
securities declines due to both the rate increase and slowing prepayments. When
rates decline, Kokomo does not experience a significant rise in market value for
these loans because borrowers prepay at relatively high rates. The value of
Kokomo's deposits and borrowings change in approximately the same proportion in
rising or falling rate scenarios.
<TABLE>
<CAPTION>
CHANGE IN JUNE 30, 1994
INTEREST RATE ---------------------
(BASIS BOARD LIMIT $ CHANGE % CHANGE
POINTS) % CHANGE IN NPV IN NPV
- ------------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
+300 -75% -2,820 -7%
+200 -50 -1,507 -4
+100 -25 -539 -1
- - - -
-100 -25 27 -
-200 -45 -403 -1
-300 -60 -396 -1
</TABLE>
In the current low rate environment, Kokomo customers are interested in
obtaining long term credit products and short term savings products. Management
has taken action to counter this trend. A significant effort has been made to
reduce the duration and average life of Kokomo's earning assets. As of June 30,
1994, 67.9% of Kokomo's gross loan portfolio consists of loans which reprice
during the life of the loan. Kokomo continually emphasizes adjustable rate
mortgages. Since the early 1980's it has been Kokomo's policy to help limit its
interest rate risk by selling the majority of its fixed-rate loans with terms of
15 years or more, so it underwrites most of these long-term fixed-rate loans to
FHLMC or FNMA specifications for sale in the secondary mortgage market. During
fiscal 1993 this policy was extended to cover most new 10 year fixed-rate
originations due to the then historically low interest rate environment. As
interest rates increased from these low levels Kokomo changed its policy, in
January 1994 to retain 10 year loans in its portfolio.
With regard to deposits, management has worked to reduce the impact of
interest rate changes by emphasizing non-interest bearing or low interest
bearing deposit products and maintaining competitive pricing on longer term
certificates of deposit.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the forgoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could likely
deviate significantly from those assumed in calculating the table.
44
<PAGE> 49
AVERAGE BALANCES AND INTEREST
The following table presents the average daily balances of each category of
CIB's interest-earning assets and interest-bearing liabilities, and the interest
earned or paid on such amounts.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1994 1993 1992
-------------------- -------------------- --------------------
INTEREST INTEREST INTEREST
AVERAGE EARNED/ AVERAGE EARNED/ AVERAGE EARNED/
BALANCE PAID BALANCE PAID BALANCE PAID
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning
deposits............... $ 29,566 $ 1,131 $ 22,496 $ 835 $ 22,662 $ 1,110
Investment securities..... 21,514 1,008 4,565 246 7,285 483
Mortgage-backed
securities............. 10,311 552 9,527 721 12,991 1,026
Loans(1).................. 155,142 12,684 138,186 11,730 126,847 11,898
Stock in FHLB of
Indianapolis........... 1,341 65 1,038 101 1,017 118
-------- ------- -------- ------- -------- -------
Total interest-earning
assets............... 217,874 15,440 175,812 13,633 170,802 14,635
Interest-bearing
liabilities:
Passbook accounts......... $ 46,123 $ 1,446 $ 35,329 $ 1,180 $ 19,396 $ 815
NOW and money market
accounts............... 41,931 1,054 35,583 875 32,628 1,199
Certificates of deposit... 98,889 4,403 80,070 4,199 94,344 6,044
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.......... 186,943 6,903 150,982 6,254 146,368 8,058
-------- ------- -------- ------- -------- -------
Net interest-earning
assets.................... $ 30,931 $ 24,830 $ 24,434
======== ======== ========
Net interest income......... $ 8,537 $ 7,379 $ 6,577
======= ======= =======
Average interest-earning
assets to average
interest-bearing
liabilities............... 116.55% 116.45% 116.69%
</TABLE>
- ---------------
(1) Average balances include nonaccrual loans and loans held for sale.
45
<PAGE> 50
INTEREST RATE SPREAD
CIB's results of operations have been determined primarily by net interest
income and, to a lesser extent, fee income, miscellaneous income and general and
administrative expenses. Net interest income is determined by the interest rate
spread between the yields earned on its interest-earning assets and the rates
paid on interest-bearing liabilities and by the relative amounts of
interest-earning assets and interest-bearing liabilities.
The following table sets forth the weighted average effective interest rate
earned by CIB on its loan and investment portfolios, the weighted average
effective cost of CIB's deposits, the interest rate spread of CIB, and the net
yield on weighted average interest-earning assets for the periods and as of the
dates shown.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
AT 30,
SEPTEMBER 30, -----------------------
1994 1994 1993 1992
------------- ---- ---- -----
<S> <C> <C> <C> <C>
Weighted average interest rate earned on:
Interest earning deposits.......................... 4.57% 3.83% 3.71% 4.90%
Investment securities.............................. 5.24 4.69 5.39 6.63
Mortgage-backed securities......................... 5.65 5.35 7.57 7.90
Loans.............................................. 8.48 8.18 8.49 9.38
Stock in FHLB of Indianapolis...................... 5.75 4.85 9.78 11.60
Total interest-earning assets................... 7.61 7.09 7.75 8.57
Weighted average interest rate cost of:
Passbook accounts.................................. 3.13 3.14 3.34 4.20
NOW and money market accounts...................... 2.63 2.51 2.46 3.67
Certificates of deposit............................ 4.44 4.45 5.24 6.41
Total interest-bearing liabilities.............. 3.50 3.69 4.14 5.51
Interest rate spread(1).............................. 4.11 3.40 3.61 3.06
Net yield on weighted average interest-earning
assets(2).......................................... 3.92 4.20 3.85
</TABLE>
- ---------------
(1) Interest rate spread is calculated by subtracting combined weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated. Interest rate spread figures must be considered in
light of the relationship between the amounts of interest-earning assets and
interest-bearing liabilities. Since Kokomo's interest-earning assets
exceeded its interest-bearing liabilities for each of the three years shown
above, a positive interest rate spread resulted in net interest income.
(2) The net yield on weighted average interest-earning assets is calculated by
dividing net interest income by weighted average interest-earning assets for
the period indicated. No net yield figure is presented at September 30,
1994, because the computation of net yield is applicable only over a period
rather than at a specific date.
46
<PAGE> 51
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
Kokomo's interest income and expense during the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in rate (changes in rate
multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume which
cannot be segregated have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
INCREASE
(DECREASE) IN NET INTEREST
INCOME
----------------------------
TOTAL
NET DUE TO DUE TO
CHANGE RATE VOLUME
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO YEAR ENDED
SEPTEMBER 30, 1993
Interest-earning assets
Interest-earning deposits.................................. $ 296 $1,399 $ (445)
Investment securities...................................... 762 56 (225)
Mortgage-backed securities................................. (169) 798 (36)
Loans...................................................... 954 270 26
Stock in FHLB of Indianapolis.............................. (36) 24 (60)
------ ------ ------
Total.................................................... 1,807 2,547 (740)
Interest-bearing liabilities
Passbook accounts.......................................... $ 266 $ 342 $ (76)
NOW and money market accounts.............................. 179 159 20
Certificates of deposit.................................... 204 896 (692)
------ ------ ------
Total.................................................... 649 1,397 (748)
------ ------ ------
Net change in net interest income............................... $1,158 $1,150 $ 8
====== ====== ======
YEAR ENDED SEPTEMBER 30, 1993 COMPARED TO YEAR ENDED
SEPTEMBER 30, 1992
Interest-earning assets
Interest-earning deposits.................................. $ (275) $ (267) $ (8)
Investment securities...................................... (237) (79) (158)
Mortgage-backed securities................................. (305) (41) (264)
Loans...................................................... (168) (1,183) 1,015
Stock in FHLB of Indianapolis.............................. (17) (19) 2
------ ------ ------
Total.................................................... (1,002) (1,589) 587
Interest-bearing liabilities
Passbook accounts.......................................... $ (365) $ 195 $ (560)
NOW and money market accounts.............................. 324 425 (101)
Certificates of deposit.................................... 1,845 1,006 839
------ ------ ------
Total.................................................... 1,804 1,626 178
------ ------ ------
Net change in net interest income............................... $ 802 $ 37 $ 765
====== ====== ======
</TABLE>
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YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO YEAR ENDED SEPTEMBER 30, 1993
Financial Condition: CIB's total assets at September 30, 1994 have
increased by $53.0 million, or 27.75%, compared to the fiscal year ended
September 30, 1993. This increase is due primarily to the merger conversion with
Peru, on January 19, 1994, which resulted in an increase in assets of $51.4
million ($48.1 million in assets of Peru after purchase accounting adjustments
and $3.3 million in net proceeds from the issuance of stock in the merger
conversion). Decreases net of the effect of the merger conversion with Peru, of
$14.4 million in interest-earning time deposits in other financial institutions,
$6.5 million in net loans receivable, $4.1 million in loans held for sale, and
$3.0 million in mortgage backed securities were used to fund an increase of
$31.6 million in investment securities and offset a net decrease of $638,000 in
deposits. Deposit growth or reduction is difficult to predict and will be
affected by the local economy, confidence of consumers in the financial services
industry, and rates paid on competing investments.
The total investment securities portfolio increased from $6.6 million at
September 30, 1993 to $41.6 million at September 30, 1994. The merger conversion
of Peru added $3.4 million to total investment securities. The vast majority of
investments purchased during fiscal year 1994 were short term agency securities.
Management has completed these short-term purchases due to the negative loan
growth and the desire to maintain an acceptable level of interest rate risk.
Interest-earning time deposits in other financial institutions decreased
from $16.8 million at September 30, 1993 to $6.1 million to September 30, 1994.
The merger conversion of Peru added $3.7 million to total interest-earning time
deposits in other financial institutions. Decreases in this category were the
result of yields on short term agencies exceeding amounts paid by most financial
institutions during the fiscal year and maturing funds were moved into short
term agencies.
Net loans receivable increased from $134.6 million at September 30, 1993 to
$159.1 million at September 30, 1994. The merger conversion of Peru added $31.0
million in net loans. All categories of mortgage loans, with the exception of
home equity and second mortgages, increased in balance during the year.
Construction loans increased from $18.9 million at September 30, 1993 to $26.1
million at September 30, 1994. Approximately $6.2 million of the construction
loans are to individuals to fund the construction of their principal residence,
$10.4 million are for land development construction loans and $9.5 million are
to developers on a speculative basis (i.e., to a builder to finance the
construction of homes for which the builder does not have a firm purchase
commitment from a buyer). Mortgages on commercial and multi-family real estate
increased $6.8 million during the fiscal year mainly due to the addition of
Peru's portfolio. Kokomo continues to sell loans in the secondary market and had
a balance of $1.8 million in loans held for sale at September 30, 1994. These
loans were comprised of originations of fixed-rate loans with original terms in
excess of 10 years underwritten to secondary market standards. Management
intends to sell these loans, subject to market conditions, in order to decrease
its interest rate risk, particularly in view of the economic environment of low
mortgage interest rates which existed during the current fiscal year.
Non-performing assets decreased approximately $74,000, or 15.81%, from
September 30, 1993, to September 30, 1994. Foreclosed real estate decreased from
$241,000 at September 30, 1993 to $0 at September 30, 1994. Troubled debt
restructurings increased from $0 at September 30, 1993 to $81,000 at September
30, 1994 and non-accrual loans increased from $227,000 at September 30, 1993 to
$313,000 at September 30, 1994.
The mortgage-backed securities portfolio increased by $1.1 million.
Repayments of $7.4 million were offset by additions due to the Peru merger
conversion of $4.1 million in mortgage backed securities, and purchases of $4.2
million.
General: Net income for the year ended September 30, 1994, was $3.1
million, an increase of $946,000, or 44.87%, over the results for the year ended
September 30, 1993. Included in the current years earnings were the impact of
changes in accounting principles for the treatment of post-retirement benefits
other than pensions (SFAS No. 106) and for the treatment of income taxes (SFAS
No. 109) which, together, accounted for $233,000 in non-recurring net earnings.
Net income before the impact of these changes in accounting principles was $2.8
million, or 33.83% over the prior years earnings of $2.1 million. The components
of this increase were primarily increases of $1.2 million in net interest
income, discussed below, $281,000 in negative goodwill amortization and
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a decrease in the provision for loan losses of $230,000. These increases were
offset by increases in noninterest expenses of $996,000 due primarily to
increases in compensation and benefits.
Interest Income: Interest income increased by $1.8 million to $15.4
million for the fiscal year ended September 30, 1994 compared to the fiscal year
ended September 30, 1993. This increase was mainly due to increases in average
interest-earning assets of $42.1 million (due primarily to the Peru
interest-earning assets acquired in fiscal year 1994) which was partially offset
by the general decline in interest earned on interest-earning assets during the
year. The weighted average yield on interest-earning assets decreased from 7.75%
in fiscal year 1993 to 7.09% in fiscal year 1994. Average loans increased by
$17.0 million during fiscal year 1994 with a reduction in yield from 8.49% in
fiscal year 1993 to 8.18% in fiscal year 1994. Average investment securities
increased by $16.9 million during fiscal year 1994, with a decrease in yield
from 5.39% in fiscal 1993 to 4.69% in fiscal 1994.
Interest Expense: Total interest expense for the year ended September 30,
1994 was $6.9 million, an increase of $649,000, or 10.38% from the prior year.
This increase resulted primarily from the increase of average deposits of $36.0
million (due mainly to the Peru deposits acquired in fiscal year 1994) which was
partially offset by the general decline in interest rates during fiscal 1994.
The weighted average rate paid on deposits decreased from 4.14% in fiscal year
1993 to 3.69% in fiscal year 1994. (See Note 8 in the footnotes to the financial
statements for a summary of the rates being paid on the various types of deposit
accounts).
Provision for Loan Losses: The provision for the year ended September 30,
1994 was $455,000 compared to $685,000 in the prior year, a decrease of
$230,000, or 33.53%. Management has decreased the provision as a result of its
analysis of the allowance for loan losses. The provision less net charge-offs
for the year of $10,000 and the addition of the Peru allowances of $190,000
increased the allowance for loan losses to $2.3 million at September 30, 1994,
from $1.7 million at September 30, 1993. The ratio of allowance for loan losses
to non-performing loans decreased from 742.61% at September 30, 1993 to 588.92%
at September 30, 1994. This decrease is due primarily to increases in
non-performing loans in the current year of $167,000 offsetting the increase in
the allowance. The ratio of allowance for loan losses to net total loans
increased from 1.25% at September 30, 1993 to 1.46% at September 30, 1994 due
mainly to the increase in the allowance.
Noninterest Income: Noninterest income for fiscal year 1994 was $879,000,
an increase of $288,000, or 48.9%, over fiscal year 1993. This main reason for
this increase was the addition of negative goodwill amortization as a result of
the Peru transaction, which totaled $281,000 in fiscal year 1994. Gains on the
sale of loans increased by $37,000 which was offset by a write down of the loans
held for sale portfolio of $43,000 on September 30, 1994. Approximately $15.7
million and $7.0 million of fixed rate loans were sold in fiscal years 1994 and
1993, respectively. Larger amounts were originated and sold in the current
fiscal year due to the historically low interest rate levels and the consumer's
perceptions that interest rates had bottomed out during the year. The
continuance of large amounts of refinancings and the corresponding sales is
difficult to predict and will be based upon the levels of interest rates in
conjunction with consumer demands. Also during 1994, a writedown of $43,000 was
made on a security for which management deemed the decline in value to be other
than temporary.
Noninterest Expense: Total noninterest expense for fiscal year 1994
totaled $4.5 million compared to $3.5 million for the prior year, an increase of
$996,000, or 28.49%. This increase was mainly due to increases in compensation
and benefits of $433,000. This increase in compensation and benefits is due
mainly to the addition of Peru personnel. Other expenses increased by $365,000
which was due mainly to increases in holding company expenses of $201,000.
Increased holding company expenses were mainly related to expenses in
conjunction with work done by outside parties (legal counsel, accounting, and
investment advisors) related to the Merger of CIB by NCC. The majority of the
remaining increase in other expenses can be attributed to normal inflationary
increases and the addition of Peru. Federal deposit insurance premiums increased
by $162,000 due mainly to the increased deposits from the addition of Peru and
the receipt in the year earlier period of $77,000 credit for the final
distribution of the secondary reserve.
Income Tax Expense: Income tax expense decreased by $34,000 due mainly to
the income resulting from the amortization of goodwill established in
conjunction with the purchase of Peru which is nontaxable.
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YEAR ENDED SEPTEMBER 30, 1993 COMPARED TO YEAR ENDED SEPTEMBER 30, 1992
General: Net income for the year ended September 30, 1993, was $2.1
million, an increase of $144,000, or 7.31%, over the results for the year ended
September 30, 1992. The components of this increase were primarily an $802,000
increase in net interest income discussed below, and a $137,000 increase in
noninterest income due primarily to increases in gains on sales of loans in the
secondary market. These increases were offset by the following items. First, the
provision for loan losses increased by $198,000 based on management's analysis
of the adequacy of the allowance for loan losses. Second, noninterest expenses
increased $369,000 due primarily to increases in compensation and benefits
discussed below. Third, income tax expense has increased by $229,000 due
primarily to increases in income subject to tax.
Interest Income: Interest income decreased by $1.0 million to $13.6
million for the fiscal year ended September 30, 1993 compared to the fiscal year
ended September 30, 1992. This decrease was due to the general decline in
interest rates; however, the effect of this decline in rates was partially
offset by increases in interest-earning assets, particularly loans. Average
loans outstanding increased by $11.3 million due to the lower interest rate
environment and management's efforts to aggressively originate loans,
particularly in Hamilton County, Indiana. The weighted average yield on
interest-earning assets decreased from 8.57% in fiscal 1992 to 7.75% in fiscal
1993, primarily due to the decrease in yield on loans from 9.38% in fiscal 1992
to 8.49% in fiscal 1993, as well as decreases in yield for all other
interest-earning asset categories.
Interest Expense: Total interest expense for the year ended September 30,
1993 was $6.3 million, a decrease of $1.8 million, or 22.39% from the prior
year. This decrease resulted primarily from the general decline in interest
rates paid on deposits during the year. There was a shift during the year
between certificates of deposit and passbook savings accounts. Certificates of
deposit decreased $3.2 million in fiscal year 1993 (although $5.7 million in
certificates were received in the last quarter of fiscal 1993 and will mature
and are expected to be withdrawn in the first quarter of fiscal 1994), while
passbook savings increased $9.3 million. Management believes that this shift is
due to the relatively low rate on longer term certificates of deposit and the
customers' perception that interest rates have reached their low. Demand and NOW
account balances increased by $4.5 million due to more aggressive marketing of
these services. The weighted average rates paid on deposits decreased from 5.51%
in fiscal 1992 to 4.14% in fiscal 1993, with all categories experiencing a drop
in average rates.
Provision for Loan Losses: The provision for the year ended September 30,
1993 was $685,000 compared to $487,000 in the prior year, an increase of
$198,000, or 40.55%. Management has increased the provision due to the large
increases in the loan portfolio, including construction loans and commercial
loans, the current uncertainties in the economy, particularly as they relate to
the major employers in Kokomo's market areas which are tied to the automotive
industry, the current regulatory environment and to provide for any potential
losses on the $1.9 million of loans outstanding at September 30, 1993 to
facilitate the sale of EPIC foreclosed real estate. The provision, less net
charge-offs for the year of $34,000, increased the allowance for loan losses to
$1.7 million at September 30, 1993, from $1.0 million at September 30, 1992.
This increase in the allowance for loan losses resulted in an increase in the
ratio of the allowance for loan losses to total loans from .78% in fiscal year
1992 to 1.25% in fiscal year 1993. The increase in the allowance for loan losses
combined with a reduction in non-performing loans resulted in an increase in the
ratio of the allowance for loan losses to non-performing loans from 90.79% in
fiscal year 1992 to 742.61% in fiscal year 1993.
Noninterest Income: Noninterest income for the year ended September 30,
1993 totaled $591,000, an increase of $137,000 or 30.12%, over the year ended
September 30, 1992. An increase in the net gain on sale of loans of $100,000
accounted for the majority of this increase. Approximately $7.0 million and $2.3
million of fixed rate loans were sold in fiscal years 1993 and 1992,
respectively.
Noninterest Expense: Total noninterest expense for fiscal year 1993
totaled $3.5 million compared to $3.1 million for the prior year, an increase of
$369,000 or 11.80%. This increase was mainly due to increases in compensation
and benefits of $366,000. This increase in compensation and benefits was due
primarily to two factors. First, normal inflationary increases in compensation
and benefits and the addition of personnel have increased compensation by
approximately $214,000. Second, $114,000 was accrued in fiscal 1993 for Kokomo's
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contribution to its retirement plan (this accrual was significantly greater than
that in the same period in the prior year due to the funding level of the
retirement plan). Additional items contributing to the increase in noninterest
expense included a $22,000 increase in loan expense (due to increased
originations), $21,000 in ATM processing costs (due to the switching of ATM
processors), $18,000 in data processing costs (due to an increased number of
accounts and increased charges), and $15,000 in employment taxes (due to
increased compensation). These increases were partially offset by decreases in
federal deposit insurance premiums of $49,000 (due to receipt of a $77,000
credit for the final distribution of the secondary reserve), and by decreases in
professional fees of $34,000.
Income Tax Expense: Income tax expense increased by $229,000 for the year
ended September 30, 1993, compared to the prior year. This increase was due
mainly to increased pretax income.
LIQUIDITY AND CAPITAL RESOURCES
The standard measure of liquidity for savings associations is the ratio of
cash and eligible investments to a certain percentage of net withdrawable
savings and borrowings due within one year. The minimum required ratio is
currently set by OTS regulation at 5%, of which 1% must be comprised of
short-term investments (i.e., generally with a term of less than one year). At
September 30, 1994, Kokomo's liquidity ratio was 29.60% and the short-term
liquidity ratio was 29.41%. At September 30, 1994, the total of Kokomo's cash
and eligible investments were $56.3 million, of which $55.9 million were
comprised of short-term assets. Therefore, Kokomo's liquidity is well above the
regulatory requirement.
Periodically, Kokomo obtains large public fund deposits, which can cause
significant fluctuations in Kokomo's deposit base and alter the liquidity ratio.
These public funds are generally short-term deposits which Kokomo matches with
specific assets of similar maturity. Such matching allows Kokomo sufficient
liquidity when the deposits mature.
CIB's liquidity, represented by cash and cash equivalents, is a result of
its operating, investing, and financing activities. These activities are
discussed below for the years ended September 30, 1994, 1993 and 1992.
Year Ended September 30, 1994. During the year ended September 30, 1994,
there was a net increase of $6.3 million in cash and cash equivalents. The major
source of this cash was the decrease in interest-earning time deposits with
other financial institutions of $14.4 million. Other sources of cash during the
year included principal collected on mortgage-backed securities of $7.3 million,
net income of $3.1 million, cash balances acquired in merger conversion with
Peru in the amount of $5.2 million and maturities of investment securities of
$28.3 million. The major use of cash during the year, which partially offset
these sources of cash, include purchases of investment and mortgage-backed
securities of $63.8 million.
Year Ended September 30, 1993. During the year ended September 30, 1993,
there was a net increase of $6.9 million in cash and cash equivalents. The major
source of this cash was the increase in deposits of $10.0 million. Other sources
of cash during the year included principal collected on mortgage-backed
securities of $4.0 million, net income of $2.1 million, and maturities of
investment securities of $2.0 million. The major use of cash during the year,
which partially offset these sources of cash, included a net increase in loans
of $4.5 million, a net increase in loans held for sale of $3.2 million, and
purchases of investment and mortgage-backed securities of $3.2 million.
Year Ended September 30, 1992. During the year ended September 30, 1992,
there was a net decrease of $6.8 million in cash and cash equivalents. The major
use of this decrease in cash was an increase in loans of $14.2 million. Other
uses of cash during the year included purchases of mortgage-backed and
investment securities of $9.0 million and a net increase in interest-earning
time deposits of $4.4 million. The major sources of cash during the year, which
partially offset these uses of cash, include maturities of investment securities
and principal repayments on mortgage-backed securities totaling $11.5 million
and increases in deposits of $5.6
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million. Operating activity also provided net cash of $3.2 million which was
primarily net income of $2.0 million.
Borrowings may be used to compensate for reductions in other sources of
funds such as deposits and to assist in asset/liability management. CIB has
historically not borrowed significant amounts and any borrowings have been short
term. There were no borrowings as of September 30, 1994. Also, CIB had
commitments to fund loan originations, unused lines of credit and letters of
credit with borrowers of $26.6 million at September 30, 1994. In the opinion of
management, CIB has sufficient cash flow and borrowing capacity to meet current
and anticipated funding commitments.
Under currently effective capital regulations, savings associations must
meet a 1.5% tangible capital requirement, a 3% leverage ratio (or core capital)
requirement and a total risk-based capital to risk-weighted assets ratio of
8.0%. At September 30, 1994, Kokomo's tangible capital ratio was 13.31%, its
leverage ratio was 13.31% and its risk-based capital to risk-weighted assets
ratio was 24.85%. Therefore, Kokomo's capital significantly exceeds all of the
capital requirements currently in effect.
IMPACT OF INFLATION
The audited consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles. These
principles require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
The primary assets and liabilities of CIB are monetary in nature. As a
result, interest rates have a more significant impact on CIB's performance than
the effects of general levels of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services, since such prices are affected by inflation. In a period
of rapidly rising interest rates, the liquidity and maturity structures of CIB's
assets and liabilities are critical to the maintenance of acceptable performance
levels. For a discussion of CIB's efforts to restructure its assets and to
reduce its vulnerability to changes in interests rates, see "-- Asset/Liability
Management."
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of other expense. Such expense items as
employee compensation, employee benefits, and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by CIB. Management is unable to determine the extent, if
any, to which properties securing CIB's loans have appreciated in dollar value
due to inflation.
CURRENT ACCOUNTING ISSUES
In May 1993, FASB issued Statement of Financial Accounting Standards No.
114 "Accounting by Creditors for Impairment of a Loan"("SFAS 114"). SFAS 114
specifies that allowances for loan losses on impaired loans should be determined
using the present value of estimated future cash flows of the loan, discounted
at the loan's effective interest rate. A loan is impaired when it is probable
that all principal and interest amounts will not be collected according to the
loan contract. SFAS 114 is effective for fiscal years beginning after December
15, 1994. Management has not yet determined the impact of adoption of SFAS 114
on the financial position or results of operations of CIB.
In May 1993, FASB issued Statement of Financial Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 focuses on the accounting and reporting treatment of investment
securities. SFAS 115 expands the use of fair value accounting for investment
securities classified as available for sale, with unrealized gains and losses
reported as a separate component of stockholders' equity. Securities classified
as held to maturity will be those CIB has the positive intent and ability to
hold to maturity, accounted for at amortized cost. Trading securities include
those purchased and held principally to sell in the near term and are accounted
for at fair value with unrealized gains and losses included in current earnings.
SFAS 115 is effective for fiscal years beginning after December 15, 1993. The
impact of adoption of SFAS 115 on the financial position or results of
operations of CIB will not be material.
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CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Bank holding companies, banks, savings and loan holding companies and
savings and loans are extensively regulated under both federal and state law. To
the extent that the following information describes statutory and regulatory
provisions, it is qualified in its entirety by reference to the particular
statutory and regulatory provisions. A change in applicable law or regulation
may have a material effect on the business of NCC or CIB.
As a bank holding company, NCC is subject to regulation under the BHCA and
its examination and reporting requirements. Under the BHCA, bank holding
companies may not (subject to certain limited exceptions) directly or indirectly
acquire the ownership or control of more than 5% of any class of voting shares
or substantially all of the assets of any company, including a bank, without the
prior written approval of the FRB. In addition, bank holding companies are
generally prohibited under the BHCA from engaging in nonbanking activities,
subject to certain exceptions.
The BHCA prohibits the FRB from approving the acquisition by a bank holding
company of more than 5% of any class of the voting shares of, or substantially
all the assets of, any bank (or its holding company) located outside of the
state in which the operations of such acquiring bank holding company's banking
subsidiaries are principally conducted on the date such company became a bank
holding company, unless such acquisition is specifically authorized by the laws
of the state in which the bank to be acquired is located. Many states, including
Indiana, Ohio and Kentucky, have adopted legislation that permits out-of-state
bank holding companies located throughout the United States to acquire local
banks and bank holding companies.
As a registered non-diversified savings and loan holding company, CIB is
subject to regulation, examination and supervision by the OTS and to OTS
reporting requirements. As a federally chartered savings bank, Kokomo is also
subject to such regulation, examination, supervision and reporting requirements.
Kokomo's deposits are insured by SAIF, and accordingly, the institution is also
subject to examination by and the regulations of the FDIC. Like NCC, CIB is
affected significantly by the actions of the FRB as it attempts to control the
money supply and credit availability.
CIB is required to obtain the prior approval of the OTS before acquiring
control of, or more than 5% of the voting shares of, any other savings
association or savings association holding company. Because it is, at present, a
unitary savings and loan holding company (i.e., owns only one savings
association subsidiary), and because its savings association meets the qualified
thrift lender test (requiring that a specified percentage of Kokomo's assets be
housing-related), CIB is generally free of restrictions on its permissible
business activities, except for restrictions that could be imposed for specific
safety and soundness reasons. If CIB were to acquire another savings association
and thereby become a multiple savings and loan holding company, it would become
subject, with limited exceptions, to the same limitations on its permissible
business activities as are applicable to bank holding companies, such as NCC,
and would have to obtain prior OTS approval before engaging in other activities
permissible for bank holding companies. Any non-supervisory acquisition in a
state other than Indiana that resulted in CIB's becoming a multiple savings and
loan holding company, and any subsequent non-supervisory transaction that
resulted in the acquisition of additional savings associations outside Indiana
by CIB, could only be approved by the OTS if the state where the institution to
be acquired is located allows, by specific statutory language, its savings
associations to be acquired by an Indiana savings association or savings
association holding company.
Kokomo is a member of the Federal Home Loan Bank ("FHLB") System, which
consists of twelve regional banks. The Federal Housing Finance Board, an
independent agency, controls the FHLB System, including the Federal Home Loan
Bank of Indianapolis ("FHLB of Indianapolis"). The FHLB System provides a
central credit facility primarily for member savings and loan associations,
savings banks, and other member financial institutions. Kokomo is required to
hold shares of capital stock in the FHLB of Indianapolis in an amount at least
equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts, and similar obligations at
the end of each calendar year; .3% of its assets; or 1/20 (or such greater
fraction established by the FHLB) of outstanding FHLB advances, commitments,
lines of credit and letters of credit. Kokomo is currently in compliance with
this requirement.
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PAYMENT OF DIVIDENDS
Each of NCC and CIB is a legal entity separate and distinct from its
banking, savings bank, and other subsidiaries. Most of NCC's and CIB's revenues
result from dividends paid to it by its bank or savings bank subsidiaries, as
applicable. There are statutory and regulatory requirements applicable to the
payment of dividends by subsidiary banks as well as by NCC to its stockholders
and CIB to its shareholders.
Each state bank subsidiary that is a member of the Federal Reserve System
and each national banking association is required by federal law to obtain the
prior approval of the FRB or the Comptroller of the Currency (the
"Comptroller"), as the case may be, for the declaration and payment of dividends
if the total of all dividends declared by the board of directors of such bank in
any year will exceed the total of (a) such bank's net profits (as defined and
interpreted by regulation) for that year plus (b) the retained net profits (as
defined and interpreted by regulation) for the preceding two years, less any
required transfers to surplus. In addition, these banks may only pay dividends
to the extent that retained net profits (including the portion transferred to
surplus) exceed bad debts (as defined by regulation).
As of September 30, 1994, NCC's subsidiary banks, without obtaining
governmental approvals, could declare aggregate dividends of approximately
$194.3 million.
The payment of dividends by NCC and its bank subsidiaries are also affected
by various regulatory requirements and policies, such as the requirements to
maintain adequate capital. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the bank, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from such
practice. The FRB and the Comptroller have each indicated that paying dividends
that deplete a bank's capital base to an inadequate level would be an unsafe and
unsound banking practice. The FRB, the Comptroller and the Federal Deposit
Insurance Corporation (the "FDIC") have issued policy statements which provide
that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
There are also statutory limits on the amount of dividends Kokomo can pay
to the CIB without regulatory approval. Under OTS regulations, a converted
savings association may not declare or pay a cash dividend if such payment would
reduce its net worth below the amount required for the liquidation account
created at the time the association was converted. In addition, OTS regulations
establish a three-tier system of regulation which imposes limitations on the
extent to which a savings association may make "capital distributions." A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements is classified as a tier one institution. Kokomo
is now, and expects to continue to be, a tier one institution and, therefore,
would be able to pay cash dividends to CIB, after prior notice but without the
approval of the OTS, up to 100% of its net income to date during the calendar
year, plus an amount that would reduce by one-half its "surplus capital ratio"
(the excess over its fully phased-in capital requirements) at the beginning of
the calendar year. Any additional amount of capital distributions would require
prior regulatory approval. Under these provisions, Kokomo could, without
regulatory approval, declare dividends of approximately $11.7 million to CIB at
September 30, 1994.
CERTAIN TRANSACTIONS BY BANK HOLDING COMPANIES WITH THEIR AFFILIATES
There are also various legal restrictions on the extent to which NCC, CIB
and most of their respective nondepository subsidiaries can borrow or otherwise
obtain credit from, or engage in certain other transactions ("covered
transactions") with, depository institution subsidiaries. Such borrowings and
other transactions by an insured depository institution with nondepository
affiliates are limited to the following amounts: (a) in the case of any one such
affiliate, the aggregate amount of covered transactions of the insured
depository institution and its subsidiaries cannot exceed 10% of the capital
stock and surplus of the insured depository institution; and (b) in the case of
all affiliates, the aggregate amount of covered transactions of the insured
depository institution and its subsidiaries cannot exceed 20% of the capital
stock and surplus of the insured depository institution. In addition, such
extensions of credit must be collateralized in prescribed amounts. Furthermore,
a bank holding company, a savings and loan holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
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<PAGE> 59
FDIC INSURANCE
The FDIC has the authority to raise the insurance premiums for institutions
in BIF and SAIF to a level necessary to achieve a target reserve level of 1.25%
of insured deposits within not more than 15 years. In addition, the FDIC has the
authority to impose special assessments in certain circumstances. The level of
deposit premiums affects the profitability of subsidiary banks and thrifts and
thus the potential flow of dividends to parent companies. See "Certain
Regulatory Considerations -- Payment of Dividends."
Under a transitional risk-based insurance assessment system that became
effective January 1, 1993, and other relevant information (such as supervisory
evaluations), the assessment rates under the new system range from 0.23%, to
0.31%, depending upon the assessment category into which the insured institution
is placed.
On June 17, 1993, the FDIC adopted a permanent risk-based assessment system
for assessment periods beginning on and after January 1, 1994. The permanent
system retains the transitional system without substantial modification.
The current SAIF insurance premium assessment schedule applicable to
savings associations like Kokomo could rise to pay for the resolution of
troubled institutions. Moreover, since the reserve ratio of BIF is currently
higher than that of SAIF, it is anticipated that BIF premiums may start
declining in the next year or so. Such events could cause a disparity between
the assessment rates of SAIF and BIF members.
CAPITAL
The FRB has adopted risk-based capital guidelines for bank holding
companies. The guidelines became fully phased in at the end of 1992. The minimum
guideline for the ratio of total capital ("Total Capital") to risk-weighted
assets (including certain off-balance-sheet items, such as standby letters of
credit) is 8%. To be considered well-capitalized, Total Capital must be at least
10%. At least half of minimum required Total Capital of 8% is to be composed of
common shareholders' equity, minority interests in the equity accounts of
consolidated subsidiaries and a limited amount of perpetual preferred stock,
less goodwill and certain other intangibles ("Tier 1 Capital"). To be considered
well-capitalized, Tier 1 Capital must be at least 6%. The remainder may consist
of subordinated debt, other preferred stock and a limited amount of loan and
lease loss allowance.
The following tables set forth the Tier 1 Capital to risk-weighted assets
ratios and the Total Capital to risk-weighted assets ratios for NCC and CIB
individually and on a pro forma combined basis as of June 30, 1994.
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS RATIO
(in each case calculated pursuant to the current
risk-based capital guidelines)
<TABLE>
<CAPTION>
PRO
FORMA
NCC CIB COMBINED
------ ------ --------
<S> <C> <C>
9.38% 23.04% 9.45%
</TABLE>
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS RATIO
(in each case calculated pursuant to the current
risk-based capital guidelines)
<TABLE>
<CAPTION>
PRO
FORMA
NCC CIB COMBINED
------ ------ --------
<S> <C> <C>
12.97% 24.85% 13.03%
</TABLE>
In addition, the FRB has established minimum leverage ratio guidelines for
bank holding companies. The guidelines provide for a minimum ratio of Tier 1
Capital to average total assets (excluding the loan and lease loss allowance,
goodwill and certain other intangibles) ( the "Leverage Ratio") of 3% for bank
holding companies that meet specified criteria, including having the highest
regulatory rating. To be considered well-capitalized, the
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<PAGE> 60
Leverage Ratio must be 5% or more. NCC's Leverage Ratio at June 30, 1994 was
7.98%. At June 30, 1994, on a pro forma combined basis, NCC's Leverage Ratio
would be 8.01%. The guidelines further provide that bank holding companies
making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels.
Savings and loan holding companies, such as CIB, are not subject to such
capital guidelines, but Kokomo is subject to substantially similar capital
requirements adopted by the OTS. At September 30, 1994, Kokomo's tangible
capital ratio, core capital ratio, and total risk-based capital ratios were
13.31%, 13.31%, and 24.85%, respectively. Thus, Kokomo had capital well in
excess of all applicable requirements.
Each of NCC's subsidiary banks is subject to similar capital requirements
adopted by the FRB, the Comptroller or the FDIC, as the case may be. At June 30,
1994, each of NCC's subsidiary banks had a Tier 1 Capital ratio and a Total
Capital ratio (computed under the current guidelines) in excess of 6% and 10%,
respectively. All of NCC's subsidiary banks are well-capitalized under the
current capital guidelines.
In the fourth quarter of 1992, the federal banking agencies adopted
regulations with respect to risk-based and leverage capital ratios that require
all intangibles, other than limited amounts of purchased mortgage servicing
rights and purchased credit card relationships, to be deducted from Tier 1
Capital. Federal banking agencies have recently adopted other modifications
related to risk-based and leverage capital ratios, and have proposed an
additional capital requirement tied to a bank's interest-rate risk. NCC and CIB
do not expect the aggregate impact on these regulatory changes to have a
significant impact on their capital position.
Failure to meet capital guidelines could subject an insured bank to a
variety of enforcement remedies, including the possible termination of deposit
insurance by the FDIC and a prohibition on the taking of brokered deposits. See
"FDICIA" below.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However, the managements of NCC and CIB are unable to predict whether and when
higher capital requirements might be imposed and, if they are imposed, at what
levels and on what schedule.
HOLDING COMPANY SUPPORT OF SUBSIDIARY BANKS AND SAVINGS BANKS
Under FRB policy, NCC is expected to act as a source of financial strength
to each of its subsidiary banks and to commit resources to support each of such
subsidiaries. This support may be required at times when, absent such FRB
policy, NCC would not otherwise be required to provide it. In addition, any
capital loans by NCC or CIB to a subsidiary bank or savings association would be
subordinate in right of payment to deposits and to certain other indebtedness of
such bank. In the event of a bank holding company's or savings and loan holding
company's bankruptcy, any commitment by the bank holding company or by the
savings and loan holding company to a federal bank regulatory agency to maintain
the capital of a subsidiary bank or savings association will be assumed by the
bankruptcy trustee and entitled to a priority of payment. This priority would
apply to guarantees of capital restoration plans under the Federal Deposit
Insurance Corporation Improvement Act of 1991. See "FDICIA" below.
Under FIRREA, a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled FDIC-insured
depository institution, or (ii) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution in danger of default.
The validity of this provision is currently the subject of judicial proceedings.
FDICIA
On December 19, 1991, a major banking bill entitled the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted. FDICIA
substantially revises the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and makes revisions to several other federal banking
statutes.
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<PAGE> 61
Among other things, FDICIA requires the federal banking regulators to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. The depository institution subsidiaries of
NCC and CIB have capital levels above the minimum requirements. See "CERTAIN
REGULATORY CONSIDERATIONS -- Capital" above. In addition, an institution that is
not well capitalized is generally prohibited from accepting brokered deposits
and offering interest rates on deposits higher than the prevailing rate in its
market; also, "pass through" insurance coverage may not be available for certain
employee benefit accounts. FDICIA also requires the holding company of any
undercapitalized depository institution to guarantee, in part, certain aspects
of such depository institution's capital plan for such plan to be acceptable.
NCC's and CIB's subsidiary depository institutions qualify as "well
capitalized."
FDICIA contains numerous other provisions, including accounting, audit and
reporting requirements, termination of the "too big to fail" doctrine beginning
in 1995 (except in special cases), limitations on the FDIC's payment of deposits
at foreign branches, new regulatory standards in such areas as asset quality,
earnings and compensation and revised regulatory standards for, among other
things, power of state banks, real estate lending and capital adequacy.
FDICIA also requires that a depository institution provide 90 days prior
notice of the closing of any branches.
RECENT AND PROPOSED LEGISLATION
The Riegle Community Development and Regulatory Improvement Act of 1994 was
recently signed into law. It includes new laws on high cost and reverse
mortgages, bank regulatory relief, community development banking, money
laundering and national flood insurance.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
also recently was enacted. It permits bank holding companies to acquire banks in
other states and, with state consent and subject to certain limitations, allows
banks to acquire out-of-state branches either through merger or de novo
expansion.
In addition, Congress is considering legislation that would consolidated
the federal supervision and regulation of all U.S. financial institutions into
one administrative body. It cannot be predicted with certainty whether or when
any such legislation may be enacted or the extent to which any such legislation
would affect the banking industry.
DESCRIPTION OF NCC CAPITAL STOCK
COMMON STOCK
General. NCC has 350,000,000 authorized shares of NCC Common, of which
150,148,676 shares were issued and outstanding on September 30, 1994, and an
additional 17,098,965 shares were reserved for issuance in connection with NCC's
Stock Option Plans (options to purchase 8,160,457 shares of NCC Common have been
granted and are outstanding) and Restricted Stock Plan (328,300 shares of NCC
Common have been awarded and are outstanding). The shares of NCC Common to be
issued in connection with the Merger will be validly issued, fully paid and
nonassessable. NCC Common is listed on the NYSE (Symbol: NCC). The transfer
agent, registrar and dividend disbursing agent for shares of NCC Common is
National City Bank, Cleveland.
Dividend and Liquidation Rights. Holders of NCC Common are entitled to
such dividends as may be declared by NCC's Board of Directors out of funds
legally available therefor. In the event of liquidation, holders of NCC Common
will be entitled to receive pro rata any assets distributable to stockholders in
respect of the number of shares held by them. The dividend and liquidation
rights of NCC Common are subject to the rights of any preferred stock of NCC.
Voting, Preemptive, Conversion and Redemption Rights. Holders of NCC
Common are entitled to one vote per share on all matters submitted to
stockholders and are not entitled to cumulative voting rights in the election of
directors or to preemptive rights for the purchase of additional shares of any
class of NCC's stock. NCC Common has no conversion or redemption rights.
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<PAGE> 62
PREFERRED STOCK
General. Under NCC's Certificate of Incorporation (the "NCC certificate"),
the Board of Directors of NCC is authorized without further stockholder action
to provide for the issuance of up to 5,000,000 shares of preferred stock,
without par value, in one or more series as the Board of Directors may
determine, and to fix the relative powers, preferences and rights (including
voting rights) of each such series of preferred stock in relation to the powers,
preferences and rights of any other series of preferred stock. Voting rights, if
any, may be general, special, conditional or limited. The Board of Directors of
NCC also has the discretion to determine the number of votes per share which
each holder of a share of a series of the preferred stock will have, but in no
event may any holder of any series of NCC preferred stock be entitled to more
than one vote per share. Additionally, the Board of Directors of NCC is
authorized to permit the holders of a series of preferred stock to vote
separately or together with the holders of one or more other series of preferred
stock on all or some matters as a separate voting group. NCC may, at its option,
elect to offer depositary shares evidenced by depositary receipts, each
representing a fractional interest in a share of the particular series of the
NCC preferred stock issued and deposited with a depositary selected by NCC.
Convertible Preferred Stock. By resolution dated April 11, 1991, the Board
of Directors of NCC designated a series of NCC preferred stock as 8% Cumulative
Convertible Preferred Stock, without par value, of NCC ("Convertible Preferred
Stock"). The number of shares constituting such series is 800,000, of which
757,160 shares (3,785,800 depositary shares) were issued and outstanding as of
September 30, 1994. Each depositary share of Convertible Preferred Stock (a
"Depositary Share") represents a one-fifth interest in a share of Convertible
Preferred Stock. The Depositary Shares are listed on the NYSE. The transfer
agent, registrar, dividend disbursing agent, redemption agent and depositary for
shares of Convertible Preferred Stock and Depositary Shares is National City
Bank, Cleveland.
Dividends. Holders of shares of Convertible Preferred Stock are entitled
to receive, when and as declared by the Board of Directors of NCC out of funds
legally available therefor, cash dividends at the rate of 8% per annum
(equivalent to $4.00 per Depositary Share). Dividends on Convertible Preferred
Stock are payable quarterly on February 1, May 1, August 1 and November 1 of
each year, commencing August 1, 1991, at such annual rate. Dividends are
cumulative from the date of original issue.
Redemption. Shares of Convertible Preferred Stock will not be redeemable
prior to May 1, 1996. The shares of Convertible Preferred Stock will be
redeemable at the option of NCC, in whole or in part, at any time or from time
to time, on or after May 1, 1996, on not less than 30 nor more than 60 days
notice by mail, at a redemption price of $260 per share (equivalent to $52.00
per Depositary Share) during the period from May 1, 1996 to but not including
May 1, 1997, and thereafter at the redemption prices set forth below during the
12-month periods beginning on May 1, of the years shown below, plus in each case
accrued and unpaid dividends to the redemption date.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE PER SHARE
---- --------------------------
<S> <C>
1997............................ $258 (equivalent to $51.60 per Depositary Share)
1998............................ $256 (equivalent to $51.20 per Depositary Share)
1999............................ $254 (equivalent to $50.80 per Depositary Share)
2000............................ $252 (equivalent to $50.40 per Depositary Share)
2001 and thereafter............. $250 (equivalent to $50.00 per Depositary Share)
</TABLE>
Convertible Preferred Stock will not be subject to any sinking fund or
other obligation of NCC to redeem or retire Convertible Preferred Stock.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of NCC, the holders of shares of
Convertible Preferred Stock are entitled to receive out of assets of NCC
available for distribution to stockholders, before any distribution of assets is
made to holders of NCC Common or of any other shares of stock of NCC ranking as
to such a distribution junior to the shares of Convertible Preferred Stock,
liquidating distributions in the amount of $250 per share (equivalent to $50 per
Depositary Share) plus accrued
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<PAGE> 63
and unpaid dividends. After payment of such liquidating distributions, the
holders of shares of Convertible Preferred Stock will not be entitled to any
further participation in any distribution of assets by NCC.
Voting Rights. Except as indicated below, or except as expressly required
under the DGCL, the holders of Convertible Preferred Stock will have no voting
rights.
If the equivalent of six quarterly dividends payable on Convertible
Preferred Stock is in arrears, the number of directors of NCC will be increased
by two, and the holders of Convertible Preferred Stock, voting separately as a
class with the holders of shares of any one or more other series of preferred
stock of NCC ranking on a parity with Convertible Preferred Stock, whether as to
payment of dividends or the distribution of assets and upon which like voting
rights have been conferred and are exercisable, will be entitled to elect two
directors to fill such vacancies. Such right to elect two additional directors
shall continue until all dividends in arrears have been paid or declared and set
apart for payment. Each director elected by the holders of shares of Convertible
Preferred Stock and all other classes of preferred stock of NCC whose holders
are so entitled to vote shall continue to serve as such director for the full
term for which he shall have been elected, notwithstanding that prior to the end
of such term such default shall cease to exist.
Unless the vote or consent of the holders of a greater number of shares
shall then be required under the DGCL, the affirmative vote or consent of the
holders of at least 66 2/3% of the outstanding shares of Convertible Preferred
Stock and any one or more other series of preferred stock of NCC similarly
affected, voting separately as a single class, without regard to series, will be
required for any amendment, alteration or repeal of NCC's Certificate (or any
certificate amendatory thereof or supplemental thereto providing for the capital
stock of NCC, including any Certificate of Designation or similar document
relating to such series) which would adversely affect the preferences, rights,
powers or privileges of Convertible Preferred Stock and any such other series of
NCC's preferred stock. Unless the vote or consent of the holders of a greater
number of shares shall then be required by law, the affirmative vote or consent
of the holders of at least 66 2/3% of the outstanding shares of Convertible
Preferred Stock and any other series of preferred stock of NCC ranking on a
parity with Convertible Preferred Stock either as to dividends or upon
distribution of assets, voting as a single class, without regard to series, will
be required to create, authorize or issue, or reclassify any authorized stock of
NCC into, or create, authorize or issue any obligation or security convertible
into or evidencing a right to purchase, any shares of any class of stock of NCC
ranking prior to Convertible Preferred Stock and any other series of preferred
stock of NCC ranking on a parity with Convertible Preferred Stock as to
dividends or upon distribution of assets. Subject to the foregoing, NCC's
Certificate may be amended to increase the number of authorized shares of
preferred stock of NCC without the vote of the holders of the outstanding
preferred stock of NCC, including the Convertible Preferred Stock.
Under interpretations adopted by the FRB, if the holders of shares of any
series of preferred stock of NCC (including, in this case, Convertible Preferred
Stock) become entitled to vote for the election of directors because dividends
on such series are in arrears, such series may then be deemed a "class of voting
securities" and a holder of 25% or more of such series (or a holder of 5% or
more if it otherwise exercises a "controlling influence" over NCC) may then be
subject to regulation as a bank holding company in accordance with the BHCA. In
addition, at such time as such series is deemed a class of voting securities,
(a) any other bank holding company may be required to obtain the approval of the
FRB under the BHCA to acquire or retain 5% or more of such series and (b) any
person other than a bank holding company may be required to obtain the approval
of the FRB under the Change in Bank Control Act to acquire or retain 10% or more
of such series.
Conversion Rights. Shares of Convertible Preferred Stock are convertible
at any time at the option of the holder thereof into shares of NCC Common at a
conversion price of $20.975 per share of NCC Common (equivalent to a conversion
rate of approximately 2.384 NCC Common shares for each Depositary Share),
subject to adjustment as described below (except that a share of Convertible
Preferred Stock or a Depositary Share which has been called for redemption will
be convertible up to and including but not after the close of business on the
tenth day preceding the date fixed for redemption thereof). For purposes of such
conversion, each share of Convertible Preferred Stock will be valued at $250
(equivalent to $50 for each Depositary Share).
In the case of any consolidation or merger to which NCC is a party (other
than a merger or consolidation in which NCC is the continuing corporation), or
in case of any sale or conveyance to another corporation of the
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<PAGE> 64
property of NCC as an entirety or substantially as an entirety, or in case of
any statutory exchange of securities with another corporation, there will be no
adjustment of the conversion price but the holder of each share of Convertible
Preferred Stock then outstanding will have the right thereafter to convert such
share into the kind and amount of securities, cash or other property which such
holder would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale or conveyance had such share
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale or conveyance.
The conversion price is subject to adjustment upon certain events,
including the issuance of NCC Common as a dividend or distribution on shares of
NCC Common; subdivisions, combinations or reclassifications of NCC Common; the
issuance to holders of NCC Common generally of rights or warrants to subscribe
for NCC Common at less than the then current market price; or the distribution
to the holders of NCC Common generally of evidences of indebtedness, assets
(excluding dividends in cash out of retained earnings) or rights or warrants to
subscribe for securities of NCC other than those mentioned above.
Fractional shares of NCC Common will not be delivered upon conversion, but
a cash adjustment will be paid in respect of such fractional interests, based on
the then current market price of NCC Common.
DESCRIPTION OF CIB CAPITAL STOCK
General. CIB is authorized to issue 5,000,000 shares of CIB Common,
without par value, all of which have identical rights and preferences, and
2,000,000 shares of Preferred Stock, without par value. As of November 14, 1994,
1,645,213 shares of CIB Common and no shares of Preferred Stock were issued and
outstanding and 90,393 shares of CIB Common were reserved for issuance pursuant
to options outstanding under CIB's Option Plans. The CIB Common is listed on the
NASDAQ under the symbol "KOKO." As of November 14, 1994, CIB had shareholders
of record. The transfer agent registrar and dividend disbursing agent for shares
of CIB Common is Bank One Indianapolis, NA.
Dividend and Liquidation Rights. Holders of CIB Common are entitled to
such dividends as may be declared by CIB's Board of Directors out of funds
legally available therefor. In the event of the liquidation or dissolution of
CIB, the holders of the CIB Common will be entitled to receive -- after payment
or provision for payment of all debts and liabilities of CIB -- all assets of
CIB available for distribution, in cash or in kind.
Voting, Preemptive, Conversion and Redemption Rights. Each holder of CIB
Common is entitled to one vote for each share held on all matters voted upon by
shareholders, subject to the limitations contained in Article 11 of CIB's
Articles of Incorporation. See "Proposed Amendment to the Articles of
Incorporation of CIB." There are no cumulative voting rights for the election of
directors.
Shareholders of CIB have no preemptive rights to acquire additional shares
of CIB Common which may be subsequently issued. The CIB Common has no conversion
or redemption rights.
Preferred Stock. The Board of Directors of CIB is authorized to issue
preferred stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. Preferred stock may rank prior to the CIB Common as to dividend rights,
liquidation preferences, or both, and may have full or limited voting rights.
The holders of preferred stock will be entitled to vote as a separate class or
series under certain circumstances, regardless of any other voting rights which
such holders may have.
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<PAGE> 65
The following table sets forth market price information for CIB Common for
the periods indicated:
<TABLE>
<CAPTION>
HIGH SALE LOW SALE
--------- --------
<S> <C> <C>
Fiscal Quarter Ended
December 31, 1992.................... $ 15.00 $12.94
March 31, 1993....................... 17.72 14.63
June 30, 1993........................ 27.50 16.88
September 30, 1993................... 27.75 21.50
December 31, 1993.................... 27.25 22.75
March 31, 1994....................... 27.00 22.75
June 30, 1994........................ 26.75 25.25
September 30, 1994................... 28.25 24.75
</TABLE>
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<PAGE> 66
GENERAL COMPARISON OF NCC AND CIB CAPITAL STOCK
GENERAL
If the shareholders of CIB approve the Merger Agreement, and the Merger is
subsequently consummated, all shareholders of CIB will become stockholders of
NCC. NCC is a corporation organized under, and governed by, the DGCL, whereas
CIB is a corporation organized under, and governed by, the IBCL.
The following is a brief summary of certain differences between the
Delaware corporate laws applicable to NCC and the Indiana corporate laws
applicable to CIB and certain differences between NCC's Certificate and By-Laws
and CIB's Articles and By-Laws. The purpose of this summary is to briefly
indicate the differences between holding NCC capital stock and CIB capital stock
to the extent such differences are created by the state corporation laws
applicable to NCC and CIB or arise because of differences between NCC's
Certificate and By-Laws and CIB's Articles and By-Laws. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DGCL, THE IBCL, NCC'S CERTIFICATE
AND BY-LAWS AND CIB'S ARTICLES AND BY-LAWS.
DIRECTORS
NCC's By-Laws provide that the number of directors of NCC shall be
determined by resolution of the Board of Directors, that such directors shall be
elected at the annual meeting of the stockholders of NCC, and that each director
elected shall hold office until his or her successor is duly elected and shall
qualify. The number of directors is currently set at 18. Section 141 of the DGCL
provides that any director or the entire board of directors may be removed, with
or without cause, by the holders of a majority of shares then entitled to vote
at an election of directors. The DGCL provides that, unless the governing
documents of a corporation provide otherwise, vacancies and newly created
directorships resulting from a resignation or any increase in the authorized
number of directors elected by all of the stockholders having the right to vote
as a single class may be filled by a majority of the directors (or sole
director, if applicable) then in office. The NCC Certificate provides that newly
created directorships resulting from any increase in the number of directors and
any vacancy in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or any other cause shall be
filled by the Board of Directors. CIB's Articles provide that the size of the
Board shall range between 5 and 15 directors, with the exact number to be fixed
by resolution adopted by a majority of the total number of CIB directors. The
CIB Board is divided into three classes, with directors in each class elected
for three-year staggered terms. Directors may be removed only for cause and only
by the affirmative vote of 80% of the shares eligible to vote for directors.
Removal for "cause" is limited to the grounds for termination in the OTS
regulation relating to employment contracts of federally-insured savings
associations.
CIB's Articles of Incorporation provide that any vacancy occurring in the
Board of Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term only by a
majority vote of the directors then in office.
LIMITATION OF DIRECTOR LIABILITY IN CERTAIN CIRCUMSTANCES
As permitted by the DGCL, Article Seventh of NCC's Certificate provides
that directors of NCC shall not be liable personally to NCC or its stockholders
for monetary damages for breach of fiduciary duty as a director except for
liability arising out of (a) any breach of the director's duty of loyalty to NCC
or its stockholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) payment of a dividend
or approval of a stock repurchase in violation of Section 174 of the DGCL or (d)
any transaction from which the director derived an improper personal benefit.
This provision protects NCC directors against personal liability for monetary
damages from breaches of their duty of care. Under Delaware law, absent adoption
of Article Seventh, directors can be held liable for gross negligence in
connection with decisions made on behalf of the corporation in the performance
of their duty of care, but may not be liable for simple negligence. Although
Article Seventh provides NCC directors with protection from certain awards of
monetary damages for breaches of their duty of care, it does not eliminate the
director's duty of care. Accordingly, Article Seventh has no effect on the
availability of equitable remedies, such as an injunction or rescission, based
upon a director's breach of his duty of care. Article Seventh does not apply to
officers of NCC who are not directors of NCC.
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Section 23-1-35-1 of the IBCL provides that directors of CIB shall not be
liable for any action taken or not taken as a director except for liability
arising out of (a) any breach or failure to perform the duties of the director's
office in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a manner reasonably
believed to be in the best interests of the corporation, and (b) any such breach
or failure to perform which constitutes willful misconduct or recklessness.
CIB's Articles of Incorporation extend similar protections to directors,
officers, employees and agents of CIB.
INDEMNIFICATION AND INSURANCE
NCC. Under Section 145 of the DGCL, directors, officers, employees and
other individuals may be indemnified against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with
specified actions, suits or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation --
a "derivative action") if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, regarding any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful. A similar standard is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such actions. The DGCL requires court approval before there can be
any indemnification where the person seeking indemnification has been found
liable to the corporation. To the extent that a person otherwise eligible to be
indemnified is successful on the merits of any claim or defense described above,
indemnification for expenses (including attorneys' fees) actually and reasonably
incurred is mandated by the DGCL.
Article VI of NCC's By-Laws provides that NCC must indemnify, to the
fullest extent authorized by the DGCL, each person who was or is made party to,
is threatened to be made a party to, or is involved in, any action, suit or
proceeding because he is or was a director, officer or employee of NCC or of any
NCC subsidiary (or was serving at the request of NCC as a director, trustee,
officer, employee or agent of another entity) while serving in such capacity
against all expenses, liabilities or loss incurred by such person in connection
therewith. The amount of any indemnification to which any person shall otherwise
be entitled under Article VI shall be reduced to the extent that such person
shall otherwise be entitled to valid and collectible indemnification provided by
a subsidiary of NCC or any other source.
Article VI also provides that NCC may pay expenses incurred in defending
the proceedings specified above in advance of their final disposition. NCC may
advance expenses to any director, officer or employee only upon delivery to NCC
of an undertaking by the indemnified party stating that he has reasonably
incurred or will reasonably incur actual expenses in defending an actual civil
or criminal suit, action or proceeding in his capacity as such director, officer
or employee, or arising out of his status as such director, officer or employee,
and that he undertakes to repay all amounts so advanced if it is ultimately
determined that the person receiving such payments is not entitled to be
indemnified.
Finally, Article VI provides that NCC may maintain insurance, at its
expense, to protect itself and any of its directors, officers, employees or
agents against any expense, liability or loss, regardless of whether NCC has the
power or obligation to indemnify that person against such expense, liability or
loss under the provisions of Article VI.
The right to indemnification is not exclusive of any other right which any
person may have or acquire under any statute, provision of NCC's Certificate or
By-Laws, or otherwise. Additionally, no amendment to NCC's Certificate can
increase the liability of any director or officer for any act or omission by him
prior to such amendment.
CIB. Chapter 37 of the IBCL provides for both mandatory and permissive
indemnification of CIB's directors, officers, employees and agents who are made
parties to proceedings as a result of conduct in their official capacity.
Chapter 37 requires CIB to indemnify any director or officer against reasonable
expenses incurred in the defense of such a proceeding generally if the
individual is wholly successful on the merits. Chapter 37 authorizes CIB to
indemnify any director, officer, employee or agent against liability incurred in
such a proceeding generally if the individual's conduct was in good faith and
the individual reasonably believed his conduct was in CIB's best interests.
Chapter 37 further authorizes any court of competent jurisdiction to order
indemnification generally if the court determines a director or officer is
entitled to mandatory indemnification or
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is otherwise fairly and reasonably entitled to indemnification in view of all
the relevant circumstances. Chapter 37 authorizes indemnification to reimburse
reasonable expenses in advance of final disposition of a proceeding generally if
the individual affirms in writing a good faith belief he satisfies the standard
of conduct for permissive indemnification, the individual undertakes in a signed
writing to repay the advance if it is determined he does not satisfy the
standard of conduct for permissive indemnification and CIB determines that the
facts then known do not preclude indemnification. Lastly, Chapter 37 authorizes
further indemnification to the extent that CIB may provide in its Articles of
Incorporation, By-laws, Board of Directors or shareholder resolution, or other
authorization adopted by a majority vote of its voting shares then issued and
outstanding.
Article 13 of CIB's Articles of Incorporation generally provides for
indemnification of any person who is or was a director, officer, employee, or
agent of CIB, or who served at CIB's request as a director, officer, employee,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. To qualify for
indemnification, such a person generally must have been successful on the merits
or otherwise, or (i) must have acted in good faith and in a manner he reasonably
believed, in the case of conduct in his official capacity, was in the best
interest of CIB, and, in all other cases, was not opposed to CIB's best
interests and (ii) in any criminal proceeding, either had reasonable cause to
believe that his conduct was lawful or had no reasonable cause to believe that
his conduct was unlawful. A person who qualifies for indemnification generally
is entitled to indemnity for any obligation to pay any judgments, settlements,
penalties, fines and expenses actually or reasonably incurred in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal, in which he or
she was made a party as a result of his or her service on behalf of CIB.
To the extent that a director, officer, employee or agent of CIB has been
successful, on the merits or otherwise, in the defense of any action, suit or
proceeding, or in the defense of any claim, issue or matter therein, CIB shall
indemnify such person against expenses (including counsel fees) actually and
reasonably incurred by such person in connection therewith. Any other
indemnification (unless ordered by a court) shall be made by CIB only as
authorized in the specific case, upon the determination that indemnification of
the director, officer, employee or agent is permissible in the circumstances
because he has met the applicable standard of conduct. Such determination shall
be made (1) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not at the time parties to such action, suit or
proceeding; or (2) if a quorum cannot be obtained under subdivision (1), by a
majority vote of a committee duly designated by the Board of Directors (in which
designation directors who are parties may participate), consisting solely of two
or more directors not at the time parties to such action, suit or proceeding; or
(3) by special legal counsel: (A) selected by the Board of Directors or its
committee in the manner prescribed in subdivision (1) or (2), or (B) if a quorum
of the Board of Directors cannot be obtained under subdivision (1) and a
committee cannot be designated under subdivision (2), selected by a majority
vote of the full Board of Directors (in which selection directors who are
parties may participate); or (4) by the shareholders, but shares owned by or
voted under the control of directors who are at the time parties to such action,
suit or proceeding may not be voted on the determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection (3)
to select counsel.
ANTITAKEOVER STATUTES
Delaware Business Combination Statute. Section 203 of the DGCL ("Section
203"), which applies to NCC, regulates transactions with major stockholders
after they become major stockholders. Section 203 prohibits a Delaware
corporation from engaging in mergers, dispositions of 10% or more of its assets,
issuances of stock and other transactions ("business combinations") with a
person or group that owns 15% or more of the voting stock of the corporation (an
"interested stockholder"), for a period of three years after the interested
stockholder crosses the 15% threshold. These restrictions on transactions
involving an interested stockholder do not apply if (a) before the interested
stockholder owned 15% or more of the voting stock, the board of directors
approved the business combination or the transaction that resulted in the person
or group becoming an interested stockholder; (b) in the transaction that
resulted in the person or group becoming an interested stockholder, the person
or group acquired at least 85% of the voting stock other than stock owned by
inside directors and certain employee stock
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plans; (c) after the person or group became an interested stockholder, the board
of directors and at least two-thirds of the voting stock other than stock owned
by the interested stockholder approves the business combination; or (d) certain
competitive bidding circumstances.
Indiana Control Share Acquisitions Statute. Chapter 42 of the IBCL, the
Indiana Control Share Acquisitions Statute, restricts the voting rights of
certain shares ("control shares") that, except for Chapter 42, would have voting
power with respect to shares of an issuing public corporation and that, when
added to all other shares of such corporation owned by a person, would entitle
that person, immediately after the acquisition of such shares, to exercise or
direct the exercise of the voting power of such corporation in the election of
directors within any of the following ranges of voting power: (a) one-fifth or
more but less than one-third of all voting power; (b) one-third or more but less
than a majority of all voting power; and (c) a majority or more of all voting
power (a "control share acquisition"). The voting rights of such control shares
are restricted to those rights granted by a resolution approved by the holders
of a majority of the outstanding voting shares, excluding the voting shares
owned by the acquiring shareholder and certain other "interested shares," which
includes shares owned by officers of the issuing corporation and employees of
the issuing corporation that are also directors of the issuing corporation.
Chapter 42 does not apply to the acquisition of shares of an issuing public
corporation if the acquisition is consummated (a) before January 8, 1986; (b)
pursuant to a contract existing before January 8, 1986; (c) pursuant to the laws
of descent and distribution; (d) pursuant to a satisfaction of a pledge or other
security interest created in good faith and not for the purposes of
circumventing the statute; or (e) pursuant to a merger or plan of shares
exchange effected in compliance with IBCL Section 23-1-40 if the issuing public
corporation is a party to the agreement of merger or plan of share exchange.
Because CIB, as the issuing corporation, is a party to the Merger, which is
being effected in compliance with IBCL Section 23-1-40, NCC's acquisition of CIB
shares in connection with the Merger will not be considered a control share
acquisition.
Indiana Business Combination Statute. Chapter 43 of the IBCL is similar,
but not identical, to Section 203 of the DLGL. Chapter 43 prohibits Indiana
corporations from engaging in certain transactions (including mergers,
consolidations, asset sales, liquidations or dissolutions, reclassifications,
recapitalizations, disproportionate share conversions, loans, advances, other
financial assistance, or tax benefits not received proportionately by all
shareholders) (each, a "business combination") with a person that is the
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding voting shares of the Indiana corporation (an "interested
shareholder") for a period of five years after such person becomes an interested
shareholder unless, prior to the date the interested shareholder becomes an
interested shareholder, the board of directors of the Indiana corporation
approves either the transaction in which such person becomes an interested
shareholder or such business combination. Following the five-year moratorium
period, the Indiana corporation may engage in certain business combinations with
an interested shareholder only if, among other things, (a) the business
combination is approved by the affirmative vote of the holders of a majority of
the outstanding voting shares not beneficially owned by the interested
shareholder proposing the business combination or (b) the business combination
meets certain criteria designed to ensure that the remaining shareholders
receive fair consideration for their shares. Chapter 43 of the IBCL will not
apply to the Merger Agreement or the grant or exercise of the Option because
CIB's Board of Directors approved the Merger Agreement prior to the date of the
granting of the Option.
Other Provisions. The IBCL also specifically authorizes directors, in
considering the best interests of an Indiana corporation, to consider the
effects of any action on shareholders, employees, suppliers, and customers of
the corporation, and communities in which offices or other facilities of the
corporation are located, and any other factors the directors consider pertinent.
Under the IBCL, directors are not required to approve a proposed business
combination or other corporate action if the directors determine in good faith
that such approval is not in the best interest of the corporation. In addition,
the IBCL states that directors are not required to redeem any rights under, or
render inapplicable, a shareholder rights plan or to take or decline to take any
other action solely because of the effect such action might have on a proposed
change of control of the corporation or the amounts to be paid to shareholders
upon such change of control. The IBCL explicitly provides that the different or
higher degree of scrutiny imposed in Delaware and certain other jurisdictions
upon director actions taken in response to
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potential changes in control will not apply. The Delaware Supreme Court has held
that defensive measures in response to a potential takeover must be "reasonable
in relation to the threat posed."
In taking or declining to take any action or in making any recommendation
to a corporation's shareholders with respect to any matter, directors are
authorized under the IBCL to consider both the short-term and long-term
interests of the corporation as well as interests of other constituencies and
other relevant factors. Any determination made with respect to the foregoing by
a majority of the disinterested directors shall conclusively be presumed to be
valid unless it can be demonstrated that such determination was not made in good
faith after reasonable investigation.
Because of the foregoing provisions of the IBCL, the board of directors of
an Indiana corporation will have flexibility in responding to unsolicited
acquisition proposals, and accordingly it may be more difficult for an acquiror
to gain control of the corporation in a transaction not approved by the board.
ISSUANCE OF PREFERRED STOCK
NCC's Certificate and CIB's Articles authorize the Board of Directors of
the respective companies to issue shares of preferred stock, from time to time,
in one or more series as the Boards of Directors may determine, and to fix the
relative powers, preferences and rights (including voting rights) of each such
series of preferred stock in relation to the powers, preferences and rights of
any other series of preferred stock. Voting rights, if any, may be general,
special, conditional or limited. The Boards of Directors of NCC and CIB also
have the discretion to determine the number of votes per share which each holder
of a share of a series of the preferred stock will have, but in no event may any
holder of any series of NCC preferred stock be entitled to more than one vote
per share. Additionally, the Boards of Directors of NCC and CIB are authorized
to permit the holders of a series of preferred stock to vote separately or
together with the holders of one or more other series of preferred stock on all
or some matters as a separate voting group. Except with respect to the number of
votes per share, NCC's Certificate does not materially differ from the
provisions of CIB's Articles with respect to the ability of the Boards of
Directors of NCC and CIB to issue preferred stock in one or more series and to
fix the relative powers, preferences and rights of each such series in relation
to the powers, preferences and rights of any other series of preferred stock.
The power of the Boards of Directors of NCC and CIB to issue preferred stock
with voting or other powers, preferences and rights may be used to impede or
discourage a takeover attempt. See "DESCRIPTION OF NCC CAPITAL STOCK --
Preferred Stock" and "DESCRIPTION OF CIB CAPITAL STOCK -- Preferred Stock --
General."
Generally, the issuance of preferred stock by NCC could (a) result in a
class of securities outstanding which will have certain preferences regarding
distributions in a liquidation over NCC Common and might provide for certain
rights (whether general, special, conditional or limited) that could dilute the
voting rights of NCC Common and (b) result in dilution of the net income per
share and net book value per share relating to NCC Common. Further, the issuance
of any additional shares of NCC Common, pursuant to any conversion rights
granted holders of any preferred stock, may also result in dilution of the
voting rights, net income per share and net book value of NCC Common.
Specifically, the terms of NCC's New Preferred Stock provide that in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
NCC, the holders of shares of New Preferred Stock are entitled to receive out of
the assets of NCC available for distribution to stockholders, before any
distribution of assets is made to holders of NCC Common, liquidation
distributions in the amount of $250 per share (equivalent to $50 per Depositary
Share) plus accrued and unpaid dividends. Additionally, if the equivalent of six
quarterly dividends payable on the New Preferred Stock is in arrears, the number
of directors of NCC will be increased by two, and the holders of New Preferred
Stock will be entitled to elect two directors to fill such vacancies. Such right
to elect two additional directors shall continue until all dividends in arrears
have been paid or declared and set apart for payment. Finally, shares of New
Preferred Stock are convertible at any time at the option of the holder thereof
into shares of NCC Common at a conversion price of $20.975 per share of NCC
Common (equivalent to a conversion rate of approximately 11.919 shares of NCC
Common for each share of New Preferred Stock and 2.384 shares for each
Depository Share). See "DESCRIPTION OF NCC CAPITAL STOCK -- Preferred Stock."
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CUMULATIVE VOTING
Section 214 of the DGCL provides that no cumulative voting rights, in
respect of elections of directors, exist under Delaware Law, unless a
corporation's certificate of incorporation provides otherwise. NCC's Certificate
does not provide for cumulative voting in elections of directors.
Section 23-1-30 of the IBCL also provides that shareholders do not have the
right to cumulate their votes for directors unless a corporation's articles of
incorporation so provide. CIB's Articles do not provide for cumulative voting in
election of directors.
ACTION WITHOUT A MEETING
Section 228 of the DGCL permits any action required or permitted to be
taken at a stockholder's meeting to be taken by written consent signed by the
holders of the number of shares that would have been required to effect the
action at an actual meeting of the stockholders. Generally, holders of a
majority of outstanding shares can effect such an action. The DGCL also provides
that a corporation's certificate of incorporation may restrict or even prohibit
stockholders' action without a meeting. NCC's Certificate does not restrict or
prohibit stockholders' action without a meeting.
Under Section 23-1-29-4 of the IBCL, any action required or permitted to be
taken at a shareholders' meeting may be taken without a meeting by written
consent signed by all of the shareholders entitled to vote on such action.
SPECIAL MEETINGS
Under Section 211(d) of the DGCL, the board of directors or those persons
authorized by the corporation's certificate of incorporation or by-laws may call
a special meeting of the corporation's stockholders. NCC's By-Laws provide that
a special meeting may be called by the Chairman of the Board and must be called
by the Chairman of the Board or Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of stockholders
owning a majority in amount of the entire capital stock of NCC issued and
outstanding and entitled to vote.
In comparison, Section 23-1-29-2 of the IBCL requires a corporation of 50
or more shareholders to hold a special meeting on call of its board of directors
or the person or persons (including, but not limited to, shareholders or
officers) specifically authorized to do so by the articles of incorporation or
bylaws. CIB's By-Laws provide that a special meeting may only be called by the
Chairman of the Board of CIB or pursuant to a resolution adopted by a majority
of the total number of directors of CIB. Shareholders are not authorized to call
a special meeting.
VOTING, APPRAISAL RIGHTS AND CORPORATE REORGANIZATIONS
The DGCL generally requires a majority vote of stockholders to approve a
merger, sale of assets or similar reorganization transaction. Under Section
251(f) of the DGCL, however, no vote of the stockholders of a corporation
surviving the merger is required if the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the date of the merger and if certain other
conditions are met. The adoption and approval of the Merger Agreement by the
stockholders of NCC is not required under the DGCL.
Section 262 of the DGCL does not provide for dissenters' rights of
appraisal for (a) the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) a merger by a corporation, the shares of which are
either listed on a national securities exchange or held by more than 2,000
stockholders if such stockholders receive shares of the surviving corporation or
of a listed or widely held corporation or (c) stockholders of a corporation
surviving a merger if no vote of such stockholders is required to approve the
merger. See "MERGER -- Appraisal and Dissenters' Rights -- NCC."
The IBCL also requires a majority vote of shareholders to approve a plan of
merger or share exchange. This requirement is modified by CIB's Articles of
Incorporation in one significant respect. CIB's Articles of Incorporation
require that certain business combinations between CIB (or any majority-owned
subsidiary thereof)
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and a 10% or greater shareholder either (i) be approved by at least 80% of the
total number of outstanding voting shares of CIB, or (ii) be approved by a
majority of certain directors unaffiliated with such 10% or greater shareholder
or involve consideration per share generally equal to the higher of (A) the
highest amount paid by such 10% shareholder or its affiliates in acquiring any
shares of the CIB Common or (B) the "Fair Market Value" (generally, the highest
closing sale price of the CIB Common during the thirty days preceding the date
of the announcement of the proposed business combination or on the date the 10%
or greater shareholder became such, whichever is higher). The adoption of the
Merger Agreement by the affirmative vote of the holders of the majority of the
shares of CIB Common eligible to vote is a condition to the parties' obligation
to close.
Section 23-1-44-8 of the IBCL does not provide for dissenters' rights for a
merger or plan of share exchange by a corporation the shares of which are (a)
registered on a United States securities exchange registered under the Exchange
Act, or (b) traded on NASDAQ or a similar market. See "MERGER -- Appraisal and
Dissenters' Rights -- CIB."
Limitations on 10% Shareholders. CIB's Articles of Incorporation provide
that for a period of five years following the date on which CIB issued its first
share of capital stock (i.e., until July 1, 1996): (i) no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of equity security of CIB (provided that such limitation shall
not apply to the acquisition of equity securities by any one or more
tax-qualified employee stock benefit plans maintained by CIB, if the plan or
plans beneficially own no more than 25% of any class of such equity security of
CIB); and that (ii) shares beneficially owned in violation of the stock
ownership restriction described above shall not be entitled to vote and shall
not be voted by any person or counted as voting stock in connection with any
matter submitted to a vote of shareholders. For these purposes, a person
(including management) who has obtained the right to vote shares of the CIB
Common pursuant to revocable proxies shall not be deemed to be the "beneficial
owner" of those shares if that person is not otherwise deemed to be a beneficial
owner of those shares.
Amendments to Charter Documents. The DGCL requires approval of
stockholders holding a majority of the voting power of NCC in order to amend
NCC's Certificate. Amendments to CIB's Articles of Incorporation must be
approved by a majority vote of CIB's Board of Directors and also by a majority
of the outstanding shares of CIB's voting shares; provided, however, that
approval by at least 80% of the outstanding voting shares is required for
certain provisions (i.e., provisions relating to number, classification, and
removal of directors; amendment of the By-laws; call of special shareholder
meetings; criteria for evaluating certain offers; certain business combinations;
and amendments to provisions relating to the foregoing). The provisions
concerning limitations on the acquisition of shares which are in effect for a
five-year period may be amended only by an 80% vote of CIB's outstanding shares
unless at least two-thirds of CIB's Continuing Directors (directors of CIB on
March 15, 1991, or directors recommended for appointment or election by a
majority of such directors) approve such amendments in advance of their
submission to a vote of shareholders (in which case only the vote required by
the IBCL is required).
BY-LAWS
Section 109 of the DGCL places the power to adopt, amend or repeal by-laws
in the corporation's shareholders, but permits the corporation, in its
certificate of incorporation, also to vest such power with the board of
directors. NCC's Certificate contains such a provision. Although the Board of
Directors of NCC has been vested with such authority, NCC's stockholders' power
to adopt, amend or repeal by-laws remains unrestricted. CIB's Articles provide
that its by-laws may only be amended by a majority vote of the total number of
directors of CIB. This is consistent with IBCL Section 23-1-39-1, which provides
that the Board of Directors has the power to amend the by-laws unless the
Articles of Incorporation provide otherwise.
PREEMPTIVE RIGHTS
Under Section 102 of the DGCL, no statutory preemptive rights will exist,
unless a corporation's certificate of incorporation specifies otherwise. NCC's
Certificate does not provide for any such preemptive rights.
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IBCL Section 23-1-27-1 provides that the shareholders of a corporation do
not have a preemptive right to acquire a corporation's unissued shares except to
the extent the articles of incorporation so provide. CIB's Articles do not
provide for any such preemptive rights.
DIVIDENDS
Delaware corporations may pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which declared and for the
preceding fiscal year. Section 170 of the DGCL also provides that dividends may
not be paid out of net profits if, after the payment of the dividend, capital is
less than the capital represented by the outstanding stock of all classes having
a preference upon the distribution of assets.
In comparison, the IBCL does not permit dividend distributions if, after
giving effect to the proposed dividend, (a) the corporation would be unable to
pay its debts as they become due in the ordinary course of business, or (b) the
corporation's total assets would be less than the sum of its total liabilities
plus (unless the articles of incorporation permit otherwise) the amount that
would be needed, if the corporation were to be dissolved at the time of
distribution, to satisfy the preferential rights (if any) of shareholders whose
preferential rights are superior to those shareholders receiving the
distribution.
NCC is subject to the FRB policies regarding payment of dividends, which
generally limit dividends to operating earnings. See "CERTAIN REGULATORY
CONSIDERATIONS -- Payment of Dividends." Generally, there is no OTS regulatory
restriction on the payment of dividends by CIB absent a determination by the
Director of the OTS that there is reasonable cause to believe that the payment
of dividends constitutes a serious risk to the financial safety, soundness or
stability of Kokomo.
EXPERTS
The consolidated financial statements of NCC appearing in NCC's Annual
Report on Form 10-K for the year ended December 31, 1993, have been audited by
Ernst & Young, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of CIB included herewith have been
examined by Crowe, Chizek & Company as independent auditors for the periods
indicated in their Report of Independent Auditors dated October 24, 1994, and
have been included in reliance upon their report given upon their authority as
experts in auditing and accounting.
LEGAL OPINIONS
The validity of the NCC Common will be passed upon by Jones, Day, Reavis &
Pogue, North Point, 901 Lakeside Avenue, Cleveland, Ohio 44114, which has
banking relationships with certain banking subsidiaries of NCC.
The Merger Agreement provides as a condition to the parties' obligation to
close that NCC and CIB shall have received the opinion of Barnes & Thornburg,
substantially to the effect, among other things, that no gain or loss will be
recognized by the shareholders of CIB who exchange their shares of CIB Common
solely for shares of NCC Common pursuant to the Merger (except with respect to
cash received in lieu of a fractional interest in NCC Common).
ANNUAL MEETING/SHAREHOLDER PROPOSALS
If the Merger is not consummated, an Annual Meeting of Shareholders of CIB
is scheduled to be held on January 24, 1995. Any shareholder proposal to be
included in the proxy statement and form of proxy for that meeting had to have
been received by CIB at its principal executive offices no later than September
21, 1994. CIB will not be required to include in any proxy statement or form of
proxy any shareholder proposal that was not received prior to that date or that
fails to meet the Commission's requirements for shareholder proposals. If the
Merger is consummated, no Annual Meeting of Shareholders of CIB will be held.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors
Central Indiana Bancorp
Kokomo, Indiana
We have audited the accompanying consolidated balance sheets of CIB as of
September 30, 1994 and 1993 and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years ended September 30,
1994, 1993 and 1992. These financial statements are the responsibility of CIB's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CIB as of
September 30, 1994 and 1993, and the results of its operations and its cash
flows for the years ended September 30, 1994, 1993 and 1992 in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 11 to the consolidated financial statements,
CIB changed its method of accounting for income taxes effective October 1, 1993.
Also, as discussed in Notes 1 and 10, CIB changed its method of accounting for
postretirement benefits other than pensions effective October 1, 1993.
South Bend, Indiana
October 24, 1994
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CIB
CONSOLIDATED BALANCE SHEETS
YEARS ENDED SEPTEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from other financial institutions.................. $ 4,776,680 $ 5,126,112
Interest-earning deposits in other financial institutions....... 16,084,926 9,469,423
------------ ------------
Cash and cash equivalents.................................. 20,861,606 14,595,535
Interest-earning time deposits in other financial institutions
(cost approximates market value).............................. 6,139,980 16,843,050
Investment securities (estimated market value:
September 30, 1994 - $41,203,000; September 30, 1993 -
$6,652,000) (Note 2).......................................... 41,564,300 6,569,457
Mortgage-backed securities (estimated market value:
September 30, 1994 - $10,196,000; September 30, 1993 -
$9,540,000)
(Note 3)...................................................... 10,548,551 9,427,644
Loans held for sale............................................. 1,757,432 5,836,963
Loans receivable, net (Note 4).................................. 159,112,870 134,565,176
Accrued interest receivable (Note 6)............................ 702,539 613,444
Foreclosed real estate.......................................... -- 240,956
Premises and equipment, net (Note 7)............................ 1,664,051 1,374,775
Income taxes (Note 11).......................................... 995,780 425,383
Other assets.................................................... 490,617 383,786
------------ ------------
Total assets.......................................... $243,837,726 $190,876,169
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits (Note 8)............................................... $200,812,289 $158,719,489
Advances from borrowers for taxes and insurance................. 1,429,849 1,281,999
Net assets of acquired financial institutions in excess of cost
of investment (Note 19)....................................... 3,939,623 --
Accrued expenses and other liabilities (Note 10)................ 1,411,901 540,695
------------ ------------
Total liabilities..................................... 207,593,662 160,542,183
Commitments and contingencies (Note 16)
Stockholders' equity (Notes 11 and 12)
Preferred stock, $1.00 par value, 2,000,000 shares
authorized, none issued.................................. -- --
Common stock, no par or stated value, 5,000,000 shares
authorized; outstanding shares 1,644,513 at September 30,
1994 and 1,424,154 at September 30, 1993................. -- --
Additional paid-in capital (Note 19)....................... 13,133,876 9,509,815
Retained earnings, substantially restricted................ 23,110,188 20,824,171
------------ ------------
Total stockholders' equity............................ 36,244,064 30,333,986
------------ ------------
Total liabilities and stockholders' equity............ $243,837,726 $190,876,169
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
71
<PAGE> 76
CIB
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Interest income
Loans receivable (Note 4)
Mortgage loans................................. $11,758,894 $10,807,369 $10,883,537
Consumer and other loans....................... 925,008 922,702 1,014,234
Investment securities............................. 1,072,655 347,529 601,048
Mortgage-backed securities........................ 552,478 721,252 1,026,533
Other interest-earning assets..................... 1,131,428 834,921 1,110,158
----------- ----------- -----------
Total interest income.......................... 15,440,463 13,633,773 14,635,510
Interest expense
Deposits (Note 8)................................. 6,903,468 6,254,322 8,058,331
----------- ----------- -----------
Total interest expense......................... 6,903,468 6,254,322 8,058,331
----------- ----------- -----------
Net interest income................................. 8,536,995 7,379,451 6,577,179
Provision for loan losses (Note 4).................. 455,000 684,500 487,000
----------- ----------- -----------
Net interest income after provision for loan
losses............................................ 8,081,995 6,694,951 6,090,179
Noninterest income
Gain on sales and writedown of interest-earning
assets, net (Note 13).......................... 80,526 128,974 24,883
Amortization of net assets of acquired financial
institution in excess of cost of investment.... 281,402 -- --
Other (Note 14)................................... 517,459 462,040 429,328
----------- ----------- -----------
Total noninterest income....................... 879,387 591,014 454,211
----------- ----------- -----------
Noninterest expense
Compensation and benefits (Notes 9 and 10)........ 2,238,970 1,805,753 1,439,471
Occupancy and equipment........................... 471,599 393,246 397,227
Federal deposit insurance premium................. 424,428 262,318 311,072
Net cost of foreclosed real estate................ (5,687) 36,722 58,775
Other (Note 14)................................... 1,364,703 999,646 921,996
----------- ----------- -----------
Total noninterest expense...................... 4,494,013 3,497,685 3,128,541
----------- ----------- -----------
Income before income tax expense and cumulative
effect of changes in accounting principles........ 4,467,369 3,788,280 3,415,849
Income tax expense (Note 11)........................ 1,645,424 1,679,603 1,450,861
----------- ----------- -----------
Income before cumulative effect of changes in
accounting principles............................. 2,821,945 2,108,677 1,964,988
Cumulative effect of change in accounting for income
taxes (Note 11)................................... 326,000 -- --
Cumulative effect of change in accounting for
post-retirement benefit plans, net of income tax
(Note 10)......................................... (93,182) -- --
----------- ----------- -----------
Net income........................................ $ 3,054,763 $ 2,108,677 $ 1,964,988
----------- ----------- -----------
Earnings per share (Note 1)
Income before cumulative effect of accounting
change......................................... $ 1.73 $ 1.40 $ 1.31
Cumulative effect of change in accounting for
income taxes................................... .20 -- --
Cumulative effect of change in accounting for
postretirement benefit plans, net of income
tax............................................ (.06) -- --
----------- ----------- -----------
Net income........................................ $ 1.87 $ 1.40 $ 1.31
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
72
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CIB
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES AT OCTOBER 1, 1991........... $ -- $10,013,781 $17,681,304 $27,695,085
Net income............................ -- -- 1,964,988 1,964,988
Cash dividend $.281 per share......... -- -- (409,689) (409,689)
----------- ----------- ----------- -----------
BALANCES AT SEPTEMBER 30, 1992........ $ -- $10,013,781 $19,236,603 $29,250,384
Net income............................ -- -- 2,108,677 2,108,677
Repurchase of 32,266 shares of common
stock............................... -- (499,400) -- (499,400)
Fractional shares redeemed in
conjunction with stock split........ -- (4,566) -- (4,566)
Cash dividend $.365 per share......... -- -- (521,109) (521,109)
----------- ----------- ----------- -----------
BALANCES AT SEPTEMBER 30, 1993........ $ -- $ 9,509,815 $20,824,171 $30,333,986
Net income............................ -- -- 3,054,763 3,054,763
Issuance of 175,825 shares of common
stock at $22.75 per share in
conjunction with the merger
conversion of First Federal Savings
and Loan Association of Peru, net of
costs of $709,963................... -- 3,290,056 -- 3,290,056
Issuance of 44,534 shares of common
stock due to exercise of stock
options............................. -- 334,005 -- 334,005
Cash dividend $.4825 per share........ -- -- (768,746) (768,746)
----------- ----------- ----------- -----------
BALANCES AT SEPTEMBER 30, 1994........ $ -- $13,133,876 $23,110,188 $36,244,064
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
73
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CIB
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 3,054,763 $ 2,108,677 $ 1,964,988
Adjustments to reconcile net income to net cash
from operating activities
Depreciation............................... 154,819 133,963 154,339
Amortization of net assets of acquired
financial institution in excess of cost
of investment........................... (281,402) -- --
Amortization of purchase accounting
adjustments............................. (179,821) -- --
Amortization of premiums................... 276,021 191,653 230,778
Accretion of discounts..................... (768,120) (44,503) (52,502)
Origination of loans held for sale......... (11,493,939) (10,106,045) (2,430,123)
Proceeds from sale of loans originated for
sale.................................... 15,696,748 7,007,404 2,323,251
Net gain on sale of loans originated for
sale.................................... (166,224) (128,974) --
Net loss on writedown of loans held for
sale.................................... 42,946 -- --
Net loss on sale or writedown of investment
securities.............................. 42,750 -- 4,393
Net (gain) loss on sale or writedown of
foreclosed real estate.................. (20,452) 22,730 2,391
Provision for loan losses.................. 455,000 684,500 487,000
Cumulative effect of change in accounting
for income taxes........................ (326,000) -- --
Cumulative effect of change in accounting
for postretirement benefit plans, net
income tax.............................. 93,182 -- --
Change in assets and liabilities, net of
effects from acquisition of First
Federal Savings and Loan Association of
Peru
Change in unearned interest on loans....... (14) (96) (1,263)
Change in current taxes.................... (1,708) (355,898) 321,724
Change in deferred taxes................... (30,946) (77,500) (99,234)
Change in deferred loan fees............... (26,620) 130,230 218,587
Change in accrued interest receivable...... (79,286) 144,429 238,610
Change in other assets..................... 237,808 (52,828) 19,977
Change in accrued expenses and other
liabilities............................. (92,506) (144,583) (175,087)
----------- ------------ ------------
Total adjustments....................... 3,532,236 (2,595,518) 1,242,841
----------- ------------ ------------
Net cash from operating activities.... 6,586,999 (486,841) 3,207,829
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-earning time deposits in
other financial institutions................. 14,383,070 (12,000) (4,424,630)
Principal collected on mortgage-backed
securities................................... 7,360,741 3,986,365 4,471,464
Purchase of mortgage-backed securities.......... (4,227,806) (1,913,438) (4,648,368)
Proceeds from maturities of investment
securities................................... 28,265,384 2,000,000 7,000,000
Proceeds from sales of investment securities.... -- -- 245,607
Purchase of investment securities............... (59,550,228) (1,312,235) (4,350,450)
Net change in loans............................. 5,883,915 (4,516,623) (14,235,553)
Cash balances acquired in merger conversion with
First Federal Savings and Loan Association of
Peru......................................... 5,182,626 -- --
Foreclosed real estate expenditures............. (2,930) (7,107) (11,887)
Property and equipment expenditures............. (444,095) (150,049) (156,269)
Proceeds from sale of foreclosed real estate.... 463,218 290,847 745,754
----------- ------------ ------------
Net cash from investing activities........... (2,686,105) (1,634,240) (15,364,332)
</TABLE>
(continued)
74
<PAGE> 79
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits.......................... (637,988) 10,015,291 5,604,207
Repurchase of stock............................. (499,400)
Fractional shares redeemed in conjunction with
stock split.................................. -- (4,566) --
Net change in advances from borrowers for taxes
and insurance................................ 147,850 601 125,198
Issuance of stock in merger conversion with
Peru, net of costs (175,825 shares issued at
$22.75 per share, net of costs of
$709,963).................................... 3,290,056 -- --
Issuance of common stock due to exercise of
stock options................................ 334,005 -- --
Cash dividends.................................. (768,746) (521,109) (409,689)
----------- ------------ ------------
Net cash from financing activities........... 2,365,177 8,990,817 5,319,716
----------- ------------ ------------
Net change in cash and cash equivalents........... 6,266,071 6,869,736 (6,836,787)
Cash and cash equivalents at beginning of year.... 14,595,535 7,725,799 14,562,586
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $20,861,606 $ 14,595,535 $ 7,725,799
=========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest..................................... $ 6,887,369 $ 6,303,454 $ 8,208,085
Income taxes................................. 1,621,700 2,113,000 1,228,372
NONCASH INVESTING AND FINANCING ACTIVITIES
Real estate acquired in settlement of loans..... 146,909 460,249 331,866
Origination of loans to facilitate sale of other
real estate.................................. 80,950 253,696 685,943
Non-cash increases related to merger conversion
with Peru and related purchase accounting
adjustments:
Market value of investment securities...... 3,433,806 -- --
Market value of interest-earning time
deposits in other financial
institutions............................ 3,680,000 -- --
Market value of mortgage-backed
securities.............................. 4,142,800 -- --
Market value of loans receivable........... 31,032,747 -- --
Market value of total assets, net of
purchase accounting adjustments......... 48,118,855 -- --
Market value of deposits................... 43,027,300 -- --
Market Value of total liabilities, net of
purchase accounting adjustments......... 43,897,830 -- --
Net assets of acquired financial
institution in excess of cost of
investment.............................. 4,221,025 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
75
<PAGE> 80
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of CIB and its wholly-owned subsidiary, Kokomo,
and Kokomo's wholly-owned subsidiary, First Marketing, Inc. First Marketing,
Inc. offers various annuity and insurance programs to Bank customers and others.
All significant intercompany transactions and balances are eliminated in
consolidation.
Concentrations of Credit Risk: CIB grants residential, consumer and
commercial loans to customers primarily in central Indiana. A significant number
of CIB's customers work for employers who rely heavily on the automotive
industry. At September 30, 1994, loans secured primarily by residential and
commercial real estate mortgages comprise approximately 95% of the loan
portfolio and 3% is made up of consumer loans and commercial loans secured by
other assets. Approximately 2% of the loans are unsecured.
Cash and Cash Equivalents: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand and due from other financial institutions,
federal funds sold, and funds invested in demand and overnight time accounts at
the Federal Home Loan Bank. Generally, federal funds are sold for one-day
periods. CIB reports net cash flows for customer loan transactions, deposit
transactions and deposits made with other financial institutions.
Investment Securities: Investment securities are carried at cost, adjusted
for amortization of premiums and accretion of discounts using the level yield
method. Management has the intent and CIB has the ability to hold such
investments to maturity.
Gains and losses on the sale of investment securities are determined using
the specific identification method and are reflected in operations at the time
of sale.
Equity securities that are nonmarketable are carried at cost. All other
equity securities are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a valuation
allowance that is shown as a reduction in the carrying value of the related
securities and as a corresponding reduction in stockholders' equity. Investment
securities for which a decline in value is determined by management to be other
than temporary are written down with the loss recognized in the consolidated
statement of income.
Mortgage-Backed Securities: Mortgage-backed securities are stated at cost,
adjusted for amortization of premiums and accretion of discounts using the level
yield method. Management has the intent and CIB has the ability to hold such
investments to maturity. Gains and losses on the sale of mortgage-backed
securities are determined using the specific identification method.
Loans Held for Sale: Mortgage loans originated and intended for sale in
the secondary market are carried at the lower of cost or estimated market value
in the aggregate. Net unrealized losses are recognized in a valuation allowance
by charges to income.
Recognition of Gains or Losses on the Sale of Loans: Loans are sold on a
net yield basis, with servicing rights and obligations retained by CIB,
resulting in the recognition of gains or losses at the time of sale. CIB uses
the purchaser's normal servicing fee in computing these gains and losses.
Loans Receivable: Loans receivable are stated at unpaid principal
balances, less the allowance for loan losses, and net deferred loan origination
fees.
76
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CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(continued)
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on CIB's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
Interest income on loans is accrued over the term of the loans based upon
the principal outstanding except when serious doubt exists as to the
collectibility of a loan, in which case the accrual of interest is discontinued.
Income is subsequently recognized only to the extent that cash payments are
received until, in management's judgment, the borrower has the ability to make
periodic interest and principal payments in which case the loan is returned to
accrual status.
Loan Origination Fees, Commitment Fees, and Related Costs: Loan fees are
accounted for in accordance with Statement of Financial Accounting Standards No.
91. Loan fees and certain direct loan origination costs are deferred, and the
net fee or cost is recognized as an adjustment to interest income using the
level yield method over the contractual life of the loans adjusted for
prepayments.
Foreclosed Real Estate: Real estate properties acquired through, or in
lieu of, loan foreclosure are initially recorded at fair value at the date of
foreclosure. Costs relating to development and improvement of property are
capitalized, whereas costs relating to the holding of property are expensed.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to income if the carrying value of a property
exceeds its estimated fair value less selling costs.
Income Taxes: Effective October 1, 1993, CIB adopted SFAS No. 109,
"Accounting for Income Taxes". CIB records income tax expense based on the
amount of taxes due on its tax return, plus deferred taxes computed based on the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates.
Previously, CIB computed deferred taxes for the tax effects of timing
differences between financial reporting and tax return income. The cumulative
effect of the change in accounting for income taxes is reported in the September
30, 1994 statement of income.
Postretirement Benefits Other Than Pensions: Effective October 1, 1993,
CIB adopted Statement of Financial Accounting Standards No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). SFAS
106 requires the accrual of the expected cost of providing postretirement
benefits to employees during the years that the employees render services.
Previously, CIB expensed the costs of postretirement benefits as they were
incurred. The cumulative effect of the change in accounting for postretirement
benefits other than pensions is reported in the September 30, 1994 statement of
income, net of tax.
Premises and Equipment: Land is carried at cost. Buildings and furniture,
fixtures, and equipment are carried at cost, less accumulated depreciation.
Premises and related components are depreciated primarily on the straight-line
method with useful lives ranging from 20 to 67 years. Furniture and equipment
are depreciated on either the straight-line or sum-of-the-years digits methods
with useful lives ranging from 5 to 18 years. Maintenance and repairs are
charged to expense as incurred, and improvements which extend the useful lives
of assets are capitalized.
Net Assets of Acquired Financial Institution in Excess of Cost of
Investment: This item represents the value of negative goodwill remaining from
the acquisition of Peru in 1994. The value is being amortized using the straight
line method over ten years.
(continued)
77
<PAGE> 82
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
Earnings Per Share: Earnings per share is computed by dividing net income
by the weighted average number of shares of common stock outstanding. The
weighted average number of shares outstanding for the calculation of earnings
per shares were 1,631,722, 1,501,056 and 1,499,442 for the years ended September
30, 1994, 1993 and 1992. The effect of common stock equivalents is not material
to the periods reported.
Stock Split: On April 20, 1993, the Board of Directors declared a 4 for 3
stock split under which every three shares of CIB's common stock outstanding at
the close of business on April 30, 1993, were converted into four shares of
common stock. No fractional shares were issued; cash in lieu of fractional
shares was paid to stockholders. Per share and shares outstanding amounts for
September 30, 1993 and 1992 have been adjusted to give effect to the 4 for 3
stock split.
Reclassifications: Certain amounts appearing in the 1993 and 1992
consolidated financial statements and notes thereto have been reclassified to
conform with the September 30, 1994 presentation.
NOTE 2 -- INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities and
obligations of U.S. government and
federal agencies................... $37,929,582 $ 2,176 $288,758 $37,643,000
Obligations of state and political
sub-divisions...................... 792,442 -- 70,442 722,000
Other debt securities................. 1,446,044 -- 5,044 1,441,000
----------- -------- -------- -----------
40,168,068 2,176 364,244 39,806,000
Equity securities:
Stock in Federal Home Loan Bank....... 1,322,500 500 -- 1,323,000
Other equity securities............... 73,732 268 -- 74,000
----------- -------- -------- -----------
Total investment securities........ $41,564,300 $ 2,944 $364,244 $41,203,000
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Debt securities:
U.S. government and federal
agencies........................... $ 5,433,665 $ 81,589 $ 254 $ 5,515,000
Equity securities:
Stock in Federal Home Loan Bank....... 1,046,200 800 -- 1,047,000
Other equity securities............... 89,592 408 -- 90,000
----------- -------- -------- -----------
Total investment securities........ $ 6,569,457 $ 82,797 $ 254 $ 6,652,000
=========== ======== ======== ===========
</TABLE>
(continued)
78
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CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
The amortized cost and estimated market value of debt securities at
September 30, 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less............................ $36,775,090 $36,709,000
Due after one year through five years.............. 953,674 930,000
Due after five years through ten years............. 1,864,579 1,649,000
Due after ten years................................ 574,725 518,000
----------- -----------
Total debt securities............................ $40,168,068 $39,806,000
========== ==========
</TABLE>
There were no sales of debt securities during the fiscal years ended
September 30, 1994 and 1993. During fiscal year end September 30, 1992, proceeds
from sales of debt securities totaled $245,607, resulting in gross gains of $-0-
and gross losses of $4,393.
NOTE 3 -- MORTGAGE-BACKED SECURITIES
The carrying values and estimated market values of mortgage-backed
securities are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
-------------------------------------------------------------------------
ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED CARRYING MARKET
BALANCE PREMIUMS DISCOUNTS VALUE VALUE
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FNMA certificates........ $ 480,621 $ -- $ 23,327 $ 457,294 $ 480,000
GNMA certificates........ 2,113,322 -- 8,795 2,104,527 2,014,000
FHLMC certificates....... 1,086,388 -- 6,604 1,079,784 1,081,000
Collateralized mortgage
obligations............ 7,037,624 10,113 140,791 6,906,946 6,621,000
----------- ----------- --------- ----------- -----------
Total mortgage-
backed securities.. $10,717,955 $10,113 $179,517 $10,548,551 $10,196,000
========== =========== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
-------------------------------------------------------------------------
ESTIMATED
PRINCIPAL UNAMORTIZED UNEARNED CARRYING MARKET
BALANCE PREMIUMS DISCOUNTS VALUE VALUE
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FNMA certificates........ $ 750,466 $ -- $ 35,652 $ 714,814 $ 770,000
GNMA certificates........ 1,111,144 -- -- 1,111,144 1,148,000
FHLMC certificates....... 1,655,850 856 10,757 1,645,949 1,696,000
Collateralized mortgage
obligations............ 6,003,388 32,962 80,613 5,955,737 5,926,000
----------- ----------- --------- ----------- -----------
Total mortgage-
backed securities.. $ 9,520,848 $33,818 $127,022 $ 9,427,644 $ 9,540,000
========== =========== ======== ========== ==========
</TABLE>
Gross unrealized gains on mortgage-backed securities totaled $20,144 and
$150,323 and gross unrealized losses were $372,695 and $37,967 at September 30,
1994 and 1993, respectively.
(continued)
79
<PAGE> 84
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
CIB did not sell any mortgage-backed securities during the fiscal years
ended September 30, 1994, 1993 and 1992.
NOTE 4 -- LOANS RECEIVABLE, NET
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Mortgage loans (principally conventional)
Principal balances
Secured by one-to-four family residences......... $ 99,794,206 $ 85,648,795
Home equity and second mortgage.................. 6,247,707 6,370,579
Construction..................................... 26,058,477 18,912,921
Commercial and multi-family...................... 24,706,317 17,942,497
Other............................................ 5,717,060 3,699,695
------------ ------------
162,523,767 132,574,487
Less
Undisbursed portion of construction loans........ 10,198,987 6,509,569
Net deferred loan origination fees............... 925,329 857,039
------------ ------------
Total mortgage loans........................ 151,399,451 125,207,879
Consumer and other loans
Principal balances
Home improvement................................. 656,571 376,697
Commercial....................................... 6,158,291 7,854,689
Other............................................ 3,218,900 2,811,648
------------ ------------
10,033,762 11,043,034
Less
Unearned discounts............................... -- 14
------------ ------------
Total consumer and other loans.............. 10,033,762 11,043,020
Less allowance for loan losses................... 2,320,343 1,685,723
------------ ------------
Loans receivable, net....................... $159,112,870 $134,565,176
============ ============
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year.......................... $1,685,732 $1,035,077 $ 555,736
Provision charged to income........................... 455,000 684,500 487,000
Transfer from Peru due to merger conversion........... 189,846 -- --
Charge-offs........................................... (47,370) (50,106) (48,818)
Recoveries............................................ 37,135 16,252 41,159
---------- ---------- ----------
Balance at end of year................................ $2,320,343 $1,685,723 $1,035,077
========== ========== ==========
</TABLE>
Nonaccrual and renegotiated loans for which interest has been reduced
totaled approximately $394,000, $227,000 and $1,140,000 at September 30, 1994,
1993 and 1992, respectively. Interest income that would have
(continued)
80
<PAGE> 85
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
been recorded under the original terms of such loans and the interest income
actually recognized are summarized below:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest income that would have been recorded......... $31,000 $19,000 $99,000
Interest income recognized............................ 6,000 8,000 65,000
------- ------- -------
Interest income foregone.............................. $25,000 $11,000 $34,000
======= ======= =======
</TABLE>
Certain directors and executive officers of CIB or its subsidiaries were
loan customers. A summary of aggregate related party loan activity, for loans
aggregating $60,000 or more to any one related party, is as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Balance at beginning of year.......................... $202,499 $214,302
New loans............................................. 112,671 100,000
Repayments............................................ (10,705) (111,803)
-------- --------
Balance at end of year................................ $304,465 $202,499
======== ========
</TABLE>
NOTE 5 -- LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Mortgage loan portfolios serviced for FHLMC........... $22,003,073 $10,612,786
========== ==========
</TABLE>
NOTE 6 -- ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Investment securities................................. $298,470 $131,712
Mortgage-backed securities............................ 42,903 62,444
Loans receivable...................................... 342,535 358,774
Other................................................. 18,631 60,514
-------- --------
Total accrued interest receivable........... $702,539 $613,444
======== ========
</TABLE>
(continued)
81
<PAGE> 86
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
NOTE 7 -- PREMISES AND EQUIPMENT, NET
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cost
Land................................................ $ 525,921 $ 525,921
Buildings........................................... 1,431,088 1,132,343
Furniture, fixtures and equipment................... 503,669 426,812
----------- -----------
2,460,678 2,085,076
Less accumulated depreciation......................... 796,627 710,301
----------- -----------
Premises and equipment, net......................... $ 1,664,051 $ 1,374,775
========== ==========
</TABLE>
NOTE 8 -- DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE 1994 1993
AT SEPTEMBER 30, ----------------------- -----------------------
1994 AMOUNT PERCENT AMOUNT PERCENT
---------------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Demand and NOW accounts,
including
noninterest-bearing deposits
of $3,728,570 in 1994 and
$2,979,141 in 1993.......... 2.08% $21,165,222 10.54% $17,683,281 11.14%
Money market.................. 3.18 21,287,284 10.60 18,798,907 11.84
Passbook savings.............. 3.13 44,898,946 22.36 39,551,854 24.92
----------- ------- ----------- -------
87,351,452 43.50 76,034,042 47.90
</TABLE>
<TABLE>
<CAPTION>
1994 1993
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Certificates of deposit:
2.75 to 3.49%............................... $ 3,734,527 1.86 % $ 29,018,788 18.29 %
3.50 to 5.49%............................... 80,088,679 39.88 28,961,600 18.25
5.50 to 7.49%............................... 19,636,565 9.78 14,289,268 9.00
7.50 to 9.49%............................... 9,486,235 4.72 10,415,791 6.56
9.50 to 11.49%.............................. 514,831 .26 -- --
------------ ------- ------------ -------
Total certificate accounts............... 113,460,837 56.50 82,685,447 52.10
------------ ------- ------------ -------
Total deposits......................... $200,812,289 100.00 % $158,719,489 100.00 %
=========== ====== =========== ======
</TABLE>
The weighted average rate on certificates of deposit is 4.44% at September 30,
1994.
The aggregate amount of certificates of deposit with balances of $100,000
or more was approximately $8,346,000 and $10,737,000 at September 30, 1994 and
1993, respectively.
(continued)
82
<PAGE> 87
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
At September 30, 1994, scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 THEREAFTER
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
2.75 to 3.49% $ 3,634,527 $ -- $ -- $ -- $ 100,000 $ --
3.50 to 5.49% 53,213,384 14,512,569 5,678,815 2,934,404 3,050,213 699,294
5.50 to 7.49% 2,102,245 3,401,070 7,707,067 1,962,700 1,336,737 3,126,746
7.50 to 9.49% 4,507,373 1,675,684 197,991 675,804 1,491,848 937,535
9.50 to 11.49% 501,132 13,699 -- -- -- --
----------- ----------- ----------- ---------- ---------- ----------
Total certificate
accounts $63,958,661 $19,603,022 $13,583,873 $5,572,908 $5,978,798 $4,763,575
=========== =========== =========== ========== ========== ==========
</TABLE>
Total expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Money market............................ $ 638,341 $ 549,225 $ 826,139
Passbook savings........................ 1,445,648 1,179,813 815,527
NOW..................................... 415,997 326,308 372,931
Certificates of deposit................. 4,403,482 4,198,976 6,043,734
---------- ---------- ----------
Total interest expense on deposits.... $6,903,468 $6,254,322 $8,058,331
========== ========== ==========
</TABLE>
NOTE 9 -- EMPLOYEE PENSION AND THRIFT PLANS
Kokomo is part of a noncontributory multiple-employer pension plan which
covers all Kokomo employees who have completed three months of employment and
meet certain minimum hour requirements during a calendar year. The plan is
administered by the trustees of the Financial Institutions Retirement Fund.
Because it is a multiple-employer plan, there is no separate valuation of plan
benefits nor segregation of plan assets specifically for Kokomo. However, as of
June 30, 1993, the date of the latest actuarial valuation, the total plan assets
exceeded the actuarially determined value of total accrued benefits.
The cost of the plan is set annually as an established percentage of wages.
During fiscal years 1994, 1993 and 1992, CIB contributed approximately $158,000,
$168,000 and $17,000, respectively, to the Retirement Fund. As a result, CIB
recognized $144,000, $114,000 and $17,000 of pension expense in fiscal 1994,
1993 and 1992, respectively.
Kokomo is also a participant in the Financial Institutions Thrift Plan, a
tax exempt, trusteed savings plan. All contributions to the plan are invested
for the benefit of all participants, with an individual account maintained for
each participant. Employees are eligible for membership in the plan after
completing one year of employment and meeting certain minimum hour requirements.
Kokomo contributes an amount equal to 50% of each employee's monthly
contribution. Kokomo's contribution was limited to 6% of basic monthly salary
for the year ended September 30, 1994 and 3% for the years ended September 30,
1993 and 1992. Contributions are charged to expense and amounted to $85,085,
$37,832 and $34,464 for the years ended September 30, 1994, 1993 and 1992,
respectively. During fiscal years 1993 and 1992, CIB also charged to expense an
additional $39,185 and $34,800, respectively, for a supplementary annual
contribution to members' thrift plan accounts. This amounted to an additional 3%
of basic annual salary.
(continued)
83
<PAGE> 88
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
NOTE 10 -- OTHER POSTRETIREMENT BENEFIT PLANS
CIB sponsors a defined benefit postretirement plan that provides medical
benefits to eligible employees and directors. Currently, retirees who are at
least age 55 with a combination of years of service and age which equals 85 and
their spouses and children are eligible for postretirement medical benefits with
premiums subsidized by CIB. In addition, employees who are at least age 55 and
have at least ten years of service may retain postretirement medical benefits by
reimbursing CIB for premiums.
The following table sets forth the plans' combined funded status reconciled
with the amount shown in CIB's balance sheet at September 30, 1994:
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................ $173,393
Fully eligible active plan participants............................. 292,878
Other active plan participants...................................... 127,182
--------
Accumulated postretirement benefit obligation in excess of plan
assets........................................................... $593,453
========
</TABLE>
Net periodic postretirement benefit cost for the year ended September 30,
1994 included the following components:
<TABLE>
<S> <C>
Service cost-benefits attributed to service during the period.......... $ 7,397
Interest cost on accumulated postretirement benefit obligations........ 39,485
Actual return on plan assets........................................... --
-------
Net periodic postretirement benefit cost............................. $46,882
=======
</TABLE>
For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1994; the rate was assumed
to decrease gradually to 7% after 5 years and remain at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by 1% in each year would increase the accumulated postretirement benefit
obligation as of September 30, 1994 by $64,000 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the
year then ended by $4,700. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7%.
NOTE 11 -- INCOME TAXES
CIB files consolidated federal income tax returns on a fiscal year basis.
If certain conditions are met in determining taxable income, CIB is allowed a
special bad debt deduction based on a percentage of taxable income (presently
8%) or on specified experience formulas. CIB used the
percentage-of-taxable-income method for all periods presented.
(continued)
84
<PAGE> 89
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Federal
Current.................................... $ 1,302,921 $ 1,343,614 $ 1,199,741
Deferred................................... (15,130) (50,714) (85,408)
----------- ----------- -----------
1,287,791 1,292,900 1,114,333
State
Current.................................... 373,448 413,489 350,354
Deferred................................... (15,816) (26,786) (13,826)
----------- ----------- -----------
357,633 386,703 336,528
----------- ----------- -----------
Income tax expense......................... $ 1,645,424 $ 1,679,603 $ 1,450,861
========== ========== ==========
</TABLE>
Total income tax expense as shown on the consolidated statements of income
differs from amounts computed by using the statutory federal income tax rate of
34% as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax expense computed at statutory
rate................................................ $1,518,905 $1,288,015 $1,161,389
Tax effect of
Bad debt deduction.................................. -- (116,835) (107,204)
Non-taxable interest and dividend income............ (13,750) (11,968) (19,398)
Provision for loan losses........................... -- 232,730 168,959
Amortization of net assets of acquired financial
institution in excess of investment.............. (111,435) -- --
State tax, net of federal income tax effect......... 236,037 255,224 222,108
Other............................................... 15,667 32,437 25,007
---------- ---------- ----------
Income tax expense.......................... $1,645,424 $1,679,603 $1,450,861
========= ========= =========
Effective tax rate.................................. 36.8% 44.3% 42.5%
</TABLE>
The components of the net deferred tax asset as of September 30, 1994 are
as follows:
<TABLE>
<S> <C>
Deferred tax assets
Bad debts................................................ $ 572,932
Deferred loan fees....................................... 401,249
Deferred compensation and benefits....................... 302,527
Other.................................................... 69,863
-----------
1,346,571
Deferred tax liabilities
Purchase accounting adjustments.......................... (177,298)
Depreciation............................................. (24,584)
Other.................................................... (38,234)
-----------
(240,116)
Valuation allowance........................................ --
-----------
Net deferred tax asset..................................... $ 1,106,455
==========
</TABLE>
(continued)
85
<PAGE> 90
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
Retained earnings at September 30, 1994, includes approximately $6,300,000
for which no deferred federal income tax liability has been recognized. This
amount represents an allocation of income to bad debt deductions for tax
purposes only. Reduction of amounts so allocated for purposes other than tax bad
debt losses or adjustments arising from carryback of net operating losses would
create income for tax purposes only, which would be subject to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amounts was approximately $2,142,000 at September 30, 1994.
Effective October 1, 1993, CIB has adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The adjustment to
record the cumulative effect of the new accounting method was $326,000 and is
included in income for the year ended September 30,1994.
NOTE 12 -- FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT (FIRREA
OF 1989)
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum-capital requirements went into effect on December 7, 1989.
In addition to the capital requirements, FIRREA includes provisions for changes
in the federal regulatory structure for institutions, including a new deposit
insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to non-investment-grade corporate debt and
certain other investments. FIRREA also increases the required ratio of
housing-related assets needed to qualify as a savings institution.
The regulations require institutions to have minimum regulatory tangible
capital equal to 1.5% of total tangible assets, 3% core capital ratio, and an
8.0% risk-based capital ratio.
Kokomo, at September 30, 1994, meets the regulatory tangible capital, core
capital and risk-based capital requirements as defined by FIRREA. At September
30, 1994, Kokomo's regulatory tangible capital was $31,923,000 or 13.31% of
total tangible assets; core capital was $31,923,000 or 13.31% of total tangible
assets; and risk-based capital was $33,587,000 or 24.85% of total risk-adjusted
assets, as defined by FIRREA.
The following is a reconciliation of Kokomo capital under generally
accepted accounting principles (GAAP) to regulatory capital. Amounts reflected
relate to capital of Kokomo only and do not include capital of CIB as the
regulatory requirements listed are applicable to Kokomo.
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
----------- ----------- -----------
<S> <C> <C> <C>
GAAP capital................................. $31,923,261 $31,923,261 $31,923,261
Nonallowable assets
Equity investments......................... -- -- (30,000)
Additional capital items
General valuation allowances -- limited.... -- -- 1,694,000
Other...................................... (261) (261) (261)
----------- ----------- -----------
31,923,000 31,923,000 33,587,000
Regulatory capital -- computed...............
Minimum capital requirement.................. 3,596,000 7,193,000 10,814,000
----------- ----------- -----------
Regulatory capital -- excess................. $28,327,000 $24,730,000 $22,773,000
=========== =========== ===========
</TABLE>
At the time of the conversion to stock, Kokomo established a liquidation
account in an amount equal to its net worth as of the date of the latest
consolidated financial statements contained in the final offering circular used
(continued)
86
<PAGE> 91
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
to sell the common stock ($16,512,340 [unaudited] at December 31, 1990). The
liquidation account will be maintained for the benefit of depositors, with
deposits of at least $50, as of the September 30, 1990 eligibility record date,
who continue to maintain their deposits in Kokomo after conversion. In the event
of a complete liquidation (and only in such an event), each eligible depositor
will be entitled to receive a liquidation distribution from the liquidation
account, in the proportionate amount of the then current adjusted balance for
deposits then held, before any liquidation distribution may be made with respect
to the stockholders. Except for the repurchase of stock and payment of dividends
by Kokomo, the existence of the liquidation account will not restrict the use or
application of net worth.
Regulations of the OTS limit the amount of dividends and other capital
distributions that may be paid by a savings institution without prior approval
of the OTS. This regulatory restriction is based on a three-tiered system with
the greatest flexibility being afforded to well-capitalized (Tier 1)
institutions. Kokomo is currently a Tier 1 institution. Accordingly, Kokomo can
make, without prior regulatory approval, distributions during a calendar year up
to 100% of its net income during that calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess over its Fully
Phased-In Capital Requirements) at the beginning of the calendar year.
Accordingly, at September 30, 1994, Kokomo had available approximately $11.7
million for distribution to CIB.
NOTE 13 -- GAIN ON SALES AND WRITEDOWN OF INTEREST-EARNING ASSETS, NET
Net gains and losses are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net loss on sale of investment securities............. $ -- $ -- $ (4,393)
Net loss on writedown of investment securities........ (42,750) -- --
Net unrealized loss on writedown of loans held for
sale................................................ (42,946) -- --
Net gain on sale of mortgage loans.................... 166,222 128,974 29,276
----------- ----------- -----------
Gain on sales and writedown of
interest-earning assets, net.............. $ 80,526 $ 128,974 $ 24,883
=========== =========== ===========
</TABLE>
NOTE 14 -- OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Other noninterest income
Service charges and fees............................ $ 309,996 $ 308,721 $ 283,608
Loan service charges................................ 109,366 88,984 79,665
Other............................................... 98,097 64,335 66,055
----------- ----------- -----------
Total other noninterest income.............. $ 517,459 $ 462,040 $ 429,328
=========== =========== ===========
Other noninterest expense
Advertising and promotion........................... 130,037 107,134 119,623
Data processing..................................... 263,940 213,341 195,416
Professional fees................................... 279,641 93,564 127,312
Other............................................... 691,085 585,607 479,645
----------- ----------- -----------
Total other noninterest expense............. $ 1,364,703 $ 999,646 $ 921,996
=========== =========== ===========
</TABLE>
(continued)
87
<PAGE> 92
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
NOTE 15 -- STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
On January 28, 1992, the stockholders approved the Stock Option Plan for
certain directors, officers and other key employees of CIB and its subsidiaries.
The plan limits the number of shares granted under options to 145,666 total
shares. The plan allows options to be granted with purchase prices of not less
than 75% and not more than 100% (110% for holders of more than 10% of the
combined voting power of all classes of stock) of fair market value of the
shares as of the date the options are granted. The stock options were granted at
market value at the date of grant. The exercise period for each option is
determined when granted, but may not exceed ten years for employees and ten
years and one day for outside directors from the date of grant (five years for
holders of more than 10% of the combined voting power of all classes of stock).
On September 24, 1993, CIB's Board of Directors adopted the Central Indiana
Bancorp 1993 Stock Option Plan (the "New Option Plan"). The New Option Plan
became effective January 21, 1994 upon the merger conversion of Peru. The New
Option Plan limits the number of shares available for grant to 10% of shares
sold in the merger conversion which equaled 17,582 shares.
A summary of transactions for the plans follows:
<TABLE>
<CAPTION>
EFFECTIVE PRICE
AVAILABLE PER SHARE AT
FOR OPTIONS DATES EXERCISED
GRANT OUTSTANDING OR GRANTED
-------- ------- ---------------
<S> <C> <C> <C>
Balance: July 1, 1991......................... 145,666 --
Granted (expire July 1 or 2, 2001)....... (113,892) 113,892 $ 7.50
-------- -------
Balance: September 30, 1992................... 31,774 113,892
Granted (expire April 18, 2003).......... (2,332) 2,332 17.82
-------- -------
Balance: September 30, 1993................... 29,442 116,224
Additional options authorized from Peru
merger................................. 17,582 --
Exercised................................ -- (44,534) 7.50
Granted (expire January 18, 2004)........ (17,579) 17,579 22.75
Granted (expire March 14, 2004).......... (1,824) 1,824 25.50
-------- -------
Balance: September 30, 1994................... 27,621 91,093
======== =======
</TABLE>
On January 28, 1992, the stockholders approved the Employee Stock Purchase
Plan for all full-time employees who have attained the age of 21 and who have
completed one year of employment. Employee voluntary contributions are invested
in shares of CIB's stock. Voluntary contributions are limited to a minimum of $5
and a maximum of 10% of the employee's compensation per pay period.
Other than administrative expenses, CIB did not recognize any expense
relative to these plans for fiscal years ending September 30, 1994, 1993 and
1992.
NOTE 16 -- COMMITMENTS AND CONTINGENCIES
CIB is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet financing needs of its customers. These
financial instruments include unused lines of credit and commitments to make
loans and fund loans in process. CIB's exposure to credit loss in the event of
nonperformance by the other party to these financial instruments is represented
by the contractual amount of these instruments. CIB follows
(continued)
88
<PAGE> 93
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
the same credit policy to make such commitments as is followed for loans
recorded on the consolidated balance sheets.
CIB has the following commitments outstanding:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Fixed rate loans................................... $ 821,000 $ 5,106,000
Variable rate loans................................ 5,977,000 4,894,000
Loans in process................................... 10,199,000 6,510,000
Unused lines of credit............................. 7,807,000 5,925,000
Unused letters of credit........................... 1,803,000 623,000
----------- -----------
Total Commitments................................ $26,607,000 $23,058,000
=========== ===========
</TABLE>
Since certain commitments to make loans and lines of credit and fund loans
in process expire without being used, the amount does not necessarily represent
future cash commitments. In addition, commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. No losses are anticipated as a result of
these transactions.
NOTE 17 -- CONDENSED SUBSIDIARY FINANCIAL STATEMENTS
Presented below are the condensed balance sheets and statements of income
for Kokomo's wholly-owned subsidiary, First Marketing, Inc.
CONDENSED BALANCE SHEETS
September 30, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Cash.................................................. $ 105,662 $ 89,975
----------- -----------
Total assets................................ $ 105,662 $ 89,975
=========== ===========
LIABILITIES AND EQUITY
Accrued taxes......................................... $ 357 $ 6,421
Accounts payable...................................... 1,126 2,266
Capital stock......................................... 50,000 50,000
Retained earnings..................................... 54,179 31,288
----------- -----------
Total liabilities and equity................ $ 105,662 $ 89,975
=========== ===========
</TABLE>
(continued)
89
<PAGE> 94
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
CONDENSED STATEMENTS OF INCOME
Years ended September 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Operating income
Commission income................................ $ 54,412 $ 57,472 $ 42,231
Interest income.................................. 2,008 1,628 6,409
----------- ----------- -----------
Total operating income...................... 56,420 59,100 48,640
Operating expense
Management fees.................................. 6,000 6,000 8,000
Other expense.................................... 12,515 6,966 12,006
----------- ----------- -----------
Total operating expense..................... 18,515 12,966 20,006
----------- ----------- -----------
Income before income tax.............................. 37,905 46,134 28,634
Income tax expense.................................... 15,014 18,274 11,342
----------- ----------- -----------
Net income............................................ $ 22,891 $ 27,860 $ 17,292
=========== =========== ===========
</TABLE>
NOTE 18 -- PARENT COMPANY FINANCIAL STATEMENTS
Presented below are the condensed financial statements for the parent
Company, Central Indiana Bancorp.
CONDENSED BALANCE SHEETS
September 30, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 284,155 $ 5,203,220
Investment securities................................. 4,246,025 --
Investment in bank.................................... 31,923,261 25,374,544
----------- -----------
Total assets................................ $36,453,441 $30,577,764
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities..................................... $ 209,377 $ 243,778
Stockholders' equity.................................. 36,244,064 30,333,986
----------- -----------
Total liabilities and stockholders'
equity.................................... $36,453,441 $30,577,764
=========== ===========
</TABLE>
(continued)
90
<PAGE> 95
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
CONDENSED STATEMENTS OF INCOME
Years ended September 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Operating income (expense)
Other expense....................................... $ (336,198) $ (139,807) $ (140,383)
Loss before equity in income of Bank.................. (336,198) (139,807) (140,383)
Equity in income of Bank.............................. 3,258,661 2,193,359 2,049,890
----------- ----------- -----------
Income before income tax.............................. 2,922,463 2,053,552 1,909,507
Income tax benefit.................................... 132,300 55,125 55,481
----------- ----------- -----------
Net income............................................ $ 3,054,763 $ 2,108,677 $ 1,964,988
=========== =========== ===========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
Years ended September 30, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 3,054,763 $ 2,108,677 $ 1,964,988
Adjustments to reconcile net income to net cash from
operating activities
Equity in income of Kokomo....................... (3,258,661) (2,193,359) (2,049,890)
Increase (decrease) in other liabilities......... (34,401) 103,433 29,135
----------- ----------- -----------
Net cash from operating activities.......... (238,299) 18,751 (55,767)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities................... (4,246,025) -- --
Investment in subsidiary............................ (3,290,056) -- --
Dividend from Kokomo................................ -- 5,000,000 1,000,000
----------- ----------- -----------
Net cash from investing activities.......... (7,536,081) 5,000,000 1,000,000
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from stock issue in conjunction with
the merger conversion............................ 3,290,056 -- --
Proceeds from stock issue in conjunction with the
exercise of stock options........................ 334,005 -- --
Repurchase of stock................................. -- (499,400) --
Fractional shares redeemed in conjunction with stock
split............................................ -- (4,566) --
Cash dividends...................................... (768,746) (521,109) (409,689)
----------- ----------- -----------
Net cash from financing activities.......... 2,855,315 (1,025,075) (409,689)
----------- ----------- -----------
Net change in cash and cash equivalents............... (4,919,065) 3,993,676 534,544
Cash and cash equivalents at beginning of year........ 5,203,220 1,209,544 675,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............. $ 284,155 $ 5,203,220 $ 1,209,544
=========== =========== ===========
</TABLE>
(continued)
91
<PAGE> 96
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
The extent to which CIB may pay cash dividends to shareholders will depend
on the cash currently available at CIB as well as the Kokomo's ability to pay
dividends to CIB (see Note 12).
NOTE 19 -- ACQUISITION AND STOCK OFFERING
On January 19, 1994 an agreement to acquire Peru became effective. The
merger/conversion transaction provided for Peru to convert from a mutual to
stock form of ownership. Eligible account holders of Peru had the right to
subscribe for and purchase common stock to be issued by CIB. Additional shares
were offered to the general public pursuant to a direct community offering. CIB
issued 175,825 shares of CIB Common at $22.75 per share and received cash of
$3.3 million which is net of costs of $700,000. As a result of the
merger/conversion, Peru merged into Kokomo and became a division of Kokomo,
which will remain a wholly-owned subsidiary of CIB.
As of December 31, 1993, Peru had consolidated total assets of $48,828,000
and equity of $4,675,000 based on unaudited financial statements. For 1993, Peru
had net losses of $85,000. CIB will account for the transaction under the
purchase method. Net income for CIB for the years ended September 30, 1994 and
1993 would have been approximately $3,027,000 and $2,051,000 had the transaction
occurred on October 1, 1993 or October 1, 1992, respectively.
NOTE 20 -- FAIR VALUES OF FINANCIAL INSTRUMENTS
An accounting standard prescribes that CIB disclose the estimated fair
value of its financial instruments. The following table shows those values and
the related carrying values at September 30, 1994 and 1993. Items which are not
financial instruments are not included.
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents............ $ 20,861,606 $ 20,862,000 $ 14,595,535 $ 14,596,000
Interest-earning time deposits in
other financial institutions....... 6,139,980 6,140,000 16,843,050 16,843,000
Investment securities................ 41,564,300 41,203,000 6,569,457 6,652,000
Mortgage-backed securities........... 10,548,551 10,196,000 9,427,644 9,540,000
Loans receivable, net (including
loans held for sale)............... 160,870,302 157,765,000 140,402,139 143,795,000
Demand and savings deposits.......... 87,351,452 87,351,000 76,034,042 76,034,000
Time deposits........................ 113,460,837 113,381,000 82,685,447 83,925,000
Advances from borrowers for taxes and
insurance.......................... 1,429,849 1,430,000 1,281,999 1,282,000
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of September 30, 1994 and 1993. The estimated
fair value for cash and cash equivalents and interest earning time deposits in
other financial institutions is considered to approximate cost. The estimated
fair value for investment securities and mortgage-backed securities is based on
quoted market values for the individual securities or for equivalent securities.
The estimated fair value for loans (including loans held for sale) is based on
estimates of the difference in interest rates Kokomo would charge the borrowers
for similar such loans with similar maturities made at September 30, 1994 and
1993, applied for an estimated time period until the loan is assumed to reprice
(continued)
92
<PAGE> 97
CIB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
or be paid. The estimated fair value for demand and savings deposits is based on
their carrying value. The estimated fair value for time deposits is based on the
rate Kokomo would pay on such deposits at September 30,
1994 and 1993, applied for the time period until maturity. The estimated fair
value of advances from borrowers for taxes and insurance is based on their
carrying value. The estimated fair value for other financial instruments and
off-balance-sheet loan commitments are considered to approximate cost at
September 30, 1994 and are not considered significant to this presentation.
While these estimates of fair value are based on management's judgment of
the most appropriate factors, there is no assurance that were CIB to have
disposed of such items at September 30, 1994 and 1993, the estimated fair values
would necessarily have been achieved at that date, since market value may differ
depending on various circumstances. The estimated fair values at September 30,
1994 and 1993 should not necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of CIB that are not defined as
financial instruments are not included in the above disclosures, such as
premises and equipment, foreclosed real estate, federal income taxes, and
accrued expenses. Also, non-financial instruments typically not recognized in
the financial statements nevertheless may have value but are not included in the
above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill, and similar items.
NOTE 21 -- CURRENT ACCOUNTING ISSUES
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 focuses
on the accounting and reporting treatment of investment securities. SFAS No. 115
expands the use of fair value accounting for investment securities classified as
available-for-sale, with unrealized gains and losses reported as a separate
component of shareholders' equity. Securities classified as held-to-maturity
will be those CIB has the positive intent and ability to hold to maturity,
accounted for at amortized cost. Trading securities include those purchased and
held principally to sell in the near term and are accounted for at fair value
with unrealized gains and losses included in current earnings. CIB adopted SFAS
No. 115 effective October 1, 1994, which did not have a material impact on CIB's
consolidated financial position.
In May 1993, FASB issued Statement of Financial Accounting Standards No.
114 "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114). SFAS No.
114 specified that allowances for loan losses on impaired loans should be
determined using the present value of estimated future cash flows of the loan,
discounted at the loan's effective interest rate. A loan is impaired when it is
probable that all principal and interest amounts will not be collected according
to the loan contracts. SFAS No. 114 is effective for fiscal years beginning
after December 15, 1994. Management has not yet determined the impact of
adoption of SFAS No. 114 on the consolidated financial position or results of
operations of CIB.
NOTE 22 -- MERGER
Pursuant to the Agreement and Plan of Merger dated July 25, 1994, CIB will
merge with and into NCC, a Delaware corporation headquartered in Cleveland,
Ohio. At the time the merger becomes effective, each outstanding share of CIB
Common will be converted into the right to receive 1.08 shares of NCC common
stock. No fractional shares will be issued and cash will be issued in lieu of
fractional shares.
The merger is subject to approval by the shareholders of CIB and is also
subject to regulatory approval.
(continued)
93
<PAGE> 98
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
NATIONAL CITY CORPORATION
AND
CENTRAL INDIANA BANCORP
DATED AS OF JULY 25, 1994
<PAGE> 99
INDEX TO DEFINITIONS
<TABLE>
<CAPTION>
DEFINITIONS SECTIONS
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Acquisition Transaction Section 5.1
Agreement Introduction
Articles of Merger Section 1.2
BHCA Section 3.1
Benefit Agreements Section 3.10
Certificate Section 2.3(a)
Certificate of Merger Section 1.2
Closing Section 6.1
Closing Date Section 6.1
Code Introduction
Commission Section 3.5
Company Introduction
Company Common Stock Section 2.1(a)
Company Contracts Section 4.10
Company Disclosure Letter Section 4.3
Company Employee Plans Section 4.9
Company Meeting Section 5.12
Company Reports Section 4.7
Company Subsidiaries Section 4.4
Consents Section 7.1(c)
Control Section 8.6(a)
DGCL Section 1.1
DPC Shares Section 2.1(a)
ERISA Section 3.9
Effective Time Section 1.2
Environmental Law Section 3.17
Exchange Act Section 3.6
Exchange Agent Section 2.3(a)
FRB Section 3.6
Governmental Entity Section 3.6
Hazardous Substance Section 3.17
IC Section 1.1
IRS Section 3.9
Indemnitees Section 5.7
Loan Portfolio Properties and Other Properties Owned Section 3.17
Market Price Section 8.6(a)
Material Adverse Effect Section 8.6(a)
Merger Section 1.1
Merger Consideration Section 2.1(a)
NCC Introduction
NCC Common Stock Section 2.1(a)
</TABLE>
i
<PAGE> 100
<TABLE>
<CAPTION>
DEFINITIONS SECTIONS
- ----------------------------------------------------------------------------- ----------------
<S> <C>
NCC Contracts Section 3.10(c)
NCC Disclosure Letter Section 3.3
NCC Employee Plans Section 3.9
NCC Preferred Stock Section 3.3(a)
NCC Reports Section 3.7
Option Agreement Section 4.3
PBGC Section 3.9
Person Section 8.6(a)
Registration Statement Section 3.5
SBIA Section 3.6
Securities Act Section 3.5
Significant Subsidiaries Section 8.6(a)
Subsidiary Section 8.6(a)
Surviving Corporation Section 1.3
Trust Account Shares Section 2.1(a)
</TABLE>
ii
<PAGE> 101
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1.1 Merger......................................................................... A-1
1.2 Effective Time................................................................. A-1
1.3 Effect of Merger............................................................... A-1
1.4 Certificate of Incorporation and By-laws....................................... A-1
1.5 Directors and Officers......................................................... A-1
1.6 Additional Actions............................................................. A-2
2.1 Conversion of Shares........................................................... A-2
2.2 Assumption of Employee and Director Stock Options.............................. A-2
2.3 Exchange of Certificates....................................................... A-3
(a) Exchange Agent................................................................. A-3
(b) Notice of Exchange............................................................. A-3
(c) Transfer....................................................................... A-3
(d) Right to Merger Consideration.................................................. A-3
(e) Distribution with Respect to Unexchanged Certificates.......................... A-3
(f) Voting With Respect to Unexchanged Certificates................................ A-4
(g) No Fractional Shares........................................................... A-4
2.4 Closing of the Company's Transfer Books........................................ A-4
2.5 Changes in NCC Common Stock.................................................... A-4
3.1 Corporate Organization......................................................... A-4
3.2 Authority...................................................................... A-5
3.3 Capitalization................................................................. A-5
3.4 Subsidiaries................................................................... A-5
3.5 Information in Disclosure Documents, Registration Statement, Etc............... A-6
3.6 Consents and Approvals; No Violation........................................... A-6
3.7 Reports and Financial Statements............................................... A-6
3.8 Taxes.......................................................................... A-7
3.9 Employee Plans................................................................. A-7
3.10 Material Contracts............................................................. A-8
3.11 Absence of Certain Changes or Events........................................... A-8
3.12 Litigation..................................................................... A-8
3.13 Compliance with Laws and Orders................................................ A-8
3.14 Agreements with Bank Regulators, Etc........................................... A-8
3.15 NCC Ownership of Stock......................................................... A-9
3.16 Material Interests of Certain Persons.......................................... A-9
3.17 Environmental Matters.......................................................... A-9
4.1 Corporate Organization......................................................... A-10
4.2 Authority...................................................................... A-10
4.3 Capitalization................................................................. A-10
4.4 Subsidiaries................................................................... A-10
4.5 Information in Disclosure Documents, Registration Statement, Etc............... A-11
4.6 Consent and Approvals; No Violation............................................ A-11
4.7 Reports and Financial Statements............................................... A-11
</TABLE>
iii
<PAGE> 102
<TABLE>
<S> <C> <C>
4.8 Taxes.......................................................................... A-12
4.9 Employee Plans................................................................. A-12
4.10 Material Contracts............................................................. A-13
4.11 Absence of Certain Changes or Events........................................... A-13
4.12 Litigation..................................................................... A-13
4.13 Compliance with Laws and Orders................................................ A-13
4.14 Agreements with Bank Regulators, Etc........................................... A-13
4.15 Fees........................................................................... A-14
4.16 Company Action................................................................. A-14
4.17 Vote Required.................................................................. A-14
4.18 Material Interests of Certain Persons.......................................... A-14
4.19 Environmental Matters.......................................................... A-14
5.1 Acquisition Proposals.......................................................... A-14
5.2 Interim Operations of Company.................................................. A-15
(a) Conduct of Business............................................................ A-15
(b) Articles and By-laws........................................................... A-15
(c) Capital Stock.................................................................. A-15
(d) Dividends...................................................................... A-15
(e) Employee Plans, Compensation, Etc.............................................. A-15
(f) Certain Policies............................................................... A-16
5.3 Employee Matters............................................................... A-16
5.4 Access and Information......................................................... A-18
5.5 Certain Filings, Consents and Arrangements..................................... A-18
5.6 Environmental Survey........................................................... A-18
5.7 Indemnification and Insurance.................................................. A-18
5.8 Publicity...................................................................... A-19
5.9 Registration Statement......................................................... A-19
5.10 Stock Exchange Listings........................................................ A-19
5.11 Proxy.......................................................................... A-19
5.12 Shareholders' Meeting.......................................................... A-19
5.13 Tax-Free Reorganization Treatment.............................................. A-19
5.14 Provisions of Shares........................................................... A-19
6.1 The Closing.................................................................... A-20
6.2 Documents and Certificates..................................................... A-20
7.1 Conditions to Each Party's Obligations to Effect the Merger.................... A-20
7.2 Conditions to Obligation of Company to Effect the Merger....................... A-21
7.3 Conditions to Obligation of NCC to Effect the Merger........................... A-21
8.1 Termination.................................................................... A-22
8.2 Non-Survival of Representations, Warranties and Agreements..................... A-22
8.3 Waiver and Amendment........................................................... A-22
8.4 Entire Agreement............................................................... A-23
8.5 Applicable Law; Consent to Jurisdiction........................................ A-23
8.6 Certain Definitions; Headlines................................................. A-23
</TABLE>
iv
<PAGE> 103
<TABLE>
<S> <C> <C>
8.7 Notices........................................................................ A-23
8.8 Counterparts................................................................... A-24
8.9 Parties in Interest; Assignment................................................ A-24
8.10 Expenses....................................................................... A-24
8.11 Enforcement of the Agreement................................................... A-25
8.12 Severability................................................................... A-25
</TABLE>
v
<PAGE> 104
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of July 25, 1994 ("Agreement"),
is made by and between National City Corporation, a Delaware corporation ("NCC")
and Central Indiana Bancorp, an Indiana Corporation ("Company").
WHEREAS, NCC and Company have each determined that it is in the best
interests of their respective stockholders for Company to merge with and into
NCC upon the terms and subject to the conditions set forth herein;
WHEREAS, the Boards of Directors of NCC and Company have approved this
Agreement and the consummation of the transactions contemplated hereby and
approved the execution and delivery of this Agreement;
WHEREAS, for Federal income tax purposes, it is intended that the merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, as a condition to, and immediately after the execution of this
Agreement, the parties are entering into the Option Agreement (as hereinafter
defined);
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, the parties hereto
hereby agree as follows:
I. THE MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.2), Company will be merged with and into
NCC and the separate corporate existence of the Company will thereupon cease
(the "Merger") in accordance with the applicable provisions of Title 23 of the
Indiana Code ("IC") and the Delaware General Corporation Law ("DGCL"). First
Federal Savings Bank of Kokomo ("Kokomo"), the Company's subsidiary, will be
merged into National City Bank, Indiana ("NCB") at the Effective Time or as soon
as practicable thereafter.
1.2 EFFECTIVE TIME. As soon as practicable after satisfaction or waiver of
all conditions to the Merger, NCC and Company shall cause a certificate of
merger complying with the requirements of the DGCL (the "Certificate of Merger")
to be filed with the Secretary of State of the State of Delaware and Articles of
Merger to be filed with the Secretary of State of the State of Indiana
("Articles of Merger") pursuant to IC. The Merger will become effective at the
time the later of the following occurs: (a) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and (b) the filing
of the Articles of Merger with the Secretary of State of the State of Indiana or
such later time as shall be specified in such filings ("Effective Time").
1.3 EFFECT OF MERGER. The Merger will have the effects specified in IC and
DGCL. Without limiting the generality of the foregoing, NCC will be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and will continue to be governed by the laws of the
State of Delaware, and the separate corporate existence of NCC and all of its
rights, privileges, powers and franchises, public as well as private, and all
its debts, liabilities and duties as a corporation organized under the DGCL,
will continue unaffected by the Merger.
1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Certificate of
Incorporation and By-laws of NCC in effect immediately prior to the Effective
Time, which shall be in the form set forth in the NCC Disclosure Letter (as
defined below), shall be the Certificate of Incorporation and By-laws of the
Surviving Corporation, unless or until amended in accordance with applicable
law.
1.5 DIRECTORS AND OFFICERS. The directors and officers of NCC immediately
prior to the Effective Time will be the directors and officers, respectively, of
the Surviving Corporation, from and after the Effective Time, until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the terms of the
Surviving Corporation's Certificate of Incorporation and By-laws and the DGCL.
A-1
<PAGE> 105
1.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or desirable to
(i) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Company, or (ii) otherwise carry out the purposes of
this Agreement, Company and its officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such deeds, assignments or assurances in law or any other acts
as are necessary or desirable to (i) vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of Company or (ii) otherwise carry
out the purposes of this Agreement, Company and its officers and directors shall
be deemed to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such deeds, assignments or assurances in law
and to all acts necessary or proper to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of Company or
otherwise to take any and all such action.
II. CONVERSION OF SHARES
2.1 CONVERSION OF SHARES. Subject to Section 2.3, at the Effective Time,
(a) each then-outstanding share of common stock, no par value, of Company
("Company Common Stock") other than shares owned by NCC or any direct or
indirect wholly-owned subsidiary of NCC (except that any such shares of Company
Common Stock held in trust accounts, managed accounts or in any similar manner
as trustee or in a fiduciary capacity ("Trust Account Shares") or acquired in
satisfaction of debts previously contracted ("DPC Shares") shall not be deemed
owned by NCC) and other than those shares of Company Common Stock held in the
treasury of the Company, will be canceled, retired and converted into a right to
receive 1.08 shares of common stock, par value $4.00 per share, of NCC ("NCC
Common Stock"). The number of shares of NCC Common Stock that each share of
Company Common Stock will be converted into is sometimes referred to herein as
the "Merger Consideration";
(b) each then-outstanding share of Company Common Stock owned by NCC or any
direct or indirect wholly-owned subsidiary of NCC (except for any shares that
are Trust Account Shares or DPC Shares) will be canceled and retired;
(c) each share of Company Common Stock issued and held in Company's
treasury will be canceled and retired; and
(d) each share of NCC Common Stock issued and outstanding immediately prior
to the Effective Time shall continue to be an issued and outstanding share of
common stock, par value $4.00 per share, of the Surviving Corporation from and
after the Effective Time.
2.2 ASSUMPTION OF EMPLOYEE AND DIRECTOR STOCK OPTIONS. Except as expressly
provided in this Section 2.2, all rights under any stock option granted by
Company pursuant to Company's Stock Option Plan and Company's 1993 Stock Option
Plan (collectively, the "Company Option Plans") that remain unexercised
immediately prior to the Effective Time ("Unexercised Options") shall be assumed
by NCC, but shall thereafter represent the right to acquire that number of
shares of NCC Common Stock to which the optionee would have been entitled
pursuant to the conversion ratio provided for in Section 2.1(a) if immediately
prior to the Merger the optionee had fully exercised the option and had been a
shareholder of record of Company. The option price of each option shall be
adjusted to the extent necessary to assure that the rights and benefits of the
optionee under such option shall not be increased or decreased by reason of this
Section 2.2, and, in addition, each option which is an incentive stock option
shall be adjusted as required by section 424 of the Code, and the regulations
promulgated thereunder so as not to constitute a modification, extension or
renewal of the option within the meaning of section 424(h) of the Code. On or
before the Effective Time NCC shall file, and maintain the effectiveness of, a
registration statement with the Securities and Exchange Commission covering the
Unexercised Options and the sale of the NCC Common Stock issued upon exercise of
Unexercised Options. At the Effective Time all Company Option Plans shall be
terminated with respect to the granting of any additional options or option
rights.
A-2
<PAGE> 106
2.3 EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Prior to the Effective Time, NCC shall designate
National City Bank to act as exchange agent (the "Exchange Agent") and Kokomo to
act as forwarding agent in connection with the Merger pursuant to an exchange
agent agreement providing for, among other things, the matters set forth in this
Section 2.3. Except as set forth herein, from and after the Effective Time each
holder (other than NCC or any direct or indirect wholly-owned subsidiary of NCC
(except as to Trust Account Shares and DPC Shares)) of a certificate that
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock ("Certificate") shall be entitled to receive in exchange
therefor, upon surrender thereof to the Exchange Agent, the Merger Consideration
for each share of Company Common Stock so represented by the Certificate
surrendered by such holder thereof. The certificates representing shares of NCC
Common Stock which constitute the Merger Consideration shall be properly issued
and countersigned and executed and authenticated, as appropriate.
(b) Notice of Exchange. Promptly after the Effective Time, NCC and the
Surviving Corporation shall cause the Exchange Agent to mail and/or make
available to each record holder of a Certificate a notice and letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificate shall pass, only upon proper delivery of the
Certificate to the Exchange Agent) advising such holder of the effectiveness of
the Merger and the procedures to be used in effecting the surrender of the
Certificate for exchange therefor. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed and
completed in accordance with the instructions thereon, and such other documents
as may reasonably be requested, the Exchange Agent shall promptly deliver to the
person entitled thereto the appropriate Merger Consideration for each share of
Company Common Stock so represented by the Certificate surrendered by such
holder thereof, and such Certificate shall forthwith be canceled.
(c) Transfer. If delivery of all or part of the Merger Consideration is to
be made to a person other than the person in whose name a surrendered
Certificate is registered, it shall be a condition to such delivery or exchange
that the Certificate surrendered shall be properly endorsed or shall be
otherwise in proper form for transfer and that the person requesting such
delivery or exchange shall have paid any transfer and other taxes required by
reason of such delivery or exchange in a name other than that of the registered
holder of the Certificate surrendered or shall have established to the
reasonable satisfaction of the Exchange Agent that such tax either has been paid
or is not payable.
(d) Right to Merger Consideration. Subject to Subsection 2.3(e), until
surrendered and exchanged in accordance with this Section 2.3, each Certificate
shall, after the Effective Time, represent solely the right to receive the
Merger Consideration, multiplied by the number of shares of Company Common Stock
evidenced by such Certificate, together with any dividends or other
distributions as provided in Sections 2.3(e) and 2.3(g), and shall have no other
rights. From and after the Effective Time, NCC and Surviving Corporation shall
be entitled to treat such Certificates that have not yet been surrendered for
exchange as evidencing the ownership of the aggregate Merger Consideration into
which the shares of Company Common Stock represented by such Certificates may be
converted, notwithstanding any failure to surrender such Certificates. One
hundred eighty (180) days following the Effective Time, the Exchange Agent shall
deliver to the Surviving Corporation any shares of NCC Common Stock and funds
(including any interest received with respect thereto) which NCC has made
available to the Exchange Agent and which have not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat or other similar
laws) with respect to the shares of NCC Common Stock and cash in lieu of
fractional shares deliverable or payable upon due surrender of their
Certificates. Neither Exchange Agent nor any party hereto shall be liable to any
holder of shares of Company Common Stock for any Merger Consideration (or
dividends, distributions or interest with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(e) Distribution with Respect to Unexchanged Certificates. Whenever a
dividend or other distribution is declared by NCC on the NCC Common Stock, the
record date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares issuable pursuant to this
Agreement, provided that no dividends or other distributions declared or made
with respect to NCC Common Stock with a
A-3
<PAGE> 107
record date that is more than 30 days after the mailing of the Certificate of
notice and letter of transmittal provided for under Subsection 2.3(b) of this
Agreement shall be paid to the holder of any unsurrendered Certificate with
respect to the share of NCC Common Stock represented thereby until the holder of
such Certificate shall surrender such Certificate in accordance with this
Article II. The Surviving Corporation shall pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared or made by the Company on Company Common Stock in accordance with the
terms of this Agreement on or prior to the Effective Time and which remain
unpaid at the Effective Time.
(f) Voting with Respect to Unexchanged Certificates. Holders of
unsurrendered Certificates shall be entitled to vote after the Effective Time at
any meeting of NCC stockholders the number of whole shares of NCC Common Stock
represented by such Certificates, regardless of whether such holders have
exchanged their Certificates, provided that no holder of unsurrendered
Certificates may vote at any meeting of NCC stockholders that is held more than
30 days after the mailing of the Certificate of notice and letter of transmittal
provided for under Subsection 2.3(b) of this Agreement.
(g) No Fractional Shares. No certificates or script representing
fractional shares of NCC Common Stock shall be issued upon the surrender for
exchange of a Certificate or Certificates. No dividends or distributions of NCC
shall be payable on or with respect to any fractional share and any such
fractional share interest will not entitle the owner thereof to vote or to any
rights of stockholders of NCC. In lieu of any such fractional shares, holders of
Certificates otherwise entitled to fractional shares shall be entitled to
receive promptly from the Exchange Agent a cash payment in an amount equal to
the fraction of such share of NCC Common Stock to which such holder would
otherwise be entitled multiplied by the Market Price, as defined in Section
8.6(a)(iii).
2.4 CLOSING OF THE COMPANY'S TRANSFER BOOKS. The stock transfer books of
Company shall be closed at the close of business on the business day immediately
preceding the date of the Effective Time. In the event of a transfer of
ownership of Company Common Stock which is not registered in the transfer
records of Company, the Merger Consideration to be distributed pursuant to this
Agreement may be delivered to a transferee, if a Certificate is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by payment of any applicable stock transfer taxes. NCC and the
Exchange Agent shall be entitled to rely upon the stock transfer books of
Company to establish the identity of those persons entitled to receive the
Merger Consideration specified in this Agreement for their shares of Company
Common Stock, which books shall be conclusive with respect to the ownership of
such shares. In the event of a dispute with respect to the ownership of any such
shares, the Surviving Corporation and the Exchange Agent shall be entitled to
deposit any Merger Consideration represented thereby in escrow with an
independent party and thereafter be relieved with respect to any claims to such
Merger Consideration.
2.5 CHANGES IN NCC COMMON STOCK. If between the date of this Agreement and
the Effective Time, the shares of NCC Common Stock shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or if a stock dividend thereon
shall be declared with a record date within said period, the Merger
Consideration shall be adjusted to reflect such reclassification,
recapitalization, split-up, combination, exchange of shares or stock dividend.
III. REPRESENTATIONS AND WARRANTIES OF NCC
NCC hereby represents and warrants to Company that:
3.1 CORPORATE ORGANIZATION. NCC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and is
duly qualified to do business as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the nature of the business conducted
by it makes such qualification necessary, except for such jurisdictions in which
the failure to be so qualified would not have a Material Adverse Effect. NCC is
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHCA"). NCC has the requisite corporate power and authority to
own, lease and operate its properties and assets and to carry on its business as
it is now being conducted. NCC has heretofore delivered to Company true and
complete copies of its certificate of incorporation and by-laws.
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3.2 AUTHORITY. Subject to the receiving all applicable regulatory
approvals, NCC has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly approved by the Board of
Directors of NCC. This Agreement has been duly executed and delivered by, and
constitutes a valid and binding obligation of, NCC, enforceable against NCC in
accordance with its terms, except as enforceability thereof may be limited by
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceedings may be brought. No other corporate proceedings on
the part of NCC are necessary to authorize this Agreement or to consummate the
transactions so contemplated.
3.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of
NCC consists of 350,000,000 shares of NCC Common Stock and 5,000,000 shares of
NCC preferred stock. As of the close of business on July 22, 1994 (i)
150,218,833 shares of NCC Common Stock were validly issued and outstanding,
fully paid and nonassessable and (ii) 757,160 shares of eight percent (8%)
Cumulative Convertible Preferred Stock (issued as 3,785,800 Depositary Shares)
no par of NCC ("NCC Preferred Stock") were validly issued and outstanding, fully
paid and nonassessable. As of the date hereof, except as set forth in this
Section 3.3, pursuant to the exercise of employee stock options under NCC's
Amended and Restated 1973 Stock Option Plan, as amended, the 1984 Stock Option
Plan, as amended, the 1989 Stock Option Plan and the 1993 Stock Option Plan,
NCC's dividend reinvestment plan, National City Savings and Investment Plan and
stock grants made pursuant to the NCC 1991 Amended and Second Restated
Restricted Stock Plan, or set forth in a disclosure letter executed by NCC and
dated and delivered by NCC to Company as of the date hereof ("NCC Disclosure
Letter"), there are no other shares of capital stock of NCC authorized, issued
or outstanding and there are no outstanding subscriptions, options, warrants,
rights, convertible securities or any other agreements or commitments of any
character relating to the issued or unissued capital stock or other securities
of NCC obligating NCC to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of NCC or obligating NCC
to grant, extend or enter into any subscription, option, warrant, right,
convertible security or other similar agreement or commitment. As of the date
hereof, except as provided in this Agreement or as set forth in the NCC
Disclosure Letter, there are no voting trusts or other agreements or
understandings to which NCC or any NCC subsidiary (as defined herein) is a party
with respect to the voting of the capital stock of NCC. Except as set forth in
NCC's proxy statement dated March 4, 1994 or in NCC's Disclosure Letter, NCC
knows of no person who owns beneficially or has the right to acquire more than
five percent of the outstanding NCC Common Stock. All of the shares of NCC
Common Stock issuable in exchange for the Company Common Stock at the Effective
Time in accordance with this Agreement and all of the shares of NCC Common Stock
issuable upon exercise of the stock options set forth in Section 2.2 will be,
when so issued, duly authorized, validly issued, fully paid and nonassessable
and will not be subject to preemptive rights.
3.4 SUBSIDIARIES. The name and state of incorporation of each significant
subsidiary (as defined herein) of NCC (collectively, the "Significant
Subsidiaries") is set forth in the NCC Disclosure Letter. Each of the NCC
subsidiaries is a bank or a corporation duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation or
organization and is duly qualified to do business as a foreign corporation in
each jurisdiction in which its ownership or lease of property or the nature of
the business conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would not have a Material
Adverse Effect. Each of NCC's subsidiaries has the requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its businesses as they are now being conducted. Except as set forth in the NCC
Disclosure Letter, all outstanding shares of capital stock of each of NCC's
subsidiaries are owned by NCC or another of NCC's subsidiaries and are validly
issued, fully paid and (except pursuant to 12 U.S.C. Section 55 in the case of
each national bank subsidiary and applicable state law in the case of each state
bank subsidiary) nonassessable, are not subject to preemptive rights and are
owned free and clear of all material liens, claims and encumbrances. There are
no outstanding subscriptions, options, warrants, rights, convertible securities
or any other agreements or commitments of any character relating to the issued
or unissued capital stock or other securities of any NCC subsidiary obligating
any of NCC subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold additional shares of its capital stock or obligating
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any of NCC's subsidiaries to grant, extend or enter into any subscription,
option, warrant, right, convertible security or other similar agreement or
commitment.
3.5 INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT, ETC. None
of the information with respect to NCC or any of NCC's subsidiaries provided by
NCC for inclusion in the Registration Statement to be filed with the Securities
and Exchange Commission (the "Commission") by NCC on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), for the purpose of
registering the shares of NCC Common Stock to be issued in the Merger (the
"Registration Statement") at the time it becomes effective and in the proxy
statement of the Company required to be mailed to its shareholders ("Company
Proxy") at the time of mailing such proxy statement, and any supplement thereto,
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. NCC shall notify Company on or before the date of the Company
Meeting if any material fact provided by NCC for inclusion in the Company Proxy
is or becomes untrue or misleading or if additional information needs to be
communicated to Company's shareholders so as to make any statements concerning
NCC, in light of circumstances under which they were made, not misleading. The
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations promulgated
thereunder.
3.6 CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth in the NCC
Disclosure Letter, neither the execution and delivery of this Agreement by NCC
nor the consummation by NCC of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of its certificate of
incorporation or by-laws, (b) violate, conflict with, constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in the creation of any lien or other encumbrance upon any
of the properties or assets of NCC or any of NCC's subsidiaries under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which NCC
or any of NCC's subsidiaries is a party or to which they or any of their
respective properties or assets are subject, except for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of liens
or other encumbrances, which are set forth in the NCC Disclosure Letter or
which, individually or in the aggregate, will not have a Material Adverse Effect
or (c) require any consent, approval, authorization or permit of or from, or
filing with or notification to, any court, governmental authority or other
regulatory or administrative agency or commission, domestic or foreign
("Governmental Entity"), except (i) pursuant to the Securities Exchange Act of
1934, as amended ("Exchange Act"), and the Securities Act, (ii) filings of the
Certificate of Merger and Articles of Merger, (iii) filings required under the
securities or blue sky laws of the various states, (iv) filings with, and
approval by, the Federal Reserve Board (the "FRB"), (v) filings with, and
approvals by, the Office of Thrift Supervision (the "OTS"), or (vi) consents,
approvals, authorizations, permits, filings or notifications which, if not
obtained or made will not, individually or in the aggregate, have a Material
Adverse Effect.
3.7 REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1990, NCC and each
of NCC's subsidiaries have filed all reports, registrations and statements,
together with any required amendments thereto, that they were required to file
with the Commission under Section 12(b), 12(g), 13(a) or 14(a) of the Securities
Exchange Act of 1934, including, but not limited to Forms 10-K, Forms 10-Q and
proxy statements (the "NCC Reports"). NCC has previously furnished or will
promptly furnish Company with true and complete copies of each of NCC's annual
reports on Form 10-K for the years 1990 through 1993. As of their respective
dates, the NCC Reports complied with the requirements of the Commission and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstance under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of NCC included in the NCC Reports have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly present
the consolidated financial position of NCC and NCC's subsidiaries as of the
dates thereof and the results of their operations and changes in cash flows for
the periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end and audit adjustments and any other adjustments
described therein. There exist no material liabilities of NCC and its
consolidated subsidiaries, contingent or otherwise, except as disclosed in the
NCC Reports. NCC's reserve for possible loan losses as
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shown in its Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and in NCC's press release dated July 18, 1994 reporting second quarter and
first half 1994 earnings were adequate, within the meaning of generally accepted
accounting principles and safe and sound banking practices.
3.8 TAXES. NCC will promptly make available to Company, upon request by
Company, true and correct copies of the federal, state and local income tax
returns, and state and local property and sales tax returns and any other tax
returns filed by NCC and any of NCC's subsidiaries for each of the fiscal years
that remains open, for examination or assessment of tax. NCC and each NCC
subsidiary have prepared in good faith and duly and timely filed, or caused to
be duly and timely filed, all federal, state, local and foreign income,
estimated tax, withholding tax, franchise, sales and other tax returns or
reports required to be filed by them on or before the date hereof, except to the
extent that all such failures to file, taken together, would not have a Material
Adverse Effect. NCC and each of its subsidiaries have paid, or have made
adequate provision or set up an adequate accrual or reserve for the payment of,
all taxes, shown or required to be shown to be owing on all such returns or
reports, together with any interest, additions or penalties related to any such
taxes or to any open taxable year or period. Except as set forth in the NCC
Disclosure Letter, neither NCC nor any of NCC's subsidiaries has consented to
extend the statute of limitations with respect to the assessment of any tax.
Except as set forth in the NCC Disclosure Letter, neither NCC nor any of NCC's
subsidiaries is a party to any action or proceeding, nor is any such action or
proceeding threatened, by any Governmental Entity in connection with the
determination, assessment or collection of any taxes, and no deficiency notices
or reports have been received by NCC or any of NCC's subsidiaries in respect of
any material deficiencies for any tax, assessment, or government charges.
3.9 EMPLOYEE PLANS. All employee benefit, welfare, bonus, deferred
compensation, pension, profit sharing, stock option, employee stock ownership,
consulting, severance, or fringe benefit plans, formal or informal, written or
oral, and all trust agreements related thereto, relating to any present or
former directors, officers or employees of NCC or its subsidiaries ("NCC
Employee Plans") have been maintained, operated, and administered in substantial
compliance with their terms and currently comply, and have at all relevant times
complied, in all material respects with the applicable requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code,
and any other applicable laws. With respect to each NCC Employee Plan which is a
pension plan (as defined in Section 3(2) of ERISA): (a) except for recent
amendment(s) to the plans not materially affecting the qualified status of the
plans (which are disclosed in the NCC Disclosure Letter), and except as
otherwise set forth in the NCC Disclosure Letter, each pension plan as amended
(and any trust relating thereto) intended to be a qualified plan under Section
401(a) of the Code either has been determined by the Internal Revenue Service
("IRS") to be so qualified or is the subject of a pending application for such
determination that was timely filed, (b) there is no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, and no waiver of the minimum funding standards of such
sections has been requested from the IRS, (c) neither NCC nor any of its
subsidiaries has provided, or is required to provide, security to any pension
plan pursuant to Section 401(a)(29) of the Code, (d) the fair market value of
the assets of each defined benefit plan (as defined in Section 3(35) of ERISA)
exceeds the value of the "benefit liabilities" within the meaning of Section
4001(a)(16) of ERISA under such defined benefit plan as of the end of the most
recent plan year thereof ending prior to the date hereof, calculated on the
basis of the actuarial assumptions used in the most recent actuarial valuation
for such defined benefit plan as of the date hereof, (e) no reportable event
described in Section 4043 of ERISA for which the 30 day reporting requirement
has not been waived has occurred, (f) except as otherwise set forth in the NCC
Disclosure Letter, no defined benefit plan has been terminated, nor has the
Pension Benefit Guaranty Corporation ("PBGC") instituted proceedings to
terminate a defined benefit plan or to appoint a trustee or administrator of a
defined benefit plan, and no circumstances exist that constitute grounds under
Section 4042(a)(2) of ERISA entitling the PBGC to institute any such proceedings
and (g) no pension plan is a "multiemployer plan" within the meaning of Section
3(37) of ERISA. Neither NCC nor any of its subsidiaries has incurred any
liability to the PBGC with respect to any "single-employer plan" within the
meaning of Section 4001(a)(15) of ERISA currently or formerly maintained by any
entity considered one employer with it under Section 4001 of ERISA or Section
414 of the Code, except for premiums all of which have been paid when due.
Neither NCC nor any of its subsidiaries has waived any withdrawal liability with
respect to a multiemployer plan under Subtitle E of Title IV of ERISA. Neither
NCC nor any of its subsidiaries has any obligations for retiree health and life
benefits under any NCC Employee Plan, except as set forth in the NCC Disclosure
Letter. Other than restrictions under
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applicable law, there are no restrictions on the rights of NCC or its
subsidiaries to amend or terminate any such NCC Employee Plan.
3.10 MATERIAL CONTRACTS. Except as set forth in the NCC Disclosure Letter
or disclosed in the NCC Reports filed by NCC with the Commission prior to the
date of this Agreement, neither NCC nor any of its subsidiaries is a party to,
or is bound or affected by, or receives benefits under (a) any employment,
severance, termination, consulting or retirement agreement (collectively,
"Benefit Agreements") providing for aggregate payments to any person in any
calendar year in excess of $500,000, (b) any material agreement, indenture or
other instrument relating to the borrowing of money by NCC or any of its
subsidiaries or the guarantee by NCC or any of its subsidiaries of any such
obligation (other than trade payables and instruments relating to borrowings or
guaranties made in the ordinary course of business) or (c) any other contract or
agreement or amendment thereto that would be required to be filed as an exhibit
to a Form 10-K filed by NCC with the Commission as of the date of this Agreement
(collectively, the "NCC Contracts"). Neither NCC nor any of NCC's subsidiaries
is in default under any NCC Contracts, which default is reasonably likely to
have, either individually or in the aggregate, a Material Adverse Effect and
there has not occurred any event that with the lapse of time or the giving of
notice or both would constitute such a default. Neither NCC nor any of NCC's
subsidiaries is a party to, or is bound by, any collective bargaining agreement,
contract, or other agreement or understanding with a labor union or labor
organization, nor is NCC or any of NCC's subsidiaries the subject of a
proceeding asserting that it or any such subsidiary has committed an unfair
labor practice or seeking to compel it or such subsidiary to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it or any of its subsidiaries pending or
threatened.
3.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the NCC
Disclosure Letter or disclosed in the NCC Reports filed by NCC with the
Commission prior to the date of this Agreement, since December 31, 1993, there
has not been any change in the financial condition, results of operations or
business of NCC and its subsidiaries which would or in the future will have a
Material Adverse Effect.
3.12 LITIGATION. Except as disclosed in the NCC Reports filed by NCC with
the Commission prior to the date of this Agreement, there is no suit, action or
proceeding pending, or, to the knowledge of NCC, threatened against or affecting
NCC or any of NCC's subsidiaries which, if decided adversely to NCC, would
reasonably be expected to result in a Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator, outstanding against NCC or any of NCC's subsidiaries having, or
which, insofar as reasonably can be foreseen, in the future would have, a
Material Adverse Effect.
3.13 COMPLIANCE WITH LAWS AND ORDERS. Except as set forth in the NCC
Disclosure Letter or disclosed in the NCC Reports filed by NCC with the
Commission prior to the date of this Agreement, the businesses of NCC and of
NCC's subsidiaries are not being conducted in violation of any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity (including, without limitation, in the case of NCC's subsidiaries that
are banks, all statutes, rules and regulations pertaining to the conduct of the
banking business and the exercise of trust powers), except for violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect. Except as set
forth in the NCC Disclosure Letter, no investigation or review by any
Governmental Entity with respect to NCC or any of NCC's subsidiaries is pending
or, to the knowledge of NCC, threatened, nor has any Governmental Entity
indicated an intention to conduct the same in each case other than those the
outcome of which will not have a Material Adverse Effect.
3.14 AGREEMENTS WITH BANK REGULATORS, ETC. Except as set forth in the NCC
Disclosure Letter, neither NCC nor any NCC subsidiary is a party to any written
agreement or memorandum of understanding with, or a party to any commitment
letter, board resolution or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
any Governmental Entity which restricts materially the conduct of its business,
or in any manner relates to its capital adequacy, its credit or reserve policies
or its management, nor has NCC been advised by any Governmental Entity that it
is contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission. Neither NCC nor any of NCC's subsidiaries is required by Section 32
of the Federal Deposit
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Insurance Act to give prior notice to a Federal banking agency of a proposed
addition of an individual to its board of directors or the employment of an
individual as a senior executive officer.
3.15 NCC OWNERSHIP OF STOCK. As of the date of this Agreement, neither NCC
nor any of its affiliates or associates (i) beneficially owns, directly or
indirectly, or (ii) are parties to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, Company Common
Stock (other than Trust Account Shares), which in the aggregate, represent 5% or
more of the outstanding shares of Company Common Stock.
3.16 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed in NCC's
Proxy Statement for its 1994 Annual Meeting of Stockholders, no officer or
director of NCC, or any "associate" (as such term is defined in Rule 14a-1 under
the Exchange Act) of any such officer or director, has any material interest in
any material contract or property (real or personal), tangible or intangible,
used in or pertaining to the business of NCC or any of its subsidiaries.
3.17 ENVIRONMENTAL MATTERS. For purposes of this Agreement, the following
terms shall have the indicated meanings:
"ENVIRONMENTAL LAW" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any governmental entity relating to (1) the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource),
and/or (2) the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of Hazardous Substances. The term Environmental Law includes
without limitation (1) the comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Section 9601, ET
SEQ.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
Section 6901, ET SEQ.; the Clean Air Act, as amended, 42 U.S.C. Section
7401, ET SEQ.; the Federal Water Pollution Control Act, as amended, 33
U.S.C. Section 1251, ET SEQ.; the Toxic Substances Control Act, as amended,
15 U.S.C. Section 9601, ET SEQ.; the Emergency Planning and Community Right
to Know Act, 42 U.S.C. Section 11001, ET SEQ.; the Safe Drinking Water Act,
42 U.S.C. Section 300f, ET SEQ.; and all comparable state and local laws,
and (2) any common law (including without limitation common law that may
impose strict liability) that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of
or exposure to any Hazardous Substance.
"HAZARDOUS SUBSTANCE" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a
component. Hazardous Substances include without limitation petroleum or any
derivative or by-product thereof, asbestos, radioactive material, and
polychlorinated biphenyls.
"LOAN PORTFOLIO PROPERTIES AND OTHER PROPERTIES OWNED" means those
properties owned or operated by NCC or Company, as the case may be, or any
of their subsidiaries.
Except as set forth in the NCC Disclosure Letter, to the best of its
knowledge, neither NCC nor any of its subsidiaries has been or is in violation
of or liable under any Environmental Law, except any such violations or
liabilities which would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect; to the best of its knowledge, none
of the Loan Portfolio Properties and Other Properties Owned by NCC or its
subsidiaries has been or is in violation of or liable under any Environmental
Law, except any such violations or liabilities which, individually or in the
aggregate would not have a Material Adverse Effect; and to the best of its
knowledge, there are no actions, suits, demands, notices, claims, investigations
or proceedings pending or threatened relating to the liability of the Loan
Portfolio Properties and Other Properties Owned by NCC or its subsidiaries under
any Environmental Law, including without limitation any notices, demand letters
or requests for information from any federal or state environmental agency
relating to any such liabilities under or violations of Environmental Law,
except such as would not, individually or in the aggregate have a Material
Adverse Effect.
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IV. REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to NCC that:
4.1 CORPORATE ORGANIZATION. Company is a corporation duly organized and
validly existing under the laws of the State of Indiana and is duly qualified to
do business as a foreign corporation in each jurisdiction in which its ownership
or lease of property or the nature of the business conducted by it makes such
qualification necessary, except for such jurisdictions in which the failure to
be so qualified would not have a Material Adverse Effect. Company is registered
as a savings and loan holding company under the Home Owners' Loan Act of 1933,
as amended. Company has the requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as it
is now being conducted. Company has heretofore delivered to NCC true and
complete copies of its Articles of Incorporation and By-laws.
4.2 AUTHORITY. Company has the requisite corporate power and authority to
execute and deliver this Agreement and, except for any required approval of
Company's shareholders, to consummate the transactions contemplated by such. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated within such documents have been duly approved by the
Board of Directors of Company and no other corporate proceedings on the part of
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated, subject only to approval by the shareholders of
Company as provided in Section 5.12. This Agreement has been duly executed and
delivered by, and constitutes a valid and binding obligation of, Company,
enforceable against Company in accordance with its terms, except as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceedings may be brought.
4.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of
Company consists solely of 5,000,000 shares of Company Common Stock and
2,000,000 shares of preferred stock. As of the close of business on July 22,
1994 1,639,513 shares of Company Common Stock were validly issued and
outstanding, fully paid and nonassessable, and no shares of preferred stock were
issued or outstanding. As of the date of this Agreement except as set forth in
this Section 4.3 or in a disclosure letter executed by Company and dated and
delivered by Company to NCC as of the date hereof ("Company Disclosure Letter"),
and except for a stock option agreement, in the form set forth in Exhibit A
hereto, which the parties contemplate entering into immediately hereafter
("Option Agreement"), there are no shares of capital stock of Company
authorized, issued or outstanding and there are no outstanding subscriptions,
options, warrants, rights, convertible securities or any other agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of Company obligating Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Company or obligating Company to grant, extend or enter into any subscription,
option, warrant, right, convertible security or other similar agreement or
commitment now or in the future. Except as set forth in the Company Disclosure
Letter, there are no voting trusts or other agreements or understandings to
which Company or any of Company's subsidiaries is a party with respect to the
voting of the capital stock of Company.
4.4 SUBSIDIARIES. The Company Disclosure Letter sets forth the name and
state of incorporation of each subsidiary of Company (collectively, "Company
Subsidiaries"). Each of the Company Subsidiaries is a federal savings bank duly
organized, validly existing and in good standing under the laws of the United
States of America or a corporation duly organized and validly existing under the
laws of its jurisdiction of incorporation and is duly qualified to do business
as a foreign corporation in each jurisdiction in which its ownership or lease of
property or the nature of the business conducted by it makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect. Each of the Company Subsidiaries has
the requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its businesses as they are now being
conducted. Except as set forth in the Company Disclosure Letter, all outstanding
shares of capital stock of each Company Subsidiary is owned by Company or
another Company Subsidiary and are validly issued, fully paid and nonassessable,
are not subject to preemptive rights and are owned free and clear of all liens,
claims and encumbrances. There are no outstanding subscriptions,
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options, warrants, rights, convertible securities or any other agreements or
commitments of any character relating to the issued or unissued capital stock or
other securities of any Company Subsidiary obligating any Company Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold additional
shares of its capital stock or obligating any Company Subsidiary to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment.
4.5 INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT, ETC. None
of the information with respect to Company or any Company Subsidiary included in
the Proxy Statement to be sent to Company's shareholders regarding this
transaction or provided by Company for inclusion in the Registration Statement
will, in the case of the Proxy Statement or any amendments or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments or
supplements thereto, and at the time of the Company Meeting (as defined in
Section 5.12), or, in the case of the Registration Statement, at the time it
becomes effective, contain any untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
promulgated thereunder.
4.6 CONSENT AND APPROVALS; NO VIOLATION. Except as set forth in the
Company Disclosure Letter neither the execution and delivery of this Agreement
by Company nor the consummation by Company of the transactions contemplated
hereby will (a) conflict with or result in any breach of any provision of its
Articles of Incorporation or By-laws, (b) violate, conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in the creation of any lien or other
encumbrance upon any of the properties or assets of Company or any of the
Company Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Company or any Company Subsidiary is a
party or to which they or any of their respective properties or assets are
subject, except for such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens or other encumbrances, which
are set forth in the Company Disclosure Letter or which, individually or in the
aggregate, will not have a Material Adverse Effect or (c) require any consent,
approval, authorization or permit of or from, or filing with or notification to,
any Governmental Entity, except (i) pursuant to the Exchange Act and the
Securities Act, (ii) filing the Certificate of Merger and the Articles of
Merger, (iii) filings required under the securities or blue sky laws of the
various states, (iv) filings with, and approval by, the FRB, (v) filings with,
and approvals by, the OTS, or (vi) consents, approvals, authorizations, permits,
filings or notifications which, if not obtained or made will not, individually
or in the aggregate, have a Material Adverse Effect.
4.7 REPORTS AND FINANCIAL STATEMENTS. Since July 1, 1991, Company and each
Company Subsidiary have filed all reports, registrations and statements,
together with any required amendments thereto, that they were required to file
with the Commission under Sections 12(b), 12(g), 13(a) or 14(a) of the Exchange
Act, including, but not limited to Forms 10-K, Forms 10-Q and proxy statements
(the "Company Reports"). Company has previously furnished or will promptly
furnish NCC with true and complete copies of each of Company annual reports on
Form 10-K for fiscal years ending 1991 through 1993. As of their respective
dates, Company Reports complied with the requirements of the Commission and did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstance under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of Company included in the Company Reports have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present the financial position of Company and Company Subsidiaries taken as a
whole as at the dates thereof and the consolidated results of their operations
and changes in cash flows for the periods then ended subject, in the case of the
unaudited interim financial statements, to normal year-end and audit adjustments
and any other adjustments described therein. There exist no material liabilities
of Company and its consolidated subsidiaries, contingent or otherwise, except as
disclosed in the Company Reports. Company's reserve for possible loan losses as
shown in its Annual Report on Form 10-K for the fiscal year ended September 30,
1993 was adequate, within the meaning of generally accepted accounting
principles and safe and sound banking practices.
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4.8 TAXES. Company will promptly make available to NCC, upon request by
NCC, true and correct copies of the federal income tax returns, state income tax
returns, and state sales tax returns filed by Company and Company Subsidiaries
for each of the fiscal years that remains open, as of the date hereof, for
examination or assessment of tax. Company and each Company Subsidiary have
prepared in good faith and duly and timely filed, or caused to be duly and
timely filed, all federal, state, local and foreign income, franchise, sales and
other tax returns or reports required to be filed by them on or before the date
hereof, except to the extent that all failures to file, taken together, would
not have a Material Adverse Effect. Company and each Company Subsidiary have
paid, or have made adequate provision or set up an adequate accrual or reserve
for the payment of, all taxes shown or required to be shown to be owing on all
such returns or reports, together with any interest, additions or penalties
related to any such taxes or to any open taxable year or period. Except as set
forth in the Company Disclosure Letter, neither Company nor any Company
Subsidiary has consented to extend the statute of limitations with respect to
the assessment of any tax. Except as set forth in the Company Disclosure Letter,
neither Company nor any of the Company Subsidiaries is a party to any action or
proceeding, nor is any such action or proceeding threatened, by any Governmental
Entity in connection with the determination, assessment or collection of any
taxes, and no deficiency notices or reports have been received by Company or any
of the Company Subsidiaries in respect of any material deficiencies for any tax,
assessment, or government charge.
4.9 EMPLOYEE PLANS. Except as set forth in the Company Disclosure Letter,
all employee benefit, welfare, bonus, deferred compensation, pension, profit
sharing, stock option, employee stock ownership, consulting, severance, or
fringe benefit plans, formal or informal, written or oral and all trust
agreements related thereto, relating to any present or former directors,
officers or employees of Company or Company Subsidiaries ("Company Employee
Plans") have been maintained, operated, and administered in substantial
compliance with their terms and currently comply, and have at all relevant times
complied, in all material respects with the applicable requirements of ERISA,
the Code, and any other applicable laws. Except as set forth in the Company
Disclosure Letter, with respect to each Company Employee Plan which is a pension
plan (as defined in Section 3(2) of ERISA): (a) except for recent amendment(s)
to the plans not materially affecting the qualified status of the plans (which
are disclosed in, and copies of which are attached to, the Company Disclosure
Letter), each pension plan as amended (and any trust relating thereto) intended
to be a qualified plan under Section 401(a) of the Code either has been
determined by the IRS to be so qualified or is the subject of a pending
application for such determination that was timely filed, (b) there is no
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code) as of June 30, 1993 and, to the Company's knowledge thereafter,
whether or not waived, and no waiver of the minimum funding standards of such
sections has been requested from the IRS, (c) neither Company nor any of the
Company Subsidiaries has provided, or is required to provide, security to any
pension plan pursuant to Section 401(a)(29) of the Code, (d) the fair market
value of the assets of each defined benefit plan (as defined in Section 3(35) of
ERISA) exceeds the value of the "benefit liabilities" within the meaning of
Section 4001(a)(16) of ERISA under such defined benefit plan as of June 30, 1993
and to the Company's knowledge as of June 30, 1994, calculated on the basis of
the actuarial assumptions used in the most recent actuarial valuation for such
defined benefit plan as of the date hereof, (e) no reportable event described in
Section 4043 of ERISA for which the 30 day reporting requirement has not been
waived has occurred, (f) no defined benefit plan has been terminated, nor has
the Pension Benefit Guaranty Corporation ("PBGC") instituted proceedings to
terminate a defined benefit plan or to appoint a trustee or administrator of a
defined benefit plan, and no circumstances exist that constitute grounds under
Section 4042(a)(2) of ERISA entitling the PBGC to institute any such proceedings
and (g) no pension plan is a "multiemployer plan" within the meaning of Section
3(37) of ERISA. Neither Company nor any Company Subsidiary has incurred any
liability to the PBGC with respect to any "single-employer plan" within the
meaning of action 4001(a)(15) of ERISA currently or formerly maintained by any
entity considered one employer with it under Section 4001 of ERISA or Section
414 of the Code, except for premiums all of which have been paid when due.
Neither Company nor any of its subsidiaries has incurred any withdrawal
liability with respect to a multiemployer plan under Subtitle E of Title IV of
ERISA. Neither Company nor any Company Subsidiary has any obligations for
retiree health and life benefits under any Company Employee Plan, except as set
forth in the Company Disclosure Letter. Other than restrictions under applicable
law, there are no restrictions on the rights of Company or Company Subsidiaries
to amend or terminate any such Company Employee Plan without incurring any
liability thereunder.
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4.10 MATERIAL CONTRACTS. Except as set forth in the Company Disclosure
Letter or disclosed in the Company Reports filed by Company with the Commission
prior to the date of this Agreement, neither Company nor any Company Subsidiary
is a party to, or is bound or affected by, or receives benefits under (a) any
Benefit Agreements providing for aggregate payments to any person in any
calendar year in excess of $100,000 (b) any material agreement, indenture or
other instrument relating to the borrowing of money by Company or any Company
Subsidiary or the guarantee by Company or any Company Subsidiary of any such
obligation (other than trade payables and instruments relating to transactions
entered into in the ordinary course of business) or (c) any other contract or
agreement or amendment thereto that would be required to be filed as an exhibit
to a Form 10-K filed by Company with the Commission as of the date of this
Agreement (collectively, the "Company Contracts"). Neither Company nor any
Company Subsidiary is in default under any Company Contract, which default is
reasonably likely to have, either individually or in the aggregate, a Material
Adverse Effect, and there has not occurred any event that with the lapse of time
or the giving of notice or both would constitute such a default. Neither Company
nor any Company Subsidiary is a party to, or is bound by, nor is any person
seeking to require the Company to enter into any collective bargaining
agreement, contract, or other agreement or understanding with a labor union or
labor organization, nor is Company or any Company Subsidiary the subject of a
proceeding asserting that Company or any Company Subsidiary has committed an
unfair labor practice or seeking to compel Company or any Company Subsidiary to
bargain with any labor organization as to wages and/or conditions of employment,
nor is there any strike or other labor dispute involving Company or any Company
Subsidiary pending or threatened.
4.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the
Company Disclosure Letter or disclosed in Company Reports filed by Company with
the Commission prior to the date of this Agreement, since September 30, 1993,
there has not been any change in the financial condition, results of operations
or business of Company and Company Subsidiaries which would or insofar as
reasonably can be foreseen in the future will have a Material Adverse Effect.
4.12 LITIGATION. Except as set for in the Company Disclosure Letter or
disclosed in Company Reports filed by Company with the Commission prior to the
date of this Agreement, there is no suit, action or proceeding pending, or, to
the knowledge of Company, threatened against or affecting Company or any Company
Subsidiary which, if determined adversely to Company, would be reasonably
expected to have a Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator, outstanding
against Company or any Company Subsidiary having, or which, insofar as
reasonably can be foreseen, in the future would have, a Material Adverse Effect.
4.13 COMPLIANCE WITH LAWS AND ORDERS. Except as set forth in the Company
Disclosure Letter or as disclosed in Company Reports filed by Company with the
Commission prior to the date of this Agreement, the businesses of Company and
Company Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity (including, without limitation, in the case of Company Subsidiaries that
are savings banks, all statutes, rules and regulations pertaining to the conduct
of the savings bank business), except for violations which individually or in
the aggregate do not, and, insofar as reasonably can be foreseen, in the future
will not, have a Material Adverse Effect. Except as set forth in the Company
Disclosure Letter, no investigation or review by any Governmental Entity with
respect to Company or any Company Subsidiary is pending or, to the knowledge of
Company, threatened, nor has any Governmental Entity indicated an intention to
conduct the same in each case other than those the outcome of which will not
have a Material Adverse Effect.
4.14 AGREEMENTS WITH REGULATORS, ETC. Neither Company nor any Company
Subsidiary is a party to any written agreement or memorandum of understanding
with, or a party to any commitment letter, board resolution or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, any Governmental Entity which
restricts materially the conduct of its business, or in any manner relates to
its capital adequacy, its credit or reserve policies or its management, except
for those the existence of which has been disclosed in the Company Disclosure
Letter, nor has Company been advised by any Governmental Entity that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission, except as set forth in the Company Disclosure Letter.
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Except as set forth in the Company Disclosure Letter, neither Company nor any
Company Subsidiary is required by Section 32 of the Federal Deposit Insurance
Act to give prior notice to a Federal banking agency of a proposed addition of
an individual to its board of directors or the employment of an individual as a
senior or executive officer.
4.15 FEES. Except for fees paid and payable to McDonald & Company
Securities, Inc. in an amount heretofore disclosed to NCC and usual, customary
and reasonable attorney's and accountant's fees, neither Company nor any Company
Subsidiary has paid or will become obligated to pay any fee or commission to any
broker, finder or intermediary in connection with the transactions contemplated
by this Agreement.
4.16 COMPANY ACTION. The Board of Directors of Company (at a meeting duly
called and held) has by the requisite vote of all directors present (a)
determined that the Merger is advisable and in the best interests of Company and
its shareholders, (b) approved this Agreement and the transactions contemplated
hereby, including the Merger, and (c) has directed that the Merger be submitted
for consideration by the Company's shareholders at the Company Meeting.
4.17 VOTE REQUIRED. The affirmative votes of the holders of a majority of
the outstanding shares of Company Common Stock entitled to vote thereon are the
only votes of the holders of any class or series of Company capital stock
necessary to approve the deletion of Article 11 of the Company's Articles of
Incorporation and this Agreement and the transactions contemplated by the
Agreement.
4.18 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as disclosed in
Company's Proxy Statement for its 1993 Annual Meeting of Shareholders or as set
forth in the Company Disclosure Letter, no officer or director of Company, or
any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act)
of any such officer or director, has any material interest in any material
contracts or property (real or personal), tangible or intangible, used in or
pertaining to the business of Company or any Company Subsidiaries.
4.19 ENVIRONMENTAL MATTERS. Except as set forth in the Company's
Disclosure Letter, to the best of its knowledge, neither Company nor any of its
subsidiaries has been or is in violation of or liable under any Environmental
Law, except any such violations or liabilities which would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
to the best of its knowledge, none of the Loan Portfolio Properties and Other
Properties Owned by Company or Company Subsidiaries has been or is in violation
of or liable under any Environmental Law, except any such violations or
liabilities which, individually or in the aggregate would not have a Material
Adverse Effect; and to the best of its knowledge, there are no actions, suits,
demands, notices, claims, investigations or proceedings pending or threatened
relating to the liability of the Loan Portfolio Properties and Other Properties
Owned by Company or its subsidiaries under any Environmental Law, including
without limitation any notices, demand letters or requests for information from
any federal or state environmental agency relating to any such liabilities under
or violations of Environmental Law, except such as would not, individually or in
the aggregate have a Material Adverse Effect.
V. COVENANTS
5.1 ACQUISITION PROPOSALS. Each of Company and Company Subsidiaries shall
not, directly or indirectly, and shall instruct and otherwise use its best
efforts to cause their respective officers, directors, employees, agents or
advisors or other representatives or consultants not to, directly or indirectly,
(i) solicit or initiate any proposals or offers from any person relating to any
acquisition or purchase of all or a material amount of the assets of, or any
securities of, or any merger, consolidation or business combination with,
Company or any of the Company Subsidiaries (such transactions are referred to
herein as "Acquisition Transactions") or (ii) except to the extent that the
Board is required, in a written opinion of counsel to the Board, in the exercise
of its fiduciary duties in accordance with applicable law, to participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, an Acquisition Transaction; provided, however, that
nothing contained in this Section 5.1 shall restrict or prohibit any disclosure
by Company that is required in any document to be filed with the Commission
after the date of this Agreement or any disclosure that, in the written opinion
of counsel to the Board of Directors of the Company, is otherwise required under
applicable law. Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties
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conducted heretofore with respect to any of the foregoing. Company will notify
NCC immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with Company.
5.2 INTERIM OPERATIONS OF COMPANY. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement, set forth in the Company Disclosure Letter or as otherwise approved
expressly in writing by NCC (which approval will not be unreasonably withheld):
(a) Conduct of Business. Company shall, and shall cause each of the
Company Subsidiaries to, conduct their respective businesses only in, and
not take any action except in, the ordinary course of business consistent
with safe and sound banking practices. Company shall use reasonable efforts
to preserve intact the business organization of Company and each of the
Company Subsidiaries, to keep available the services of its and their
present key officers and employees and to preserve the goodwill of those
having business relationships with Company or Company Subsidiaries. Other
than in the ordinary course of business consistent with past practice,
Company shall not incur any indebtedness for borrowed money (other than
short-term indebtedness incurred to refinance short-term indebtedness and
indebtedness of Company or any Company Subsidiary; it being understood and
agreed that incurrence of indebtedness in the ordinary course of business
shall include, without limitation, the creation of deposit liabilities,
purchases of federal funds, sales of certificates of deposit and entering
into repurchase agreements), assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other
individual, corporation or other entity, or make any loan or advance other
than in the ordinary course of business consistent with past practice;
(b) Articles and By-Laws. Except as otherwise provided herein,
Company shall not and shall not permit any Company Subsidiary to make any
change or amendment to its or their respective articles of incorporation or
by-laws (or comparable governing instruments).
(c) Capital Stock. Except pursuant to the exercise of stock options
outstanding as of the date hereof under the Company's Option Plans, Company
shall not, and shall not permit any Company Subsidiary to, issue or sell
any shares of capital stock or any other securities of any of them or issue
any securities convertible into or exchangeable for, or options, warrants
to purchase, scrip, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or enter into any contract, understanding
or arrangement with respect to the issuance of, any shares of capital stock
or any other securities of any of them or enter into any arrangement or
contract with respect to the purchase or voting of shares of their capital
stock, or adjust, split, combine or reclassify any of their capital stock
or other securities or make any other changes in their capital structures.
Neither Company nor any Company subsidiary shall grant any additional stock
options under any Company Option Plans.
(d) Dividends. Company shall not and shall not permit any Company
Subsidiary to, declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect
to, or purchase or redeem, any shares of the capital stock of any of them
other than (a) regular quarterly cash dividends in an amount not to exceed
$0.1275 per share of Company Common Stock for the September 30, 1994
quarter, not to exceed $0.1325 per share of Company Common Stock for the
December 31, 1994 quarter and not to exceed $0.1375 per share of Company
Common Stock for the March 31, 1995 quarter and any other quarter preceding
the Closing Date and (b) dividends paid by any Company Subsidiary to
another Company Subsidiary or Company with respect to its capital stock
between the date hereof and the Effective Time. It is agreed by the parties
hereto that they will cooperate to assure that, during any quarter, there
shall not be a duplication of nor omission of payment of dividends to
shareholders of Company.
(e) Employee Plans, Compensation, Etc. Except as permitted by Section
5.3(b) hereof, the Company shall not permit any Company Subsidiary to adopt
or amend (except as required by law) any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment, welfare benefit, or other employee
benefit agreements, trusts, plans or other arrangements for the benefit or
welfare of any director, officer, or employee, or (except for normal merit
increases in the
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ordinary course of business consistent with past practice) increase the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any existing plan or arrangement (including,
without limitation, the granting of stock options or stock appreciation
rights) or take any action or grant any benefit not required under the
terms of any existing agreements, trusts, plans, funds or other such
arrangements or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
(f) Certain Policies. Company shall use its best efforts to modify
and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and level of reserves) prior to
the Effective Time so as to be consistent on a mutually satisfactory basis
with those of NCC and generally accepted accounting principles. Company
shall not be required to modify or change any such policies or practices,
however, until (i) such time as NCC acknowledges that all conditions to its
obligation to consummate the Merger set forth in Sections 7.1 and 7.3 have
been waived or satisfied, and (ii) immediately prior to the Effective Time.
Company's representations, warranties or covenants contained in this
Agreement shall not be deemed to be untrue or breached in any respect for
any purpose as a consequence of any such modifications or changes.
5.3 EMPLOYEE MATTERS. (a) Vested Benefits. Surviving Corporation agrees
that it shall honor, on and after the Effective Time, without deduction,
counterclaims, interruptions or deferment (other than withholding under
applicable law), all vested benefits under all Company Employee Benefit Plans.
Nothing in this subsection shall preclude the alienation of vested benefits
under a Company Employee Benefit Plan pursuant to the terms of a Qualified
Domestic Relations Order within the meaning of Section 414(p) of the Code.
Surviving Corporation agrees that any deferred directors' fees held in an
account for Fred McClung or Stephen A. Kiley pursuant to the Unfunded Deferred
Compensation Plan for Directors of Kokomo (the "Plan") at the Effective Date
shall continue to be held under the Plan and to accrue interest as provided in
the Plan until paid out under the terms of the Plan. In Mr. Kiley's case, those
fees shall become payable when he ceases to be an advisory director of NCB.
(b) Employment Contracts. Effective as of the Effective Time, NCB will
assume and NCC shall guarantee the employment agreements between Kokomo and
Robert J. Heltzel, Donald L. McCauley, Timothy A. Renie and James E. Fritz for
the balance of their terms and NCC will guarantee the obligations of NCB
resulting from such assumption, but, irrespective of continued employment, such
employment agreements shall not be renewed after the Closing. The employment
agreements with Donald L. McCauley and James E. Fritz will be extended before
the Effective Time, so that at the Effective Time the terms of the employment
agreements will end on the following dates for the following employees: Robert
J. Heltzel (June 30, 1997); Donald L. McCauley (June 30, 1997); Timothy A. Renie
(June 30, 1997); and James E. Fritz (June 30, 1997).
(c) Obligations to Former Officers, Directors and Employees of First
Federal Savings and Loan Association of Peru ("PERU"). Upon the Effective Time,
NCB shall assume, and NCC shall guarantee, all obligations of Company and Kokomo
to former officers, directors and employees of Peru, and their spouses, set
forth in the Merger Agreement dated September 8, 1993, between Company, Kokomo
and Peru concerning, among other things, the creation and continuation of an
advisory board of directors comprised of former Peru directors until the death
of such persons, the provision of group medical insurance to former Peru
advisory directors, directors, employees and retirees and their spouses, and the
provision of life insurance to former directors, officers and employees of Peru
for such periods and in such amounts and subject to such terms as are provided
for in that Merger Agreement, as though NCB were a party thereto.
(d) Fred McClung. Upon consummation of the merger of Kokomo into NCB, Fred
McClung, an advisory director of Kokomo, shall be appointed as an advisory
director of NCB and shall remain such until December 31, 1995. While he serves
as such advisory director, he shall continue to receive fees equal to 90% of the
advisory director fees to be paid to existing directors of the Company pursuant
to subparagraph (e) hereof.
(e) Advisory Directors. Upon consummation of the merger of Kokomo into
NCB, each of the current directors of the Company shall be appointed an advisory
director of NCB's Logansport, Kokomo and Peru branch operations and shall
continue to serve in such capacity as long as they are willing to do so, and as
long as they are physically and mentally fit for such purposes, until they reach
age 70. As such advisory directors, they
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will be paid fees equal to those fees they are receiving as directors of Kokomo
as of the date hereof, subject to inflationary or merit increases which shall be
made at the discretion of NCB.
(f) Financial Institutions Retirement Plan. (i) Kokomo's Financial
Institutions Retirement Fund (the "Company Retirement Plan") will be terminated
and frozen as of the Effective Time, and all accrued benefits of participants in
that Company Retirement Plan shall thereupon be fully vested and shall become
payable at the times and in the amounts provided for under that Plan. All
Company and Company Subsidiary employees as of the Effective Time will be
entitled to become eligible to participate in NCC's retirement plan, receiving
credit for past service with the Company and Company Subsidiaries for vesting
and eligibility purposes under the NCC retirement plan.
(ii) There are twelve (12) employees of Kokomo listed on the Disclosure
Schedule who have attained age 55 and have at least 15 years of service with the
Company or Company Subsidiaries. Except as provided below, NCC agrees to provide
such employees with a cash payment equal to the actuarial equivalent present
value of the increased benefits which such employees would have received under
the Company Retirement Plan had it remained in effect for that three (3) year
period following the Effective Time (taking into account any cost of living
payments which would have accrued with respect to the increased payments
provided for in the Company Retirement Plan). Such actuarial equivalent present
values shall be calculated using the actuarial factors set forth under the NCC
retirement plan and shall be determined using such employees' actual
compensation earned prior to the Effective Time together with compensation at
the rate in effect as of the Effective Time projected for the three (3) year
period. Such amounts shall be offset by similar actuarial equivalent present
values of the projected accrued benefit under the NCC retirement plan for such
three (3) year period. Any cash payment under this paragraph (f)(ii) shall be
paid as soon as practicable following the Effective Time. Notwithstanding
anything in this paragraph to the contrary, any additional benefit to be
provided to Robert J. Heltzel or Donald L. McCauley under this paragraph (f)(ii)
may be provided through an unfunded non-qualified retirement plan.
(g) Severance. Any employees of the Company or Kokomo who are not retained
in their current positions with the Company by NCC following the Merger will, to
the extent appropriate positions are available, be offered, on the same basis as
are employees of NCC generally, appropriate employment opportunities at office
and branch locations of NCB in the State of Indiana, including, without
limitation, those in Logansport and Indianapolis. Any Company or Kokomo
employees not retained by NCC or its subsidiaries following the Merger shall be
entitled to severance pay pursuant to NCC's severance pay program, a copy of
which has been set forth in the NCC Disclosure Letter.
(h) Group Insurance. Except as otherwise inconsistent with any other
provision herein, as of an appropriate time after the Effective Time, Kokomo's
group insurance program for health, life, dental, and accident and disability
insurance will be terminated and former Company or Company Subsidiary employees,
and present and (to the extent employed by Kokomo on a full time basis on August
17, 1992) future retirees shall be eligible to participate in NCC's comparable
welfare benefits program. To the extent that the cost on the part of employees
for such coverage is greater under the NCC plan than under Kokomo's plan, NCC
shall consider making appropriate salary increases for former Company or Company
Subsidiary employees to compensate for such increased cost, assuming such
increased salaries would be consistent and comparable to those paid by NCC to
its similarly situated employees. To the extent that the Company or Company
Subsidiaries may be obligated to present or future retirees under its "85 point
rule" program as adopted by the Kokomo's Board of Directors resolution on June
20, 1978 and as subsequently modified by the Kokomo's Board of Directors
resolution on August 18, 1992 and by its board action on September 15, 1992, and
as in effect at the Effective Time, NCC shall be similarly obligated. Otherwise,
and except as otherwise provided in section 5.3(c) herein, NCC shall retain all
rights to modify, change or terminate any of its welfare benefits programs,
assuming any such modification, charge or termination applies to NCB employees
generally.
(i) Thrift Plan. Kokom's Financial Institutions Thrift Plan ("Thrift
Plan") shall be terminated and frozen at the Effective Time or shortly
thereafter. Upon the termination of the Thrift Plan, participant accounts will
become fully vested, and participants will have the opportunity to roll their
accounts into the NCC 401(k) Savings and Investment Plan (the "NCC Savings
Plan") or may elect to continue participation in the frozen Thrift Plan. The NCC
Savings Plan shall be amended to provide credit for past service for vesting and
eligibility
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purposes for such participants' employment with the Company and Company
Subsidiaries through the Effective Time.
(j) Stock Purchase Plan. The Company's Employee Stock Purchase Plan will
be terminated at the Effective Time or shortly thereafter, and the payout of
benefits shall be in accordance with its terms.
(k) General. Upon and after the Merger and except as otherwise provided
herein, Company and Company Subsidiary employees shall be provided direct
compensation and fringe benefits, including NCC's "Flex" program and 401(k)
Savings and Investment Plan, health and welfare benefits, vacation benefits and
severance arrangements on terms and conditions no less favorable than those
benefits provided to other employees of NCB. Company and Company Subsidiary
employees shall be eligible for "core" benefits under the NCC "Flex" program as
of the date of the merger of Kokomo into NCB and for "non-core" benefits on the
first reasonably available enrollment date thereafter occurring after the
merger.
5.4 ACCESS AND INFORMATION. Upon reasonable notice, each of the parties
shall (and shall cause each of the parties' subsidiaries to) afford to the other
parties and their representatives (including, without limitation, directors,
officers and employees of the parties and their affiliates, and counsel,
accountants and other professionals retained) such access during normal business
hours throughout the period prior to the Effective Time to the books, records
(including, without limitation, tax returns and work papers of independent
auditors), properties, personnel and to such other information as any party may
reasonably request; provided, however, that no party shall be required to
provide access to any such information if the providing of such access (i) would
be reasonably likely, in the written opinion of counsel, to result in the loss
or impairment of any privilege generally recognized under law with respect to
such information or (ii) would be precluded by any law, ordinance, regulation,
judgment, order, decree, license or permit of any Governmental Entity. All
information furnished by one party to any of the others in connection with this
Agreement or the transactions contemplated hereby shall be kept confidential by
such other party (and shall be used by it only in connection with this Agreement
and the transactions contemplated thereby) except to the extent that such
information already is known to such other party and (a) was when received from
a source not known by the receiving party to be under an obligation of
confidentiality, (b) thereafter becomes lawfully obtainable from other sources
or (c) is required to be disclosed in any non-confidential document filed with
the Commission, the FRB, the Department of Justice or any other agency or
government entity. In the event that the transactions contemplated by this
Agreement shall fail to be consummated, each party shall promptly cause all
copies of documents or extracts thereof containing information and data as to
another party hereto to be returned to the party which furnished the same.
5.5 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. NCC and Company shall (a)
as soon as practicable make any required filings and applications required to be
filed with Governmental Entities between the date of this Agreement and the
Effective Time, (b) cooperate with one another (i) in promptly determining
whether any other filings are required to be made or consents, approvals,
permits or authorizations are required to be obtained under any other relevant
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and timely
seeking to obtain any such consents, approvals, permits or authorizations and
(c) deliver to the other parties to this Agreement copies of the publicly
available portions of all such reports promptly after they are filed.
5.6 ENVIRONMENTAL SURVEY. In the event NCC elects to conduct, or have
conducted on its behalf, an environmental review, study, survey or assessment to
verify the representations and warranties given by Company with respect to
Environmental Matters referred to in Section 4.19 of this Agreement, such
environmental review, study, survey or assessment shall be completed, and all
reports and findings related thereto shall be disclosed to Company within 45
days of the date hereof. Nothing in this Section, however, is intended to be a
limit or a waiver of the representation and warranty contained in Section 4.19
and such representation and warranty shall be true at the date hereof and at the
Effective Time.
5.7 INDEMNIFICATION AND INSURANCE. From and after the Effective Time, NCC
will assume and honor any obligation as provided for and permitted by applicable
federal and state law the Company had immediately prior to the Effective Time
with respect to the indemnification of each person who is now, or has been at
any time prior to the date hereof or who becomes prior to the Effective Time, a
director or officer of Company or any Company
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Subsidiary or was serving at the request of Company as a director or officer of
any domestic or foreign corporation joint venture, trust, employee benefit plan
or other enterprise (collectively, the "Indemnitees") arising out of Company's
Articles of Incorporation or By-Laws or any indemnification (to the maximum
extent available thereunder and permitted by applicable law or regulation)
against any and all losses in connection with or arising out of any claim which
is based upon, arises out of or in any way relates to any actual or alleged act
or omission occurring at or prior to the Effective Time in the Indemnitee's
capacity as a director or officer (whether elected or appointed), of Company or
any Company Subsidiary. Moreover, indemnification of employees and directors of
the Company and its subsidiaries following the Effective Time will be provided
to the same extent it is provided to other persons working in similar capacities
for NCB following the Closing. This Section 5.7 will be construed as an
agreement, as to which the Indemnitees are intended to be third-party
beneficiaries. NCC shall for a period of at least two years provide to the
officers and directors of the Company directors and officers insurance coverage
(up to $20,000,000) with respect to claims not known by the Company prior to the
Effective Time but which arise from factors or events which occurred before the
Effective Time. Following the Effective Time, NCB will provide any Company and
Company Subsidiary employees who become officers of NCB with the same directors
and officers liability insurance coverage that NCB provides to other officers of
NCB.
5.8 PUBLICITY. The initial press release announcing this Agreement shall
be a joint press release and thereafter Company and NCC shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and in making any filings with
any Governmental Entity or with any national securities exchange with respect
thereto.
5.9 REGISTRATION STATEMENT. NCC shall prepare and file the Registration
Statement with the Commission as soon as is reasonably practicable and shall use
all reasonable efforts to have the Registration Statement declared effective by
the Commission as promptly as practicable and to maintain the effectiveness of
such Registration Statement. NCC shall also take any action required to be taken
under state blue sky or securities laws in connection with the issuance of the
NCC Common Stock pursuant to the Merger, and Company shall furnish NCC all
information concerning Company and the holders of its capital stock and shall
take any action as NCC may reasonably request in connection with any such
action.
5.10 STOCK EXCHANGE LISTINGS. NCC shall use its best efforts to list on
the New York Stock Exchange, upon official notice of issuance, the NCC Common
Stock to be issued pursuant to the Merger.
5.11 PROXY. As soon as practicable after the date hereof, Company shall
prepare the Proxy Statement, file it with the Commission, respond to comments of
the Staff of the Commission, clear the Proxy Statement with the Staff of the
Commission and promptly thereafter mail the Proxy Statement to all holders of
shares of Company Common Stock. NCC and Company shall cooperate with each other
in the preparation of the Proxy Statement.
5.12 SHAREHOLDERS' MEETING. Company shall take all action necessary, in
accordance with applicable law and its Articles of Incorporation and By-Laws, to
convene a meeting of the holders of Company Common Stock (the "Company Meeting")
as promptly as practicable for the purposes of considering and taking action
upon (a) a proposal to amend the Articles of Incorporation of the Company to
delete Article 11 (the "Articles Amendment") and (b) this Agreement and the
transactions contemplated hereby. The Board of Directors of Company shall
recommend that the holders of the Company Common Stock (a) vote in favor of and
approve the adoption of the Articles Amendment and (b) vote in favor and approve
the Merger and this Agreement at the Company Meeting.
5.13 TAX-FREE REORGANIZATION TREATMENT. Neither NCC nor Company shall
intentionally take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a "reorganization" within
the meaning of Section 368 of the Code.
5.14 PROVISIONS OF SHARES. NCC shall issue and provide the shares of NCC
Common Stock deliverable upon the conversion of the Company Common Stock
pursuant to this Agreement and the Plan of Merger, and will provide the cash to
be paid in lieu of fractional shares of NCC Common Stock as provided in
Subsection 2.3(g).
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VI. CLOSING MATTERS
6.1 THE CLOSING. Subject to satisfaction or waiver of all conditions
precedent set forth in Article VII of this Agreement, the closing ("Closing")
shall take place at NCC's corporate offices in Cleveland, Ohio or at such other
location as is mutually agreeable to the parties and on a date ("Closing Date")
which is the first business day after the later of:
(a) the first date on which the Merger may be consummated in
accordance with the approvals of any Governmental Entities, or
(b) the date the required approvals of Company's shareholders have
been obtained,
If all conditions are determined to be satisfied in all material respects
(or are duly waived) at the Closing, the Closing shall be consummated by the
making of all necessary filings required by all Governmental Entities.
6.2 DOCUMENTS AND CERTIFICATES. NCC and Company shall use their respective
best efforts, on or prior to Closing, to execute and deliver all such
instruments, documents or certificates as may be necessary or advisable, on the
advice of counsel, for the consummation at the Closing of the transactions
contemplated by this Agreement or to cause the Effective Time, subject to the
consummation at the Closing, to occur as soon as practicable.
VII. CONDITIONS
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) The Articles Amendment, this Agreement and the transactions
contemplated hereby, and the Merger shall have been approved and adopted by
the requisite vote of the holders of Company Common Stock.
(b) The NCC Common Stock issuable in the Merger shall have been
authorized for listing on the New York Stock Exchange, upon official notice
of issuance.
(c) All authorizations, consents, orders or approvals of, and all
expirations of waiting periods imposed by, any Governmental Entity
(collectively, "Consents") which are necessary for the consummation of the
Merger, (other than immaterial Consents, the failure to obtain which would
not be materially adverse to the combined businesses of NCC, Company, NCC's
subsidiaries and Company Subsidiaries taken as a whole) shall have been
obtained or shall have occurred and shall be in full force and effect at
the Effective Time; provided, however, that no such authorization, consent,
order or approval shall be deemed to have been received if it shall include
any conditions or requirements which would so reduce the economic or
business benefits of the transactions contemplated by this Agreement so as
to render inadvisable in the reasonable opinion of the Board of Directors
of either NCC or Company the consummation of the Merger.
(d) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission and remain in effect.
(e) No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court in the United
States which prevents or seeks to prevent the consummation of the Merger
shall have been issued and remain in effect.
(f) Barnes & Thornburg, Counsel to Company, shall have delivered to
Company and NCC their opinion, dated the day of the Effective Time,
substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the
state of facts existing at the Effective Time, the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that, accordingly: (i) no gain or loss will
be recognized by NCC or Company as a result of the Merger; (ii) no gain or
loss will be recognized by the shareholders of Company who exchange their
shares of the Company Common Stock solely for shares of NCC Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in
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NCC Common Stock); (iii) the tax basis of the shares of NCC Common Stock
received by shareholders who exchange all of their shares of Company Common
Stock solely for shares of NCC Common Stock in the Merger will be the same
as the tax basis of the shares of Company Common Stock surrendered in
exchange therefor (reduced by any amount allocable to a fractional share
interest for which cash is received); and (iv) the holding period of the
shares of NCC Common Stock received in the Merger will include the period
during which the shares of Company Common Stock surrendered in exchange
therefor were held, provided such shares of Company Common Stock were held
as capital assets at the Effective Time. In rendering such opinion, counsel
may require and rely upon representations contained in certificates of
officers of Company, NCC and others.
7.2 CONDITIONS TO OBLIGATION OF COMPANY TO EFFECT THE MERGER. The
obligation of Company to effect the Merger shall be subject to the fulfillment
or waiver at or prior to the Effective Time of the additional following
conditions:
(a) NCC shall have performed in all material respects its covenants
contained in this Agreement required to be performed at or prior to the
Effective Time.
(b) The representations and warranties of NCC contained in this
Agreement shall be true in all material respects when made and the
representations and warranties set forth in Article 3 shall be true in all
material respects as of the Effective Time as if made at and as of such
time, except as expressly contemplated or permitted by this Agreement and
except for representations and warranties relating to a time or times other
than the Effective Time which were or will be true in all material respects
at such time or times.
(c) NCC shall have furnished Company a Certificate dated the date of
the Closing, signed by the President or Chief Executive Officer and Chief
Financial Officer of NCC that, to the best of their knowledge and belief
after due inquiry, the conditions set forth in Subsections 7.2(a) and
7.2(b) have been satisfied.
(d) Company shall have received a fairness opinion from McDonald &
Company Securities, Inc. dated as of a date reasonably proximate to the
date of the proxy statement relating to the Merger and updated as of the
date of the Company Meeting stating that the Merger Consideration is fair
to the shareholders of the Company from a financial point of view.
7.3 CONDITIONS TO OBLIGATION OF NCC TO EFFECT THE MERGER. The obligation
of NCC to effect the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the additional following conditions:
(a) Company shall have performed in all material respects its
covenants contained in this Agreement required to be performed at or prior
to the Effective Time.
(b) The representations and warranties of Company contained in this
Agreement shall be true in all material respects when made and the
representations and warranties set forth in Article 4 shall be true in all
material respects as of the Effective Time as if made on and as of such
time, except as expressly contemplated or permitted by this Agreement and
except for representations and warranties relating to a time or times other
than the Effective Time which were or will be true in all material respects
at such time or times.
(c) Company shall have furnished NCC a Certificate dated the date of
the Closing signed by the President or Chief Executive Officer and Chief
Financial Officer of Company that, to the best of their knowledge and
belief after due inquiry, the conditions set forth in subsections 7.3(a)
and 7.3(b) have been satisfied.
(d) NCC and its directors and officers who sign the Registration
Statement shall have received from Crowe, Chizek & Company, Company's
independent certified public accountants, "comfort" letters, dated (i) the
date of the mailing of the Proxy Statement to Company's shareholders and
(ii) shortly prior to the Effective Date, with respect to certain financial
information regarding Company in the form customarily issued by such
accountants at such time in transactions of this type.
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VIII. MISCELLANEOUS
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the shareholders of Company
and/or the Board of Directors of NCC:
(a) by mutual consent of the Board of Directors of NCC and the Board
of Directors of Company;
(b) by either NCC or Company if the Merger shall not have been
consummated on or before June 30, 1995 or if this Agreement was not
approved at the Company Meeting (provided the terminating party is not
otherwise in material breach of its obligations under this Agreement);
(c) by Company if any of the conditions specified in Sections 7.1 and
7.2 have not been met or waived by Company at such time as such condition
can no longer be satisfied;
(d) by NCC if any of the conditions specified in Sections 7.1 and 7.3
have not been met or waived by NCC at such time as such condition can no
longer be satisfied;
(e) by NCC, before the close of business on the day following the
execution of this Agreement if the Option Agreement shall not have been
executed; or
(f) by Company if both of the following conditions are satisfied:
(i) the Market Price of NCC Common Stock is less than $24.50; and
(ii) the number obtained by dividing the Market Price by the
closing price of NCC Common Stock on July 22, 1994 is less than the
number obtained by dividing the Final Index Price (as defined below) by
the Initial Index Price (as defined below) and subtracting .10 from the
quotient.
For purposes of this Subsection 8.1(f):
The "KBW49" shall mean the 50 banks which are included in The Keefe
Bruyette & Woods, Inc. KBW 50 Total Return Index excluding NCC. In the event
that the companies comprising the KBW49 are changed, the weights attributed to
the resulting companies shall be adjusted proportionately for purposes of
determining both the Initial Index Price and the Final Index Price;
The "Initial Index Price" shall mean the market-capitalization-weighted
average of the closing prices on July 22, 1994 of the common stock of the
companies comprising the KBW49;
The "Final Price" of any company belonging to the KBW49 shall mean the
average of the daily closing sale prices of a share of the common stock of such
company during the period of 20 consecutive trading days ending on the fifth
trading day immediately preceding the Closing Date, as reported in the
consolidated transaction reporting system for the market or exchange on which
such common stock is principally traded; and
The "Final Index Price" shall mean the market-capitalization-weighted
average of the Final Prices for all of the companies comprising the KBW49.
If NCC or any company included in the KBW49 declares a stock dividend or
effects a reclassification, recapitalization, split-up, combination, exchange of
shares or similar transaction between the date of this Agreement and the fifth
trading date prior to the Closing Date, the closing prices for the common stock
of such company shall be appropriately adjusted for the purposes of the
definitions above so as to be comparable to the price on the date of this
Agreement.
8.2 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations and warranties or covenants in this Agreement will terminate at
the Effective Time or the earlier termination of this Agreement pursuant to
Section 8.1, as the case may be; provided, however, that if the Merger is
consummated, Sections 2.1 through 2.5, 5.3, 5.4, 5.7, 8.2, 8.9 and 8.10 hereof
will survive the Effective Time to the extent contemplated by such Sections;
provided, further, that the last sentence of Section 5.4 and all of Section 8.10
hereof will in all events survive any termination of this Agreement.
8.3 WAIVER AND AMENDMENT. Subject to applicable provisions of the DGCL, IC
or federal law, any provision of this Agreement may be waived at any time by the
party which is, or whose stockholders are, entitled to the benefits thereof, and
this Agreement may be amended or supplemented at any time, provided that no
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amendment will be made after any stockholder approval of the Merger which
reduces or changes the form of the Merger Consideration without further
stockholder approval. No such waiver, amendment or supplement will be effective
unless in a writing which makes express reference to this Section 8.3 and is
signed by the party or parties sought to be bound thereby.
8.4 ENTIRE AGREEMENT. This Agreement contains the entire agreement between
NCC and Company with respect to the Merger and the other transactions
contemplated hereby and thereby, and supersedes all prior agreements among the
parties with respect to such matters.
8.5 APPLICABLE LAW; CONSENT TO JURISDICTION. This Agreement will be
governed by and construed in accordance with the laws of the State of Ohio
except to the extent DGCL, IC or federal law applies.
8.6 CERTAIN DEFINITIONS; HEADLINES. (a) For purposes of this Agreement,
the term:
(i) "significant subsidiary" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof; PROVIDED, HOWEVER,
that in the case of the Company, the term "significant subsidiary" shall
include all subsidiaries of the Company;
(ii) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(iii) "Market Price" means the average of the per share closing prices
on the New York Stock Exchange of NCC Common Stock for the 20 consecutive
trading days ending at the end of the fifth trading day immediately
preceding the Closing Date.
(iv) "Material Adverse Effect" means an event, change or occurrence
which has a material negative impact on the financial condition or
operating results of the Company or NCC. The effect of any action taken by
Company and its subsidiaries solely pursuant to Subsection 5.2(f) shall not
be taken into consideration in determining whether any Material Adverse
Effect has occurred.
(v) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(vi) "subsidiary" of Company, NCC or any other person means, except
where the context otherwise requires, any corporation, partnership, trust
or similar association of which Company, NCC or any other person, as the
case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, more than 50% of the stock or
other equity interests, the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation.
(b) The descriptive headings contained in this Agreement are for
convenience and reference only and will not affect in any way the meaning or
interpretation of this Agreement.
(c) Unless the context of this Agreement expressly indicates otherwise, (i)
any singular term in this Agreement will include the plural and any plural term
will include the singular and (ii) the term section or schedule will mean a
section or schedule of or to this Agreement.
8.7 NOTICES. All notices, consents, requests, demands and other
communications hereunder will be in writing and will be deemed to have been duly
given or delivered if delivered personally, telexed with receipt
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acknowledged, mailed by registered or certified mail return receipt requested,
sent by facsimile with confirmation of receipt, or delivered by a recognized
commercial courier addressed as follows:
If to Company to:
Central Indiana Bancorp
200 West Mulberry Street
P.O. Box 730
Kokomo, Indiana 46903-0730
Attn: President
Fax No. (317) 457-8834
With copy to:
Barnes & Thornburg
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
Attn: Claudia V. Swhier, Esq.
Fax No. (317) 231-7452
If to NCC to:
National City Corporation
P. O. Box 5756
Cleveland, Ohio 44101-0756
Attention: Chairman of the Board
Fax No. (216) 575-3332
With a copy to:
National City Corporation
Law Department
P. O. Box 5756
Cleveland, Ohio 44101-0756
Attention: General Counsel
Fax No. (216) 575-3332
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section 8.7.
8.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement.
8.9 PARTIES IN INTEREST; ASSIGNMENT. Except for Section 2.2 (which is
intended to be for the benefit of the holders of stock options under the
Company's Option Plans to the extent contemplated thereby and their
beneficiaries, and may be enforced by such persons) and Sections 5.3 and 5.7
hereof (which are intended to be for the benefit of officers, directors,
advisory directors and employees and their spouses to the extent contemplated
thereby and their beneficiaries, and may be enforced by such persons), this
Agreement is not intended to nor will it confer upon any other person (other
than the parties hereto) any rights or remedies. Without the prior written
consent of the other party to this Agreement neither NCC nor Company shall
assign any rights or delegate any obligations under this Agreement. Any such
purported assignment or delegation made without prior consent of the other
parties hereto shall be null and void.
8.10 EXPENSES.
(a) If the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby will be
paid by the Surviving Corporation.
(b) Notwithstanding anything contained in Subsection 8.10(a) to the
contrary, if this Agreement is terminated by Company or NCC pursuant to
Subsection 8.1(c) or 8.1(d), respectively, because of the willful breach by the
other party of any representation, warranty, covenant, undertaking or
restriction contained in this
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Agreement and if the terminating party is not in material breach of any
representation, warranty, covenant, undertaking or restriction contained in this
Agreement, then the breaching party shall pay all costs and expenses of the
terminating party; provided, however, that if this Agreement is terminated under
circumstances other than those described in this Subsection 8.10(b), all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and expenses.
Nothing contained in this subsection 8.10(b) shall constitute or shall be deemed
to constitute liquidated damages for the willful breach by a party of the terms
of this Agreement or otherwise limit the rights of the nonbreaching party.
(c) Final settlement with respect to payment of fees and expenses by the
parties to this Agreement pursuant to 8.10(b) shall be made within thirty (30)
days of the termination of this Agreement.
8.11 ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
8.12 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other terms and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party hereto. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
<TABLE>
<S> <C>
CENTRAL INDIANA BANCORP
Attest /s/ SONDRA T. KASELONIS By /s/ ROBERT J. HELTZEL
-------------------------------- -------------------------------
Sondra T. Kaselonis Robert J. Heltzel
Secretary Chairman of the Board
and President
NATIONAL CITY CORPORATION
Attest /s/ WILLIAM R. ROBERTSON By /s/ DAVID A. DABERKO
- --------------------------------------- ----------------------------------
William R. Robertson David A. Daberko
Deputy Chairman President and COO
</TABLE>
A-25
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APPENDIX B
November 20, 1994
Board of Directors
Central Indiana Bancorp
200 W. Mulberry Street
Kokomo, IN 46903-0730
Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
no par value ("Central Indiana Common"), of Central Indiana Bancorp, an Indiana
corporation ("Central Indiana"), of the exchange ratio (the "Exchange Ratio")
set forth in Section 2.1(a) of the Agreement and Plan of Merger (the "Merger
Agreement"), dated July 25, 1994, between Central Indiana and National City
Corporation ("NCC"). The Exchange Ratio provides for the exchange of each share
of Central Indiana Common for 1.08 shares of common stock, par value $4.00 per
share ("NCC Common"), of NCC.
The Merger Agreement provides for the merger (the "Merger") of Central
Indiana with and into NCC, pursuant to which, among other things, at the
effective time of the Merger (as defined in the Merger Agreement) outstanding
shares of Central Indiana Common will be converted into the right to receive
shares of NCC Common at the Exchange Ratio. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as Central Indiana's financial advisor in connection with,
and have participated in certain of the negotiations leading to, the execution
of the Merger Agreement.
In connection with rendering our opinion set forth herein, we have among
other things:
(i) Reviewed Central Indiana's Annual Reports to Shareholders and
Annual Reports on Form 10-K for each of the three fiscal years ended
September 30, 1993, including the audited financial statements contained
therein, Central Indiana's Quarterly Reports on Form 10-Q for the three
month periods ended December 31, 1993, March 31, 1994 and June 30, 1994 as
well as Central Indiana's audited financial statements for the fiscal year
ended September 30, 1994 contained in this Prospectus and Proxy Statement;
(ii) Reviewed NCC's Annual Reports to Shareholders and Annual Reports
on Form 10-K for each of the three years ended December 31, 1993, as well
as NCC's Quarterly Reports on Form 10-Q for the three month periods ended
March 31, 1994, June 30, 1994 and September 30, 1994;
(iii) Reviewed certain other non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Central Indiana and NCC furnished to us and
prepared by Central Indiana and NCC;
(iv) Participated in meetings and telephone conferences with members
of senior management of Central Indiana and meetings and telephone
conferences with members of senior management of NCC concerning the
financial condition, business, assets, financial forecasts and prospects of
the respective companies, as well as other matters we believe relevant to
our inquiry;
(v) Reviewed certain stock market information for Central Indiana
Common and NCC Common and compared it with similar information for certain
companies, the securities of which are publicly traded;
(vi) Compared the results of operations and financial condition of
Central Indiana with that of certain companies which we deemed to be
relevant for purposes of this opinion;
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(vii) Reviewed the financial terms, to the extent publicly available,
of certain acquisition transactions which we deemed to be relevant for
purposes of this opinion;
(viii) Reviewed the Merger Agreement and its schedules and exhibits
and certain related documents; and
(ix) Performed such other analyses as we have deemed appropriate.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and have relied upon the accuracy and completeness of
the representations and warranties of Central Indiana and NCC contained in the
Merger Agreement without undertaking any responsibility for independent
verification of such matters. We have not conducted a physical inspection of any
of the assets, properties or facilities of either Central Indiana or NCC, nor
have we made or obtained or been furnished with any independent evaluation or
appraisal of any of such assets, properties or facilities or any of the
liabilities of either Central Indiana or NCC. With respect to financial
forecasts provided to us by management of Central Indiana and NCC, we have
assumed that such forecasts have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of
Central Indiana and NCC as to the future performance of Central Indiana and NCC,
as the case may be. We express no view as to such financial forecasts or the
assumptions on which they are based. We have also assumed that all of the
conditions to the consummation of the Merger, as set forth in the Merger
Agreement, including the tax-free treatment of the Merger to the holders of
Central Indiana Common, would be satisfied and that the Merger would be
consummated on a timely basis in the manner contemplated by the Merger
Agreement.
We will receive a fee for our services as financial advisor to Central
Indiana, a significant portion of which is contingent upon closing of the
Merger.
In the ordinary course of our business, we may actively trade securities of
both Central Indiana and NCC for our own account and for the accounts of
customers and, accordingly, we may at any time hold a long or short position in
such securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Exchange Ratio and
does not address Central Indiana's underlying business decision to effect the
Merger or any other terms of the Merger and does not constitute a recommendation
to any Central Indiana shareholder as to how such shareholder should vote with
respect to the Merger. We are not rendering any opinion as to what the value of
Central Indiana Common or NCC Common may be at the effective time of the Merger
or the prospects of NCC's business nor are we making any recommendation to
Central Indiana shareholders with respect to the advisability of disposing or
retaining NCC Common received pursuant to the Merger.
This opinion has been prepared solely for the confidential use of the Board
of Directors and senior management of Central Indiana and will not be
reproduced, summarized, described or referred to or given to any other person
without our prior written consent. Notwithstanding the foregoing, this opinion
may be included in a proxy statement to be mailed to the holders of Central
Indiana Common in connection with the Merger, provided that this opinion will be
reproduced in such proxy statement in full, and any description of or reference
to us or our actions, or any summary of the opinion in such proxy statement will
be in a form acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio pursuant to the Merger Agreement is fair to the
holders of Central Indiana Common from a financial point of view.
Very truly yours,
MCDONALD & COMPANY SECURITIES, INC.
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APPENDIX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 25, 1994, between National City
Corporation, a Delaware corporation ("Grantee"), and Central Indiana Bancorp, an
Indiana corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger, dated July 25, 1994 ("Agreement"), which has been executed by the
parties hereto prior to this Stock Option Agreement; and
WHEREAS, as a condition to Grantee's entering into the Agreement and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Agreement, the parties hereto agree
as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to
326,000 fully paid and nonassessable shares of Common Stock, no par value
("Common Stock"), of Issuer at a price of $28.75 per share; provided,
however, that in the event Issuer issues or agrees to issue any shares of
Common Stock (other than as permitted pursuant to the Company Stock Option
Plans as provided under the Agreement) at a price less than $28.75 per
share (as adjusted pursuant to subsection 5(b)), such price shall be equal
to such lesser price (such price, as adjusted if applicable, the "Option
Price"); provided further that in no event shall the number of shares for
which this Option is exercisable exceed 19.9% of the Issuer's issued and
outstanding common shares without giving effect to any shares subject or
issued pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are
subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding after the date of this the Stock
Option Agreement (other than pursuant to the Company Stock Option Plans as
provided under the Agreement), the number of shares of Common Stock subject
to the Option shall be increased so that, after such issuance, it equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the
Option. Nothing contained in this Section 1(b) or elsewhere in this Stock
Option Agreement shall be deemed to authorize Issuer or Grantee to breach
any provision of the Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall
have sent the written notice of such exercise (as provided in subsection
(e) of this Section 2) within 30 days following such Subsequent Triggering
Event (or such later date as provided in Section 10). Each of the following
shall be an Exercise Termination Event: (i) immediately prior to the
Effective Time of the Merger; (ii) termination of the Agreement in
accordance with the provisions thereof if such termination occurs prior to
the occurrence of an Initial Triggering Event; or (iii) the passage of nine
months after termination of the Agreement if such termination follows the
occurrence of an Initial Triggering Event (provided that if an Initial
Triggering Event continues or another Initial Triggering Event occurs
beyond such termination, the Exercise Termination Event shall be nine
months from the expiration of the Last Triggering Event but in no event
more than 18 months after such termination). The "Last Triggering Event"
shall mean the last Initial Triggering Event to occur. The term "Holder"
shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
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Transaction (as hereinafter defined) with any person (the term "person"
for purposes of this Stock Option Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934 (the "1934 Act"), and the rules and regulations thereunder)
other than Grantee or any of its subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the shareholders of Issuer approve or accept any Acquisition
Transaction other than as contemplated by the Agreement. For purposes of
this Stock Option Agreement, "Acquisition Transaction" shall mean (x) a
merger or consolidation, or any similar transaction, involving Issuer or
Issuer's thrift subsidiary ("Significant Subsidiary"), (y) a purchase,
lease or other acquisition of all or substantially all of the assets of
Issuer or any Significant Subsidiary, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of securities representing 10% or more of the voting power
of Issuer or Significant Subsidiary; (The term Acquisition Transaction
specifically does not include any merger or consolidation among Issuer
and/or Issuer Subsidiaries.)
(ii) The Board of Directors of Issuer does not recommend that the
shareholders of Issuer approve (a) the amendment of the Articles of
Incorporation of the Issuer to delete Article 11 or (b) the Agreement;
(iii) Any person other than Grantee, any shareholder of Grantee who
currently beneficially holds 10% or more of Grantee's outstanding shares
of Common Stock, any Grantee Subsidiary or any Issuer Subsidiary acting
in a fiduciary capacity shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for purposes of
this Stock Option Agreement having the meaning assigned thereto in
Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Agreement and such
breach (x) would entitle Grantee to terminate the Agreement and (y)
shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its
prior written consent, shall have filed an application or notice with
The Board of Governors of the Federal Reserve System (the "FRB") or
other governmental authority or regulatory or administrative agency or
commission, domestic or foreign (each, a "Government Entity"), for
approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 15% or
more of the then outstanding Common Stock other than by any person who
currently beneficially owns more than 15% of the outstanding Common
Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection 2(b), except that the percentage referred to in
clause (z) shall be 15%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event"), it being understood that the giving of
such notice by Issuer shall not be a condition to the right of the Holder
to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise
the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60
business days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided that if prior notification to or approval of the
FRB or any other Governmental
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Entity is required in connection with such purchase, the Holder shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would
run pursuant to this sentence shall run from the later of (x) the date on
which any required notification periods have expired or been terminated and
(y) the date on which such approvals have been obtained and any requisite
waiting period or periods shall have passed. Any exercise of the option
shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated
by Issuer, provided that failure or refusal of Issuer to designate such a
bank account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder,
and the Holder shall deliver to Issuer a copy of this Stock Option
Agreement and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Stock Option Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder
shall be endorsed with a restrictive legend that shall read substantially
as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of
such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act") in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the Securities and Exchange Commission (the
"SEC"), or an opinion of counsel, in form and substance satisfactory to
Issuer, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions of this Stock Option
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Stock Option
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required
by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and all
United States Federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its
assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or
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performed hereunder by Issuer; (iii) promptly to take all action as may
from time to time be required (including (x) complying with all premerger
notification, reporting and waiting period requirements specified in 15
U.S.C. Section 18a and regulations promulgated thereunder and (y) in the
event, under the Bank Holding Company Act of 1956, as amended, or the
Change in Bank Control Act of 1978, as amended, or any state banking law,
prior approval of or notice to the FRB or to any other Governmental Entity
is necessary before the Option may be exercised, cooperating fully with the
Holder in preparing such applications or notices and providing such
information to each such Governmental Entity as they may require) in order
to permit the Holder to exercise the Option and Issuer duly and effectively
to issue shares of Common Stock pursuant hereto; and (iv) promptly to take
all action provided herein to protect the rights of the Holder against
dilution.
4. This Stock Option Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Stock Option Agreement at the principal
office of Issuer, for other agreements providing for Options of different
denominations entitling the holder thereof to purchase, on the same terms
and subject to the same conditions as are set forth herein, in the
aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Stock Option Agreement" and "Option" as used herein include any
Stock Option Agreements and related options for which this Stock Option
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Stock Option Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Stock Option Agreement, if
mutilated, Issuer will execute and deliver a new Stock Option Agreement of
like tenor and date. Any such new Stock Option Agreement executed and
delivered shall constitute an additional contractual obligation on the part
of Issuer, whether or not the Stock Option Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section
1 of this Stock Option Agreement, the number of shares of Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment
from time to time as provided in this Section 5.
(a) In the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 30 days (or such later date as may be provided
pursuant to Section 10) of such Subsequent Triggering Event (whether on its
own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf registration statement
under the 1933 Act covering any shares issued and issuable pursuant to this
Option and shall use its best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of any shares of Common Stock issued upon total or partial
exercise of this option ("Option Shares") in accordance with any plan of
disposition requested by Grantee; provided, however, that Issuer may
postpone filing a registration statement relating to a registration request
by Grantee under this Section 6 for a period of time (not in excess of 180
days) if in its judgment such filing would require the disclosure of
material information that Issuer has a bona fide business purpose for
preserving as confidential. Issuer will use its best efforts to cause such
registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may
be reasonably necessary to effect such sales or other dispositions. Grantee
shall
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have the right to demand two such registrations. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration
of Option Shares as provided above, Issuer is in the process of
registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good
faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the offering
or inclusion of the Holder's Option or Option Shares would interfere with
the successful marketing of the shares of Common Stock offered by Issuer,
the number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; provided, however, that after
any such required reduction the number of Option Shares to be included in
such offering for the account of the Holder shall constitute at least 25%
of the total number of shares to be issued by the Holder and Issuer in the
aggregate; provided further, however, that if such reduction occurs, then
the Issuer shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter occur. Each such Holder
shall provide all information reasonably requested by Issuer for inclusion
in any registration statement to be filed hereunder. If requested by any
such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares,
but only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements. Upon receiving any request under this Section 6
from any Holder, Issuer agrees to send a copy thereof to any other person
known to Issuer to be entitled to registration rights under this Section 6,
in each case by promptly mailing the same, postage prepaid, to the address
of record of the persons entitled to receive such copies.
7. (a) Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, (i) at the request of the
Holder, delivered within 30 days of the Subsequent Trigger Event (or such
later period as may be provided pursuant to Section 10), Issuer shall
repurchase the Option from the Holder at a price (the "Option Repurchase
Price") equal to (x) the amount by which (A) the market/offer price (as
defined below) exceeds (B) the Option Price, multiplied by the number of
shares for which this Option may then be exercised plus (y) Grantee's
Out-of-Pocket Expenses (as defined below) (to the extent not previously
reimbursed) and (ii) at the request of the owner of Option Shares from time
to time (the "Owner"), delivered within 30 days of a Subsequent Trigger
Event (or such later period as may be provided pursuant to Section 10),
Issuer shall repurchase such number of the Option Shares from the Owner as
the Owner shall designate at a price (the "Option Share Repurchase Price")
equal to (x) the market/ offer price multiplied by the number of Option
Shares so designated plus (y) Grantee's Out-of-Pocket Expenses (to the
extent not previously reimbursed). The term "Out-of-Pocket Expenses" shall
mean Grantee's reasonable out-of-pocket expenses incurred in connection
with the transactions contemplated by the Agreement, including, without
limitation, legal, accounting and investment banking fees. The term
"market/offer price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been
made after the date hereof, (ii) the price per share of Common Stock to be
paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price for shares of Common Stock within the 30-day period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a
sale of all or substantially all of Issuer's assets, the sum of the price
paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, divided by the number of shares of Common Stock of Issuer
outstanding at the time of such sale. In determining the market/offer
price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm selected by the Holder or
Owner, as the case may be, whose determination shall be conclusive and
binding on all parties.
(b) The Holder or the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, a copy of this Stock Option Agreement or certificates
for Option Shares, as applicable, accompanied by a written notice or
notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares in
accordance with the provisions of this Section 7. As promptly as
practicable, and in any event within five business days after the surrender
of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to the Holder the Option Repurchase
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Price and/or to the Owner the Option Share Repurchase Price therefor or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing
the Option and/or the Option Shares in full, Issuer shall immediately so
notify the Holder and/or the Owner and thereafter deliver or cause to be
delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this
Section 7 is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Holder and/or
the Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Purchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the number of shares of Common Stock
for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Option Repurchase Price less the sum of (x) the portion
thereof theretofore delivered to the Holder and (y) Out-of-Pocket Expenses
and the denominator of which is the Option Repurchase Price less
Out-of-Pocket Expenses, or (B) to the Owner, a certificate for the Option
Shares it is then so prohibited from repurchasing, assuming that the
portion of the Option Share Repurchase Price theretofore delivered is first
applied to the payment of Out-of-Pocket Expenses and then to the repurchase
of Option Shares.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate or merge with any
person, other than Grantee or one of its subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii)
to permit any person, other than Grantee or one of its subsidiaries, to
merge into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of
its assets to any person, other than Grantee or one of its subsidiaries,
then, and in each such case, the agreement governing such transaction shall
make proper provision so that the Option shall, upon the consummation of
any such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of the Holder, of either (x) the Acquiring Corporation (as
hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing
or surviving person, and (iii) the transferee of all or substantially
all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock to be
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined
in Section 7.
(4) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding
the consolidation, merger or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding
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<PAGE> 137
such consolidation, merger or sale; provided, that if Issuer is the
issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the person merging
into Issuer or by any company which controls or is controlled by such
person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder
or Holders of the Substitute Option in substantially the same form as this
Stock Option Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is
then exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for
more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option
(the "Substitute Option Issuer") shall make a cash payment to the Holder
equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of
the Substitute Option after giving effect to the limitation in this clause
(e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase
Price") equal to (x) the amount by which (i) the Highest Closing Price (as
hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common Stock for
which the Substitute Option may then be exercised plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed), and at
the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option
issuer shall repurchase the Substitute Shares at a price (the "Substitute
Share Repurchase Price") equal to (x) the Highest Closing Price multiplied
by the number of Substitute Shares so designated plus (y) Grantee's
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the 30-day period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase
of the Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share Owner, as
the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the
Substitute Shares pursuant to this Section 9 by surrendering for such
purpose to the Substitute Option Issuer, at its principal office, the
agreement for such Substitute Option (or, in the absence of such an
agreement, a copy of this Stock Option Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that
the Substitute Option Holder or the Substitute Share Owner, as the case may
be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the
provisions of this Section 9. As promptly as practicable, and in any event
within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall
deliver or cause to be delivered to the Substitute Option Holder the
Substitute Option Repurchase Price and/or to the
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Substitute Share Owner the Substitute Share Repurchase Price therefor or
the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from repurchasing the Substitute Option and/or the Substitute
Shares in part or in full, the Substitute Option Issuer shall immediately
so notify the Substitute Option Holder and/or the Substitute Share Owner
and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the portion of the Substitute Share Repurchase Price, respectively, which
it is no longer prohibited from delivering, within five business days after
the date on which the Substitute Option Issuer is no longer so prohibited;
provided, however, that if the Substitute Option Issuer is at any time
after delivery of a notice of repurchase pursuant to subsection (b) of this
Section 9 prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to the Substitute
Option Holder and/or the Substitute Share Owner, as appropriate, the
Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its best efforts to receive all required regulatory and legal approvals as
promptly as practicable in order to accomplish such repurchase), the
Substitute Option Holder or Substitute Share Owner may revoke its notice of
repurchase of the Substitute Option or the Substitute Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case,
the Substitute Option Issuer shall promptly (i) deliver to the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of
the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Substitute Option
Holder, a new Substitute Option evidencing the right of the Substitute
Option Holder to purchase that number of shares of the Substitute Common
Stock obtained by multiplying the number of shares of the Substitute Common
Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator
of which is the Substitute Option Repurchase Price less the sum of (x) the
portion thereof theretofore delivered to the Substitute Option Holder and
(y) Out-of-Pocket Expenses and the denominator of which is the Substitute
Option Repurchase Price less Out-of-Pocket Expenses, or (B) to the
Substitute Share Owner, a certificate for the Substitute Option Shares it
is then so prohibited from repurchasing, assuming that the portion of the
Substitute Share Repurchase Price theretofore delivered is first applied to
the payment of Out-of-Pocket Expenses and then to the repurchase of
Substitute Shares.
10. The 30-day period for exercise of certain rights under Sections 2,
6, 7 and 12 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the
expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason
of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Except to the extent that the exercise of all or a portion of
this option may be prohibited by Article 11 of the Issuer's Articles of
Incorporation, Issuer has full corporate power and authority to execute
and deliver this Stock Option Agreement and to consummate the
transactions contemplated hereby. Except to the extent that the exercise
of all or a portion of this option may be prohibited by Article 11 of
the Issuer's Articles of Incorporation, The execution and delivery of
this Stock Option Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board
of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Stock Option Agreement or to
consummate the transactions so contemplated. This Stock Option Agreement
has been duly and validly executed and delivered by Issuer. This Stock
Option Agreement is the valid and legally binding obligation of Issuer.
(b) Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Stock Option Agreement in
accordance with its terms will have reserved for issuance upon the
exercise of the Option, that number of shares of Common Stock equal to
the maximum number of shares of Common Stock at any time and from time
to time issuable hereunder, and all such shares, upon issuance pursuant
hereto, will be duly
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<PAGE> 139
authorized, validly issued, fully paid, nonassessable, and will be
delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights and
obligations under this Stock Option Agreement or the Option created
hereunder to any other person, without the express written consent of the
other party, except that in the event a Subsequent Triggering Event shall
have occurred prior to an Exercise Termination Event, Grantee, subject to
the express provisions hereof, may assign in whole or in part its rights
and obligations hereunder within 30 days following such Subsequent
Triggering Event (or such later period as may be provided pursuant to
Section 10); provided, however, that until the date 30 days following the
date at which the FRB approves an application by Grantee under the Bank
Holding Company Act to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no
one party acquires the right to purchase in excess of 2% of the voting
shares of Issuer, (iii) an assignment to a single party (E.Q., a broker or
investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf, or (iv) any other manner approved by the
FRB.
13. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and Governmental
Entities necessary to the consummation of the transactions contemplated by
this Stock Option Agreement, including without limitation making
application to list the shares of Common Stock issuable hereunder on the
New York Stock Exchange upon official notice of issuance and applying to
the FRB under the Bank Holding Company Act for approval to acquire the
shares issuable hereunder.
14. Notwithstanding anything to the contrary herein, in the event that
the Holder or Owner or any affiliate (as defined in Rule 12b-2 of the rules
and regulations under the 1934 Act) thereof is a person making an offer or
proposal to engage in an Acquisition Transaction (other than the Merger),
then (i) in the case of a Holder or any affiliate thereof, the Option held
by it shall immediately terminate and be of no further force or effect, and
(ii) in the case of an Owner or any affiliate thereof, the Option Shares
held by it shall be immediately repurchasable by Issuer at the Option
Price.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Stock Option Agreement by either party hereto
and that the obligations of the parties shall hereto be enforceable by
either party hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Stock Option Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained
in this Stock Option Agreement shall remain in full force and effect, and
shall in no way be affected, impaired or invalidated. If for any reason
such court or regulatory agency determines that the Holder is not permitted
to acquire, or Issuer is not permitted to repurchase pursuant to Section 7,
the full number of shares of Common Stock provided in Section 1(a) hereof
(as adjusted pursuant to Section 1(b) or 5 hereof), it is the express
intention of Issuer to allow the Holder to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person,
by cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Agreement.
18. This Stock Option Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana, regardless of the laws
that might otherwise govern under applicable principles of conflicts of
laws thereof.
19. This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated
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<PAGE> 140
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
21. Except as otherwise expressly provided herein or in the Agreement,
this Stock Option Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Stock Option Agreement
shall inure to the benefit of and be binding upon the parties hereto and
their respective successors and permitted assigns. Nothing in this Stock
Option Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under
or by reason of this Stock Option Agreement, except as expressly provided
herein.
22. Terms used in this Stock Option Agreement and not defined herein
but defined in the Agreement shall have the meanings assigned thereto in
the Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
NATIONAL CITY CORPORATION
By: /s/ DAVID A. DABERKO
--------------------------------
David A. Daberko
Title: President
----------------------------
CENTRAL INDIANA BANCORP
By: /s/ ROBERT J. HELTZEL
--------------------------------
Robert J. Heltzel
Title: Chairman and President
----------------------------
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PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is, or is threatened to be made, a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation, by reason of the fact that such person is or was a director,
officer, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise). The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, such person had no reasonable cause to believe
his conduct was unlawful. A Delaware corporation may indemnify such persons in
actions brought by or in the right of the corporation to procure a judgment in
its favor under the same conditions, except that no indemnification is permitted
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and to the extent the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses as the Court of Chancery or other such court shall deem proper. To the
extent such person has been successful on the merits or otherwise in defense of
any action referred to above, or in defense of any claim, issue or matter
therein, the corporation must indemnify him against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith. The indemnification and advancement of expenses provided for, or
granted pursuant to, Section 145 are not exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise. Section 145 also provides that a corporation may maintain insurance
against liabilities for which indemnification is not expressly provided by the
statute.
Article VI of NCC's By-Laws provides for the mandatory indemnification of
directors, officers or employees of NCC or any of its subsidiaries and of those
persons serving at the request of NCC as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise in
accordance with and to the full extent permitted by the DGCL. NCC has purchased
liability insurance covering certain liabilities which may be incurred by the
directors, officers, employees and agents of NCC and its subsidiaries in
connection with the performance of their duties.
In addition, NCC's Certificate, as permitted by Section 102(d) of the DGCL,
limits directors' liability to NCC and its stockholders by eliminating liability
in damages for breach of fiduciary duty of care. Article Seventh of NCC's
Certificate provides that neither NCC nor its stockholders may recover damages
from NCC's directors or former directors for breach of their duty of care in the
performance of their duties as directors of NCC. As limited by Section 102(b),
this provision cannot, however, have the effect of indemnifying any director or
former director of NCC in the case of liability (a) for a breach of the
director's duty of loyalty, (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (c) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL or (d) for any transactions for which the director
derived an improper personal benefit.
The Agreement provides that, from and after the Effective Time, NCC will
assume and honor any obligation of CIB immediately prior to the Effective Time
with respect to the indemnification of each person who is or has been at any
time prior to the Effective Time, a director or officer of CIB or any of its
subsidiaries or was serving at the request of CIB as a director, officer of any
domestic or foreign corporation joint venture, trust, employee benefit plan or
other enterprise arising out of CIB's Articles or CIB's By-Laws or any
indemnification (to the maximum extent available thereunder) against any and all
losses in connection with or arising out of any claim which is based upon,
arises out of or in any way relates to any actual or alleged act or omission
occurring at or prior to the Effective Time in the indemnitee's capacity as a
director or officer (whether elected or appointed), of CIB or any of its
subsidiaries.
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<PAGE> 142
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
An index of exhibits appears at page II-6.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy Statement pursuant
to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (a) that is filed pursuant
to the paragraph immediately preceding, or (b) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes: (a) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; (b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (c) to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
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<PAGE> 143
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO,
ON NOVEMBER 18, 1994.
NATIONAL CITY CORPORATION
By: /s/ ROBERT G. SIEFERS
Robert G. Siefers,
Executive Vice President
and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
EDWARD B. BRANDON* Chairman and Chief Executive November 18, 1994
Edward B. Brandon Officer, Director
DAVID A. DABERKO* November 18, 1994
David A. Daberko Deputy Chairman, Director
WILLIAM R. ROBERTSON* November 18, 1994
William R. Robertson Deputy Chairman, Director
ROBERT G. SIEFERS Executive Vice President and Chief November 18, 1994
Robert G. Siefers Financial Officer
THOMAS A. RICHLOVSKY November 18, 1994
Thomas A. Richlovsky Senior Vice President and Treasurer
SANDRA H. AUSTIN* November 18, 1994
Sandra H. Austin Director
JAMES M. BIGGAR* November 18, 1994
James M. Biggar Director
JOHN G. BREEN* November 18, 1994
John G. Breen Director
RICHARD E. DISBROW* November 18, 1994
Richard E. Disbrow Director
DANIEL E. EVANS* November 18, 1994
Daniel E. Evans Director
OTTO N. FRENZEL III* November 18, 1994
Otto N. Frenzel III Director
JOSEPH H. LEMIEUX* November 18, 1994
Joseph H. Lemieux Director
A. STEVENS MILES* November 18, 1994
A. Stevens Miles Director
</TABLE>
<PAGE> 144
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
BURNELL R. ROBERTS* November 18, 1994
Burnell R. Roberts Director
STEPHEN A. STITLE* November 18, 1994
Stephen A. Stitle Director
Morry Weiss Director
</TABLE>
*Carlton E. Langer, the undersigned attorney-in-fact, by signing his name
below, does hereby sign this Registration Statement on behalf of each of the
above-indicated officers and directors of National City Corporation
(constituting a majority of the directors) pursuant to a power of attorney
executed by such persons and filed with the Securities and Exchange Commission
contemporaneously herewith.
Dated: November 18, 1994
/s/ CARLTON E. LANGER
Carlton E. Langer,
Attorney-in-Fact
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
------- ------------------- --------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of July 25, 1994 by and
between NCC and CIB (incorporated herein by reference to Appendix A
to the Prospectus and Proxy Statement filed as a part of this
Registration Statement).
3.1 Restated Certificate of Incorporation of NCC, as amended (filed as
Exhibit 3.1 to Registration Statement No. 33-49823 and incorporated
herein by reference).
3.2 National City Corporation First Restatement of By-laws adopted April
27, 1987 (As Amended though October 24, 1994).
3.3 Certificate of Stock Designation dated April 18, 1991, designating
NCC's 8% Cumulative Convertible Preferred Stock, without par value,
and fixing the powers, preferences, rights, and qualifications,
limitations and restrictions thereof in addition to those set forth
in NCC's Restated Certificate of Incorporation, as amended
(incorporated herein by reference to Exhibit 4.4 to NCC's Annual
Report on Form 10-K for the year ended December 31, 1991).
4.1 Instruments defining the rights of holders of certain long-term debt
of NCC and its consolidated subsidiaries are not filed as exhibits
because the amount of debt under such instruments is less than 10%
of the total consolidated assets of NCC. NCC undertakes to file
these instruments with the Commission upon request.
4.2 Credit Agreement dated as of December 31, 1988, by and between NCC
and the banks named therein (incorporated herein by reference to
Exhibit 4.1 to NCC's Annual Report on Form 10-K for the year ended
December 31, 1988).
5.1 Opinion of Jones, Day, Reavis & Pogue as to the legality of the NCC
Common being registered.
8.1 Opinion of Barnes Thornburg as to certain tax consequences of the
Merger.
10.1 National City Corporation Short Term Incentive Compensation Plan for
Senior Officers (filed as Exhibit 10.1 to NCC's Annual Report on
Form 10-K for its Fiscal Year ended December 31, 1988, and
incorporated herein by reference).
10.2 National City Corporation Long Term Incentive Compensation Plan for
Senior Officers (filed as Exhibit 10.8 to Annual Report on Form 10-K
for its fiscal year ended December 31, 1988, and incorporated herein
by reference).
10.3 National City Corporation's Amended and Restated 1973 Stock Option
Plan, as amended (filed as Exhibit 10.4 to Registration Statement
No. 2-91434) and amended 1984 Stock Option Plan (filed as Exhibit
10.2 to NCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1987); both incorporated herein by reference.
10.4 National City Corporation 1989 Stock Option Plan (filed as Exhibit
10.7 to NCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, and incorporated herein by reference).
10.5 National City Corporation's 1993 Stock Option Plan (filed as Exhibit
10.5 to Registration Statement No. 33-49823 and incorporated herein
by reference).
10.6 National City Corporation Plan for Deferred Payment of Directors'
Fees, as amended (filed as Exhibit 10.5 to Registration Statement
No. 2-914334 and incorporated herein by reference).
10.7 National City Corporation Supplemental Executive Retirement Plan, as
amended July 24, 1991 (filed as Exhibit 10.4 to NCC's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
</TABLE>
<PAGE> 146
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<TABLE>
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10.8 National City Corporation Executive Savings Plan (filed as Exhibit
10.9 to NCC's Annual Report on Form 10-K for its fiscal year ended
December 31, 1988, and incorporated herein by reference).
10.9 National City Corporation Amended and Restated 1991 Restricted Stock
Plan (filed as Exhibit 10.9 to Registration Statement No. 33-49823
and incorporated herein by reference).
10.10 First Kentucky National Corporation 1985 Stock Option Plan (filed as
Exhibit 10.2 to First Kentucky National Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987, and
incorporated herein by reference).
10.11 First Kentucky National Corporation 1982 Stock Option Plan (filed as
Exhibit 10.3 to First Kentucky National Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987, and
incorporated herein by reference).
10.12 Form of grant made under National City Corporation 1991 Restricted
Stock Plan made in connection with National City Corporation
Supplemental Executive Retirement Plan as amended (filed as Exhibit
10.10 to NCC's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated herein by reference).
10.13 Amended Employment Agreement dated July 21, 1989 by and between
Merchants National Corporation or a subsidiary and Otto N. Frenzel,
III (filed as Exhibit 10(21) to Merchants National Corporation
Annual Report of Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference).
10.14 Split Dollar Insurance Agreement dated January 4, 1988 between
Merchants National Corporation and Otto N. Frenzel, III Irrevocable
Trust II (filed as Exhibit 10(26) to Merchants National Corporation
Annual Report on Form 10-K for the fiscal year ended December 31,
1989 and incorporated herein by reference).
10.15 Merchants National Corporation Director's Deferred Compensation
Plan, as amended and restated August 16, 1983 (filed as Exhibit
10(3) to Merchants National Corporation Registration Statement as
Form S-2 filed June 28, 1985, incorporated herein by reference).
10.16 Merchants National Corporation Supplemental Pension Plan dated
November 20, 1984; First Amendment to the Supplemental Pension Plans
dated January 21, 1986; Second Amendment to the Supplemental Pension
Plans dated July 3, 1989; and Third Amendment to the Supplemental
Pension Plans dated November 21, 1990 (filed respectively as Exhibit
10(n) to Merchants National Corporation Annual Report on Form 10-K
for the year ended December 31, 1984; as Exhibit 10(q) to the
Merchants National Corporation Annual Report on Form 10-K for the
year ended December 31, 1985; as Exhibit 10(49) to Merchants
National Corporation Annual Report on Form 10-K for the year ended
December 31, 1990; and as Exhibit 10(50) to the Merchants National
Corporation Annual Report on Form 10-K for the year ended December
31, 1990; all incorporated herein by reference).
10.17 Merchants National Corporation Employee Benefit Trust Agreement,
effective July 1, 1987 (filed as Exhibit 10(27) to Merchants
National Corporation Annual Report on Form 10-K for the year ended
December 31, 1987, incorporated herein by reference).
</TABLE>
<PAGE> 147
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10.18 Merchants National Corporation Non-qualified Stock Option Plan
effective January 20, 1987, and the First Amendment to that
Merchants National Non-qualified Stock Option Plan, effective
October 16, 1990 (filed respectively as Exhibit 10(23) to Merchants
National Corporation Annual Report on Form 10-K for the year ended
December 31, 1986, and as Exhibit 10(55) to Merchants National
Corporation Annual Report on Form 10-K for the year ended December
31, 1990, both of which are incorporated herein by reference).
10.19 Merchants National Corporation 1987 Non-qualified Stock Option Plan,
effective November 17, 1987, and the First Amendment to Merchants
National Corporation 1987 Non-qualified Stock Option Plan, effective
October 16, 1990, (filed respectively as Exhibit 10(30) to Merchants
National Corporation Annual Report on Form 10-K for the year ended
December 31, 1987, and as Exhibit 10(61) to Merchants National
Corporation Annual Report on Form 10-K for the year ended December
31, 1990, both of which are incorporated herein by reference).
10.20 Merchants National Corporation Directors Non-qualified Stock Option
Plan and the First Amendment to Merchants National Corporation
Directors Non-qualified Stock Option Plan effective October 16, 1990
(filed respectively as Exhibit 10(44) to Merchants National
Corporation Annual Report on Form 10-K for the year ended December
31, 1988, and as Exhibit 10(68) to Merchants National Corporation
Annual Report on Form 10-K for the year ended December 31, 1990,
both of which are incorporated herein by reference).
11.1 Computation of Earnings Per Share (incorporated herein by reference
to note number 12 to Financial Statements in NCC's Annual Report on
Form 10-K for the year ended December 31, 1993 and note number 10 to
the Financial Statements in NCC's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994).
13.1 NCC's Annual Report on Form 10-K for the year ended December 31,
1993 (Incorporated herein by reference).
13.2 NCC's Quarterly Report on Form 10-Q for the quarter ended September
30, 1994.
22.1 Subsidiaries.
23.1 Consent of Ernst & Young, Independent Auditors for NCC.
23.2 Consent of Crowe Chizek, Independent Auditors for CIB.
23.3 Consent of MacDonald & Company Securities, Inc.
23.4 Consent of Barnes & Thornburg (included in their opinion as filed as
Exhibit 8.1 to this Registration Statement and incorporated herein
by reference).
23.5 Consent of Jones, Day, Reavis & Pogue (included in their opinion as
filed as Exhibit 5.1 to this Registration Statement and incorporated
herein by reference).
24.1 Powers of attorney.
99.1 Stock Option Agreement dated as of July 25, 1994, by and between NCC
and CIB (incorporated herein by reference to Appendix C to the
Prospectus and Proxy Statement filed as a part of this Registration
Statement).
99.2 Form of Proxy to be used in soliciting holders of CIB Common for its
Special Meeting of Stockholders to be held on December 27, 1994.
</TABLE>
<PAGE> 1
Exhibit 3.2
(1473.dlz)
11/7/94
NATIONAL CITY CORPORATION
FIRST RESTATEMENT OF BY-LAWS
Adopted April 27, 1987
(As Amended Through October 24, 1994)
ARTICLE I
OFFICES
-------
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places both
within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. All meetings of the stockholders for the election of Directors
shall be held either at the principal office of the Corporation or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of stockholders shall be held on the fourth
Monday of April in each year if not a legal holiday, and if a legal holiday,
then on the next secular day following, at such time as shall be designated by
the Board of Directors, or at such other date and time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, which date shall be within fourteen months subsequent to the later of
the date of incorporation or the last annual meeting of stockholders, at which
they shall elect by a plurality vote a Board of Directors, and transact such
other business as may properly be brought before the meeting.
<PAGE> 2
Section 3. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chairman of the Board and shall be called
by the Chairman of the Board or Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 4. Written notice of the annual and any special meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be given not less than ten nor more than sixty
days before the date of the meeting, to each stockholder entitled to vote at
such meeting.
Section 5. The holders of not less than a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time.
Section 6. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the statutes or
of the Certificate of Incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 7. Unless otherwise provided in the Certificate of Incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three
years from its date, unless the proxy provides for a longer period.
Section 8. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action, by any provision of the statutes, the meeting and vote of stockholders
may be dispensed with if holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted shall consent in writing to such corporate action being taken, which
writing shall be filed with the minutes of the proceedings of the stockholders.
2
<PAGE> 3
Section 9. (a) The Chairman of the Board, or such other officer of
the Corporation designated by a majority of the Board of Directors, will call
meetings of the stockholders to order and will act as presiding officer
thereof. Unless otherwise determined by the Board of Directors prior to the
meeting, the presiding officer of the meeting of the stockholders will
determine the order of business and have the authority in his or her sole
discretion to regulate the conduct of any such meeting, including, without
limitation, by imposing restrictions on the persons (other than stockholders of
the Corporation or their duly appointed proxies) who may attend any such
stockholders' meeting, by ascertaining whether any stockholder or his proxy may
be excluded from any meeting of the stockholders based upon any determination
by the presiding officer, in his sole discretion, that any such person has
unduly disrupted or is likely to disrupt the proceedings thereat, and by
determining the circumstances in which any person may make a statement or ask
questions at any meeting of the stockholders.
(b) At an annual meeting of the stockholders, only such business
will be conducted or considered as is properly brought before the meeting. To
be properly brought before an annual meeting, business must be (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors in accordance with Article II, Section 4, (ii)
otherwise properly brought before the meeting by the presiding officer or by or
at the direction of a majority of the Board of Directors, or (iii) otherwise
properly requested to be brought before the meeting by a stockholder of the
Corporation in accordance with Article II, Section 9(c).
(c) For business to be properly requested to be brought before an
annual meeting by a stockholder, the stockholder must (i) be a stockholder of
the Corporation of record at the time of the giving of the notice for such
annual meeting provided for in these By-Laws, (ii) be entitled to vote at such
meeting, and (iii) have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation
not less than 60 calendar days prior to the annual meeting; provided, however,
that in the event public announcement of the date of the annual meeting is not
made at least 75 calendar days prior to the date of the annual meeting, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th calendar day following the day on which public
announcement is first made of the date of the annual meeting. A stockholder's
notice to the Secretary of the Corporation must set forth as to each matter the
stockholder proposes to bring before the annual meeting (A) a description in
reasonable detail of the business desired to brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (B) the
name and address, as they appear on the Corporation's books, of the stockholder
proposing such business and the beneficial owner, if any, on whose behalf the
proposal is made, (C) the class and number of shares of the Corporation that
are owned beneficially and of record by the stockholder proposing such business
and by the beneficial owner, if any, on whose behalf the proposal is made, and
(D) any material interest of such
3
<PAGE> 4
stockholder proposing such business and the beneficial owner, if any, on whose
behalf the proposal is made in such business. Notwithstanding the foregoing
provisions of this Article II, Section 9(c), a stockholder must also comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with respect to the matters
set forth in this Article II, Section 9(c). For purposes of this Article II,
Section 9(c) and Article III, Section 7, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press, or comparable national news service or in a document filed by
the Corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended,
and generally available to the public or furnished to stockholders by the
Corporation. Nothing in this Article II, Section 9(c) shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended.
(d) At a special meeting of the stockholders, only such business
may be conducted or considered as is properly brought before the meeting. To
be properly brought before a special meeting, business must be (i) specified in
the notice of the meeting (or any supplement thereto) given by or at the
direction of the Chairman of the Board or a majority of the Board of Directors
in accordance with Article II, Section 4 or (ii) otherwise properly brought
before the meeting by the presiding officer or by or at the direction of a
majority of the Board of Directors.
(e) The determination of whether any business sought to be brought
before any annual or special meeting of the stockholders is properly brought
before such meeting in accordance with this Article II, Section 9 will be made
by the presiding officer of such meeting. If the presiding officer determines
that any business is not properly brought before such meeting, he or she will
so declare to the meeting and any such business will not be conducted or
considered.
ARTICLE III
DIRECTORS
---------
Section 1. The number of Directors which shall constitute the whole Board
shall be as may be determined from time to time by resolution of the Board of
Directors. Except as otherwise provided in this Section 1 of Article III, the
Directors shall be elected at the annual meeting of the stockholders, or if not
so elected, at a special meeting of the stockholders called for that purpose,
and each Director elected shall hold office until his successor is duly elected
and shall qualify. Directors shall have the qualifications prescribed by law
as well as those set forth in the Board of Directors Criteria.
No person shall be eligible for reelection as a Director, if such person
on February 1 of
4
<PAGE> 5
the year of reelection is past such person's 67th birthday; provided, however,
that retired Chief Executive Officers of the Corporation shall be eligible for
reelection as a Director until they are past their 70th birthday.
Vacancies in the office of any Director due to death, resignation,
disqualification, removal or other cause, and newly created directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Directors then in office, although less than a quorum, or
by a sole remaining Director, and the Directors so chosen shall hold office
until the next annual election of Directors and until their successors are duly
elected and shall qualify. If there are no Directors in office, then an
election of Directors may be held in the manner provided by statute.
Section 2. The business of the Corporation shall be managed by its Board
of Directors which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by any provision of the statutes or by
the Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
Section 3. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware, and
regular meetings of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by the Board.
Section 4. Special meetings of the Board may be called by the Chairman of
the Board on twenty-four hours' notice to each Director, either personally or
by mail or by telegram; special meetings shall be called by the Chairman of the
Board or Secretary in like manner and on like notice on the written request of
two Directors.
Section 5. At all meetings of the Board of Directors, one-third of the
total number of the whole Board, but not less than two, shall constitute a
quorum for the transaction of business and the act of a majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the Directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 6. Any action required or permitted to be taken at any meeting of
the Board of Directors may be taken without a meeting, if all members of the
Board consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board.
Section 7. (a) Subject to the rights, if any, of the holders of any series
of the Corporation's Preferred Stock to elect additional Directors under
circumstances specified in the Certificate of Designation relating to such
Preferred Stock, only persons who are nominated in
5
<PAGE> 6
accordance with the following procedures will be eligible for election at a
meeting of stockholders as Directors of the Corporation.
(b) Nominations of persons for election as Directors of the
Corporation may be made (i) by or at the direction of the Board of Directors or
(ii) by any stockholder who is a stockholder of record at the time of giving of
notice provided for in this Article III, Section 7, who is entitled to vote for
the election of Directors at such meeting, and who complies with the procedures
set forth in this Article III, Section 7. All nominations by stockholders must
be made pursuant to timely notice in proper written form to the Secretary of
the Corporation.
(c) To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 calendar days prior to the meeting of stockholders; provided,
however, that in the event that public announcement of the date of such meeting
is not made at least 75 calendar days prior to the date of such meeting, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th calendar day following the day on which public
announcement is first made of the date of such meeting. To be in proper
written form, such stockholder's notice must set forth or include (i) the name
and address, as they appear on the Corporation's books, of the stockholder
giving the notice and of the beneficial owner, if any, on whose behalf the
nomination is made; (ii) a representation that the stockholder giving the
notice is a holder of record of shares of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy at such
meeting to nominate the person or persons specified in the notice; (iii) the
class and number of shares of stock of the Corporation owned beneficially and
of record by the stockholder giving the notice and by the beneficial owner, if
any, on whose behalf the nomination is made; (iv) a description of all
arrangements or understandings between or among any of (A) the stockholder
giving the notice, (B) the beneficial owner on whose behalf the notice is
given, (C) each nominee, and (D) any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder giving the notice; (v) such other information regarding
each nominee proposed by the stockholder giving the notice as would be required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (vi) the signed consent of each
nominee to serve as a Director of the Corporation if so elected. At the
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director must furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. The presiding officer of any
meeting of stockholders will, if the facts warrant, determine that a nomination
was not made in accordance with the procedures prescribed by this Article III,
Section 7, and if he or she should so determine, he or she will so declare to
the meeting and the defective nomination will be disregarded. Notwithstanding
the foregoing provisions of this Article III, Section 7, a stockholder must
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder with
respect to the
6
<PAGE> 7
matters set forth in this Article III, Section 7.
ARTICLE IV
NOTICES
-------
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be
given to any Director or stockholder, it shall not be construed to mean
personal notice, except as provided in Article III, Section 4, but such notice
may be given in writing, by mail, addressed to such Director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to Directors may
also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
--------
Section 1. The officers of the Corporation shall be elected by the Board
of Directors and shall be a Chairman of the Board, a President, a
Vice-President, a Secretary and a Treasurer. The Board of Directors may also
elect such other officers as it may from time to time determine. Any number of
offices may be held by the same person.
Section 2. The officers of the Corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors, provided, however, that
a failure to elect officers shall not dissolve or otherwise affect the
Corporation.
Section 3. The officers of the Corporation shall have such authority and
shall perform such duties as are customarily incident to their respective
offices, or as may be specified from time to time by the Directors regardless
of whether such authority and duties are customarily incident to such office.
7
<PAGE> 8
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
----------------------------------------------------
Section 1. Each person who is or was:
(a) a Director, officer or employee of the Corporation or of any
subsidiary of the Corporation, or
(b) serving at the request of the Corporation as a Director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise,
who has been made a party to, or is threatened to be made a party to, or has
been required to appear as a witness or deponent or to submit to discovery or
investigative procedures in connection with, any threatened, pending or
completed suit, action or proceeding, whether civil, criminal, administrative
or investigative, including all appeals, by reason of the fact he is or was
serving in his capacity as such Director, officer, employee or agent (including
the heirs, executors, administrators or estate of such person), shall be
indemnified by the Corporation to the full extent permitted by the law of the
State of Delaware against any liability, cost or expense incurred by him
thereby.
Section 2. The amount of any indemnification to which any person shall
otherwise be entitled hereunder shall be reduced to the extent that such person
shall otherwise be entitled to valid and collectible indemnification provided
by a subsidiary or any other source. The Corporation may, but shall not be
obligated to, purchase and maintain insurance, at its expense, to protect
itself and any Director, officer, employee, or agent against any liability,
cost or expense asserted against or incurred by him, or arising out of his
status as such, whether or not such person would be entitled to indemnification
against such liability under the provisions of this Article VI.
Section 3. Expenses incurred by any Director, officer or employee
indemnified hereunder shall be paid by the Corporation in advance of the final
disposition of such suit, action or proceeding upon receipt of a sworn
statement and undertaking by such person averring that he has reasonably
incurred or will reasonably incur actual expenses in defending an actual civil
or criminal suit, action or proceeding in his capacity as such Director,
officer or employee, or arising out of his status as such Director, officer or
employee, and that he undertakes to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article.
Section 4. For purposes of this Article VI, references to the
"Corporation" include all constituents absorbed in a consolidation or merger as
well as the resulting or surviving corporation, and references to a
"subsidiary" mean any corporation of which outstanding shares
8
<PAGE> 9
representing at least a majority of the voting power are owned by the
Corporation either directly or through other subsidiaries, except for those
subsidiaries specifically excluded by the Board of Directors of the Corporation
in a resolution adopted for that purpose as a subsidiary not covered by this
Article.
Section 5. If any part of this Article shall be found, in any suit, action
or proceeding, to be invalid or ineffective the validity and the effect of the
remaining parts shall not be affected thereby.
ARTICLE VII
CERTIFICATES FOR STOCK
----------------------
Section 1. Every holder of stock in the Corporation shall be entitled to
have a certificate or certificates signed by, or in the name of the Corporation
by the Chairman of the Board or President and the Secretary or Assistant
Secretary of the Corporation, certifying the number of shares owned by him in
the Corporation.
Section 2. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 1. Dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
Section 3. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
9
<PAGE> 10
Section 4. The fiscal year of the Corporation shall conform to the
calendar year.
ARTICLE IX
AMENDMENTS
----------
Section 1. These By-Laws may be altered, amended or repealed or new
By-Laws may be adopted by a majority vote of the members of the Board of
Directors at any regular or special meeting duly convened after notice to the
Directors of that purpose, or by the stockholders at any regular meeting of the
stockholders or at any special meeting of the stockholders if notice of such
alteration, amendment, repeal or adoption of new By-Laws be contained in the
notice of such special meeting.
10
<PAGE> 1
Exhibit 5.1
Draft of November 7, 1994
-------------------------
[Letterhead of Jones, Day, Reavis & Pogue]
November 18, 1994
-------- --
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114
Re: Shares of Common Stock, par value $4.00 per share,
of National City Corporation to be issued in the
Merger of Central Indiana Bancorp with and into
National City Corporation
----------------------------------------------------
Gentlemen:
We have acted as special counsel to you in connection with the merger (the
"Merger") of Central Indiana Bancorp ("CIB") with and into National City
Corporation ("NCC") in accordance with the Agreement and Plan of Merger, dated
as of July 25, 1994 (the "Merger Agreement"), by and between CIB and NCC,
pursuant to which NCC may issue and deliver up to 1,874,455 shares of its
common stock, par value $4.00 per share (the "Shares").
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion, and based thereupon, assuming
the consideration received by NCC for each Share is equal to or exceeds the par
value thereof of $4.00, we are of the opinion that the Shares that are to be
issued to shareholders of CIB pursuant to the terms of the Merger Agreement in
exchange for the shares of capital stock of CIB, upon such issuance in
accordance with the provisions of the Merger Agreement, including but not
limited to (i) approval and adoption of (A) certain amendments to the Articles
of Incorporation of CIB and (B) the Merger Agreement, by the shareholders of
CIB, and (ii) the completion of the filings required to effectuate the Merger
in accordance with the Merger Agreement and the laws of the States of Delaware
and Indiana, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement on Form S-4 filed by NCC to effect registration of the
Shares in connection with the Merger under the Securities Act of 1933, and to
the reference to us under the caption "LEGAL OPINIONS" in the prospectus
constituting a part of such Registration Statement.
Very truly yours,
JONES, DAY, REAVIS & POGUE
<PAGE> 1
Exhibit 8.1
BARNES & THORNBURG
1313 Merchants Bank Building
11 South Meridian Street
Indianapolis, Indiana 46204
(317) 638-1313
TWX 810-341-3427 B&T LAW IND
Telecopier (317) 231-7433
, 1994
-----------
Central Indiana Bancorp
200 West Mulberry Street
Post Office Box 730
Kokomo, Indiana 46903-0730
National City Corporation
Post Office Box 5756
Cleveland, Ohio 44101-0756
Ladies and Gentlemen:
In connection with the proposed merger (the "Merger") of Central Indiana
Bancorp, a savings and loan holding company organized under the laws of the
State of Indiana (the "Company"), into National City Corporation, a bank
holding company organized under the laws of the State of Delaware ("NCC"),
pursuant to an Agreement and Plan of Merger dated as of July 25, 1994, by and
between the Company and NCC (the "Merger Agreement"), we have been asked by the
Company to render our opinion to you with respect to certain Federal income tax
consequences of the Merger.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Merger Agreement.
Pursuant to the Merger Agreement, upon consummation of the Merger, shares
of Company Common Stock will be converted into the right to receive whole
shares of NCC Common Stock plus cash in lieu of fractional shares. No
dissenting shareholder rights will be available for Company shareholders under
Indiana law.
At or shortly after the Effective Time, Kokomo (the Company's wholly-owned
subsidiary) will be merged into National City Bank, Indiana ("NCB") (NCC's
wholly-owned subsidiary).
We have received, and are relying upon, certificates of certain officers
of the Company and/or NCC to the effect that, to the best of their knowledge:
1. At the times the Company acquired Kokomo and First Federal Savings and
Loan Association of Peru ("Peru"), the Merger was neither agreed to nor
planned.
<PAGE> 2
Central Indiana Bancorp
National City Corporation
, 1994
- ------------
Page 2
2. The Company has had no significant asset or business since the Company
was incorporated, other than the ownership and operation of its savings bank
subsidiary and activities related thereto.
3. There is no agreement or plan on the part of the Company's
shareholders to dispose of any of the NCC Common Stock to be received in the
Merger.
4. There is no agreement or plan on the part of NCC's management to
dispose of any significant assets of the Company after the Merger, other than
the contemplated merger of Kokomo into NCB.
5. There is no agreement or plan for NCC to reacquire any of the NCC
Common Stock issued pursuant to the Merger.
6. There has been, and it is expected that at the Effective Time of the
Merger there will have been, no significant change in the identities and
proportionate holdings of the Company's shareholders since the Company acquired
Peru. NCC has never owned any shares of the Company Common Stock for its own
account.
7. Cash to be paid in lieu of fractional shares of NCC Common Stock will
be paid solely to avoid the administrative expense and inconvenience of
fractional shares and not as separately bargained-for consideration.
8. Payments and benefits to be provided by NCC or NCB to certain present
or former employees or advisory directors of Kokomo and its predecessors, as
set forth in the Merger Agreement, are intended as compensation for services
rendered or to be rendered by them and not as consideration in exchange for
their shares of Company Common Stock.
Our opinion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), and the regulations, rulings and judicial decisions thereunder,
all as in effect on the date hereof.
We have investigated such facts, examined such documents and reviewed such
authorities as we, in our judgment, deem advisable to enable us to render this
opinion.
Based upon the foregoing, our opinion is as follows:
1. TAX-FREE REORGANIZATION. In general, the Merger will be treated for
Federal income tax purposes as a tax-free reorganization under Section
368(a)(1)(A) of the Code.
<PAGE> 3
Central Indiana Bancorp
National City Corporation
, 1994
- ------------
Page 3
Accordingly, Company shareholders who receive solely NCC Common Stock
(including any fractional share deemed received, as later explained) in
exchange for their shares of Company Common Stock in the Merger will not
recognize gain or loss on the exchange. Section 354 of the Code. The tax basis
of the NCC Common Stock (including any fractional shares) in the hands of such
shareholders will be the same as the tax basis of the Company Common Stock
surrendered in exchange therefor. Section 358 of the Code. The holding period
of the NCC Common Stock (including any fractional share) received by such
shareholders will include, in each case, the period during which the shares of
Company Common Stock surrendered in exchange therefor were held, provided that
the shares of Company Common Stock were held as capital assets at the Effective
Time. Section 1223(l) of the Code. Neither the Company nor NCC will reorganize
gain or loss as a result of the Merger. Section 361 and 1032 of the Code.
2. CASH IN LIEU OF FRACTIONAL SHARES. The payment of cash in lieu of
fractional shares of NCC Common Stock will be treated as if the fractional
shares were issued by NCC in the Merger and then redeemed by NCC in a taxable
transaction. Rev. Rul. 66-365, 1966-2 C.B. 116. A Company shareholder otherwise
entitled to receive the fractional share will recognize gain or loss measured
by the difference between the amount of cash received and the shareholder's
basis allocable to the fractional share. Rev. Proc. 77-41, 1977-2 C.B. 574;
Section 1001(a) of the Code. Any gain or loss realized on the redemption will
be capital gain or loss, provided the fractional share would have constituted a
capital asset in the hands of the redeeming shareholder, and will be long-term
capital gain or loss if the holding period of the fractional share (determined
by reference to the shares of Company Common Stock exchanged therefor) is more
than one year.
The foregoing tax consequences may not apply to a Company shareholder who
acquired his or her shares of Company Common Stock on exercise of an employee
stock option or otherwise as compensation.
We hereby consent to the use of our name under the captions "Proposed
Merger--Federal Income Tax Consequences of the Merger" and "Legal Opinions" in
the Registration Statement, and to the filing of this opinion as Exhibit 8 to
the Registration Statement.
Very truly yours,
Barnes and Thornburg
<PAGE> 1
Exhibit 13.2
[Paste-up National City Logo]
QUARTER ENDED SEPTEMBER 30, 1994
FINANCIAL REPORT
AND FORM 10-Q
<PAGE> 2
LOGO
FINANCIAL REPORT AND FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1994
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I -- FINANCIAL INFORMATION
Financial Highlights.............................................................. 3
Financial Statements (Item 1):
Consolidated Statements of Income............................................ 4
Consolidated Balance Sheets.................................................. 5
Consolidated Statements of Cash Flows........................................ 6
Consolidated Statements of Changes in Stockholders' Equity................... 7
Notes to Financial Statements................................................ 7
Management's Discussion and Analysis (Item 2)..................................... 11
Consolidated Average Balance Sheets............................................... 15
Daily Average Balances/Net Interest Income/Rates.................................. 16
PART II -- OTHER INFORMATION
Changes in Securities (Item 2)
Refer to Reports on Form 8-K below and Note 8 on page 9.
Exhibits and Reports on Form 8-K (Item 6)
Exhibit 27. Financial Data Schedule
Reports on Form 8-K:
August 1, 1994: The Board of Directors authorized the purchase, in the open market or
otherwise, of up to 10 million shares of its outstanding common stock, subject to a
total expenditure limit of $300 million.
Signature......................................................................... 19
</TABLE>
2
<PAGE> 3
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Percent Percent
1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
EARNINGS (IN THOUSANDS):
Net interest income -- fully taxable
equivalent................................... $317,391 $311,127 2% $940,804 $920,163 2%
Provision for loan losses...................... 19,235 23,861 (19) 59,748 73,139 (18)
Fees and other income.......................... 207,153 196,961 5 622,707 585,555 6
Security gains................................. 2,772 2,851 (3) 9,464 8,555 11
Noninterest expense............................ 344,785 330,886 4 1,032,677 988,226 4
Net income..................................... 108,411 102,676 6 318,059 300,452 6
Net income applicable to common stock.......... 104,625 98,676 6 306,610 288,452 6
PERFORMANCE RATIOS:
Net interest margin............................ 4.68% 4.90% 4.65% 4.86%
Overhead ratio................................. 43.36 43.05 43.58 43.76
Efficiency ratio............................... 65.73 65.12 66.05 65.63
Return on average assets....................... 1.41 1.43 1.40 1.42
Return on average common equity................ 17.21 16.26 16.87 16.26
Return on average total equity................. 16.53 15.62 16.21 15.62
PER SHARE MEASURES:
Net income per common share.................... $.69 $.61 13% $1.99 $1.79 11%
Dividends paid per common share................ .30 .27 11 .88 .79 11
Book value per common share.................... 16.33 15.53 5
Market value per share (close):
Common..................................... 28.13 26.75 5
Preferred.................................. 68.56 71.00 (3)
AVERAGE BALANCES (IN MILLIONS):
Assets......................................... $30,510 $ 28,479 7% $30,328 $28,286 7%
Loans.......................................... 21,815 19,500 12 21,420 18,934 13
Securities..................................... 4,723 5,407 (13) 4,778 5,506 (13)
Earning assets................................. 27,188 25,349 7 27,002 25,259 7
Deposits....................................... 22,736 21,015 8 22,641 21,260 6
Common stockholders' equity.................... 2,412 2,408 -- 2,430 2,372 2
Total stockholders' equity..................... 2,601 2,608 -- 2,623 2,572 2
AT PERIOD END:
Total equity to assets......................... 8.49% 9.20%
Tier 1 capital ratio........................... 9.30 9.98
Total risk-based capital ratio................. 12.76 12.81
Leverage ratio................................. 8.09 8.67
Common shares outstanding...................... 150,148,676 158,243,950
Full-time equivalent employees................. 20,098 18,902
ASSET QUALITY:
Net charge-offs to loans (annualized).......... .29% .48% .24% .41%
Loan loss reserve to loans..................... 2.10 2.00
Nonperforming assets to loans & OREO........... .69 1.23
</TABLE>
3
<PAGE> 4
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in Thousands Except Per Share Amounts) September 30 September 30
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans:
Taxable..................................... $ 444,397 $ 396,340 $ 1,272,811 $ 1,156,307
Exempt from Federal income taxes............ 4,281 4,008 11,687 12,557
Securities:
Taxable..................................... 51,757 53,587 149,246 175,962
Exempt from Federal income taxes............ 10,595 11,338 29,971 36,308
Federal funds sold and security resale
agreements.................................. 5,465 1,570 15,150 8,409
Eurodollar time deposits in banks............. 7 630 2,983 7,718
Other short-term investments.................. 1,252 1,683 4,241 6,749
----------- ----------- ----------- -----------
Total interest income..................... 517,754 469,156 1,486,089 1,404,010
INTEREST EXPENSE
Deposits...................................... 151,275 129,326 422,189 405,815
Federal funds borrowed and security repurchase
agreements.................................. 26,113 19,426 68,528 51,273
Borrowed funds................................ 17,023 11,152 41,615 33,498
Corporate long-term debt...................... 13,196 7,748 35,278 20,877
----------- ----------- ----------- -----------
Total interest expense.................... 207,607 167,652 567,610 511,463
----------- ----------- ----------- -----------
Net interest income....................... 310,147 301,504 918,479 892,547
PROVISION FOR LOAN LOSSES....................... 19,235 23,861 59,748 73,139
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses............................ 290,912 277,643 858,731 819,408
NONINTEREST INCOME
Item processing revenues...................... 78,909 67,455 228,299 191,417
Service charges on deposit accounts........... 38,790 38,215 114,728 113,041
Trust fees.................................... 28,946 29,005 94,668 89,482
Credit card fees.............................. 19,471 22,957 59,464 70,687
Mortgage banking revenues..................... 13,584 11,867 45,052 42,648
Other......................................... 27,453 27,462 80,496 78,280
----------- ----------- ----------- -----------
Total fees and other income............... 207,153 196,961 622,707 585,555
Security gains................................ 2,772 2,851 9,464 8,555
----------- ----------- ----------- -----------
Total noninterest income.................. 209,925 199,812 632,171 594,110
NONINTEREST EXPENSE
Salaries and employee benefits................ 164,505 153,279 488,399 463,848
Equipment..................................... 22,226 20,901 68,707 65,986
Net occupancy................................. 22,403 22,121 67,599 66,659
Assessments and taxes......................... 19,684 19,543 60,541 60,070
Other......................................... 115,967 115,042 347,431 331,663
----------- ----------- ----------- -----------
Total noninterest expense................. 344,785 330,886 1,032,677 988,226
----------- ----------- ----------- -----------
Income before income taxes...................... 156,052 146,569 458,225 425,292
Income tax expense.............................. 47,641 43,893 140,166 124,840
----------- ----------- ----------- -----------
NET INCOME...................................... $ 108,411 $ 102,676 $ 318,059 $ 300,452
========== ========== ========== ==========
NET INCOME APPLICABLE TO COMMON STOCK........... $ 104,625 $ 98,676 $ 306,610 $ 288,452
========== ========== ========== ==========
NET INCOME PER COMMON SHARE..................... $.69 $.61 $1.99 $1.79
Average Common Shares Outstanding............... 152,077,200 160,109,139 154,166,306 160,968,761
</TABLE>
See notes to financial statements.
4
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31 September 30
1994 1993 1993
<S> <C> <C> <C>
ASSETS
Loans:
Commercial.................................... $ 8,490,914 $8,429,119 $ 8,118,571
International................................. 52,923 69,776 42,145
Real estate construction...................... 424,842 439,406 492,287
Lease financing............................... 213,164 228,352 221,393
Real estate mortgage -- nonresidential........ 2,495,465 2,328,228 2,246,598
Real estate mortgage -- residential........... 3,861,391 3,523,836 2,928,611
Mortgage loans held for sale.................. 155,289 509,187 487,623
Consumer...................................... 4,605,299 4,241,461 3,954,928
Revolving credit.............................. 1,999,325 1,516,776 1,523,885
------------ ----------- ------------
Total loans.............................. 22,298,612 21,286,141 20,016,041
Allowance for loan losses................ 467,272 443,412 399,462
------------ ----------- ------------
Net loans................................ 21,831,340 20,842,729 19,616,579
Securities held to maturity (market value
$1,333,604, $1,824,855 and $2,695,333,
respectively)................................. 1,323,727 1,763,025 2,599,696
Securities available for sale (market value
$2,651,555 at September 30, 1993)............. 3,581,608 3,403,201 2,592,314
Federal funds sold and security resale
agreements.................................... 388,925 611,743 319,150
Trading account assets........................... 6,091 150,296 4,526
Eurodollar time deposits in banks................ -- 457,000 --
Other short-term money market investments........ 75,643 85,677 142,120
Cash and demand balances due from banks.......... 2,074,640 1,933,888 1,966,794
Properties and equipment......................... 386,974 386,219 368,979
Customers' acceptance liability.................. 86,779 68,148 48,005
Accrued income and other assets.................. 1,358,186 1,365,783 1,216,600
------------ ----------- ------------
TOTAL ASSETS............................. $31,113,913 $31,067,709 $28,874,763
============== ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits (noninterest bearing)............ $ 4,726,733 $5,214,560 $ 4,729,779
Savings and NOW accounts......................... 4,702,631 5,161,593 4,463,416
Insured money market accounts.................... 5,061,210 5,489,785 5,146,019
Time deposits of individuals..................... 6,535,091 6,224,231 5,964,840
Other time deposits.............................. 397,089 500,421 482,782
Deposits in overseas offices..................... 1,494,656 472,431 268,369
------------ ----------- ------------
Total deposits........................... 22,917,410 23,063,021 21,055,205
Federal funds borrowed and security repurchase
agreements.................................... 2,395,827 3,082,821 2,975,264
Borrowed funds................................... 1,832,172 1,201,011 1,259,871
Acceptances outstanding.......................... 86,779 68,148 48,005
Accrued expenses and other liabilities........... 493,147 379,268 371,540
Corporate long-term debt......................... 748,104 510,173 507,557
------------ ----------- ------------
TOTAL LIABILITIES........................ 28,473,439 28,304,442 26,217,442
Stockholders' Equity:
Preferred stock.................................. 189,290 198,310 200,000
Common stock..................................... 2,451,184 2,564,957 2,457,321
------------ ----------- ------------
TOTAL STOCKHOLDERS' EQUITY............... 2,640,474 2,763,267 2,657,321
------------ ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $31,113,913 $31,067,709 $28,874,763
============== ============= ==============
</TABLE>
See notes to financial statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
(Dollars in Thousands) September 30
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
1994 1993
OPERATING ACTIVITIES
Net income..................................................... $ 318,059 $ 300,452
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................. 59,748 73,139
Depreciation and amortization of goodwill and
intangibles............................................ 84,123 85,893
Security gains............................................ (9,464) (8,555)
Net change in trading account assets...................... 144,205 8,518
Originations and purchases of mortgage loans held for
sale................................................... (1,053,532) (2,357,717)
Proceeds from sales of mortgage loans held for sale....... 1,438,865 2,254,579
Net change in interest receivable......................... (29,659) (25,133)
Net change in interest payable............................ 27,372 26,997
Net change in other assets................................ 34,640 (169,249)
Net change in other liabilities........................... 86,566 50,224
----------- -----------
Net Cash Provided (Used) by Operating Activities....... 1,100,923 239,148
LENDING AND INVESTING ACTIVITIES
Net change in short-term investments........................... 689,852 1,136,118
Purchases of securities........................................ (1,991,820) (3,060,281)
Proceeds from sales of securities.............................. 1,155,138 1,760,983
Proceeds from maturities of securities......................... 1,012,982 1,610,475
Net change in loans............................................ (1,433,692) (1,259,072)
Proceeds from sales of loans................................... -- 26,208
Net change in properties and equipment......................... (42,984) (38,189)
Acquisitions................................................... -- (19,641)
----------- -----------
Net Cash Provided (Used) by Lending and Investing
Activities........................................... (610,524) 156,601
DEPOSIT AND FINANCING ACTIVITIES
Net change in Federal funds borrowed and security repurchase
agreements.................................................. (686,994) 1,156,540
Net change in borrowed funds................................... 631,161 (133,349)
Net change in demand, savings, NOW, insured money market
accounts, and deposits in overseas offices.................. (353,139) (559,552)
Net change in time deposits.................................... 207,528 (970,567)
Proceeds from issuance of long-term debt....................... 247,080 197,950
Repayment of long-term debt.................................... (11,038) (18,557)
Dividends paid, net of tax benefit of ESOP shares.............. (145,760) (136,856)
Issuances of common stock...................................... 18,056 23,805
Repurchase of common and preferred stock....................... (262,957) (66,167)
ESOP trust repayment........................................... 6,416 6,866
----------- -----------
Net Cash Provided (Used) by Deposit and Financing
Activities........................................... (349,647) (499,887)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents........... 140,752 (104,138)
Cash and Cash Equivalents, January 1........................... 1,933,888 2,070,932
----------- -----------
Cash and Cash Equivalents, September 30........................ $ 2,074,640 $ 1,966,794
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid.................................................. $ 541,000 $ 484,000
Income taxes paid.............................................. 142,000 126,000
Shares issued in purchase acquisitions......................... -- 29,335
</TABLE>
See notes to financial statements.
6
<PAGE> 7
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unallocated
Shares
(Dollars in Thousands Except Per Preferred Common Capital Retained Held by
Share Amounts) Stock Stock Surplus Earnings ESOP Trust
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1993.................... $200,000 $316,335 $300,307 $1,708,506 $(25,262)
Net income............................... 300,452
Common dividends paid, $.79 per share.... (125,502)
Preferred dividends paid, $3.00 per
depositary share....................... (12,000)
Issuance of 1,277,600 common shares under
corporate stock and dividend
reinvestment plans..................... 2,936 20,869
Issuance of 1,514,070 restricted shares
pursuant to acquisition................ 3,028 26,307
Purchase of 2,714,900 common shares...... (5,430) (9,778) (50,959)
Two-for-one stock split.................. 316,107 (316,107)
Shares distributed by ESOP trust and tax
benefit on dividends................... 646 6,866
------------ ------------ ------------ ------------ ------------
Balance September 30, 1993................. $200,000 $632,976 $ 21,598 $1,821,143 $(18,396)
============ ============ ============ ============ ============
Balance January 1, 1994.................... $198,310 $635,119 $105,140 $1,841,144 $(16,446)
Net income............................... 318,059
Common dividends paid, $.88 per share.... (134,621)
Preferred dividends paid, $3.00 per
depositary share....................... (11,629)
Issuance of 935,865 common shares
under corporate stock and dividend
reinvestment plans..................... 3,743 14,313
Purchase of 9,566,800 common shares and
180,400 depositary shares of preferred
stock.................................. (9,020) (38,267) (19,741) (195,929)
Shares distributed by ESOP trust and tax
benefit on dividends................... 490 6,416
Adjustment to unrealized (loss) on
securities available for sale, net of
tax.................................... (56,607)
------------ ------------ ------------ ------------ ------------
Balance September 30, 1994................. $189,290 $600,595 $ 99,712 $1,760,907 $(10,030)
============ ============ ============ ============ ============
<CAPTION>
(Dollars in Thousands Except Per
Share Amounts) Total
<S> <C>
- --------------------------------------------------------
Balance January 1, 1993.................... $2,499,886
Net income............................... 300,452
Common dividends paid, $.79 per share.... (125,502)
Preferred dividends paid, $3.00 per
depositary share....................... (12,000)
Issuance of 1,277,600 common shares under
corporate stock and dividend
reinvestment plans..................... 23,805
Issuance of 1,514,070 restricted shares
pursuant to acquisition................ 29,335
Purchase of 2,714,900 common shares...... (66,167)
Two-for-one stock split.................. --
Shares distributed by ESOP trust and tax
benefit on dividends................... 7,512
------------
Balance September 30, 1993................. $2,657,321
============
Balance January 1, 1994.................... $2,763,267
Net income............................... 318,059
Common dividends paid, $.88 per share.... (134,621)
Preferred dividends paid, $3.00 per
depositary share....................... (11,629)
Issuance of 935,865 common shares
under corporate stock and dividend
reinvestment plans..................... 18,056
Purchase of 9,566,800 common shares and
180,400 depositary shares of preferred
stock.................................. (262,957)
Shares distributed by ESOP trust and tax
benefit on dividends................... 6,906
Adjustment to unrealized (loss) on
securities available for sale, net of
tax.................................... (56,607)
------------
Balance September 30, 1994................. $2,640,474
============
</TABLE>
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated
financial statements have been prepared on a basis consistent with accounting
principles applied in the prior periods and include all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. ACQUISITIONS
On February 1, 1993, the Corporation acquired JBS Associates, Inc. (JBS), a
check authorization business, and accounted for the acquisition as a purchase.
JBS stockholders received cash of
$24.3 million and were issued approximately 1.5 million shares of the
Corporation's common stock. A provision in the purchase agreement guarantees the
total value of the consideration received by the JBS stockholders to be not less
than $56.6 million as of February 1, 1998. Total goodwill recorded was $51.5
million and is being amortized over 20 years.
In October 1993, the Corporation acquired Ohio Bancorp, a $1.6 billion
assets bank holding company headquartered in Youngstown, Ohio.
7
<PAGE> 8
Ohio Bancorp shareholders received approximately $104 million in cash and were
issued approximately 4.3 million shares of the Corporation's common stock, for a
total transaction value of approximately $215 million. The transaction was
accounted for as a purchase. Total goodwill recorded was $67 million and is
being amortized over 20 years.
3. CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments to
extend credit, guarantees, etc., which are not reflected in the financial
statements. In addition, the Corporation's subsidiaries are involved in a number
of legal proceedings arising out of their businesses. In management's opinion,
the financial statements would not be materially affected by the outcome of any
present legal proceedings or other commitments and contingent liabilities.
4. SECURITIES
On December 31, 1993, the Corporation adopted the requirements of SFAS 115
"Accounting For Certain Investments in Debt and Equity Securities." The adoption
did not have a material effect on the results of operations in 1993 and prior
period financial statements were not restated.
The following is a summary of securities held to maturity and available for
sale:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
----------------------------------------------
UNREALIZED UNREALIZED MARKET
(In Thousands) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Held to
Maturity:
U.S. Treasury
and Federal
agency
debentures.... $ 134,358 $ -- $ 909 $ 133,449
Mortgage-backed
securities.... 656,140 2,373 25,131 633,382
States and
political
subdivisions... 468,058 39,428 5,886 501,600
Other........... 65,171 146 144 65,173
---------- ---------- ---------- ----------
Total held to
maturity.... 1,323,727 41,947 32,070 1,333,604
Available for
Sale:
U.S. Treasury
and Federal
agency
debentures.... 1,462,178 4,598 31,585 1,435,191
Mortgage-backed
securities.... 1,889,025 1,243 34,903 1,855,365
States and
political
subdivisions... 31,556 279 22 31,813
Other........... 232,139 36,571 9,471 259,239
---------- ---------- ---------- ----------
Total
available
for sale.... 3,614,898 42,691 75,981 3,581,608
---------- ---------- ---------- ----------
Total
securities... $4,938,625 $ 84,638 $108,051 $4,915,212
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1993
----------------------------------------------
Unrealized Unrealized Market
(In Thousands) Cost Gains Losses Value
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------
Held to Maturity:
U.S. Treasury and
Federal agency
debentures..... $ 361,573 $ 14,302 $ -- $ 375,875
Mortgage-backed
securities..... 1,342,186 16,990 1,476 1,357,700
States and
political
subdivisions... 658,345 68,919 3,657 723,607
Other............ 237,592 2,454 1,895 238,151
---------- ---------- ---------- ----------
Total held to
maturity..... 2,599,696 102,665 7,028 2,695,333
Available for
Sale:
U.S. Treasury and
Federal agency
debentures..... 793,208 25,967 195 818,980
Mortgage-backed
securities..... 1,670,947 12,725 1,155 1,682,517
Other............ 128,159 23,822 1,923 150,058
---------- ---------- ---------- ----------
Total available
for sale..... 2,592,314 62,514 3,273 2,651,555
---------- ---------- ---------- ----------
Total
securities... $5,192,010 $165,179 $ 10,301 $5,346,888
========== ========== ========== ==========
</TABLE>
8
<PAGE> 9
For the nine months ended September 30, 1994 and 1993, gross gains of $13.9
million and $10.4 million, and gross losses of $4.4 million and $1.8 million
were realized, respectively.
At September 30, 1994, the unrealized depreciation in securities available
for sale included in retained earnings totalled $(21.6) million, net of tax. The
Corporation's securities portfolio consists mainly of financial instruments that
pay back par value upon maturity. Market value fluctuations occur over the lives
of the instruments due to changes in market interest rates. Management has
concluded that current declines in value are temporary and, accordingly, no
valuation adjustments have been included as a charge to earnings.
For the nine months ended September 30, 1994, the following represents the
segregation of cash flows between securities available for sale and securities
held to maturity:
<TABLE>
<CAPTION>
AVAILABLE HELD TO
(In Thousands) FOR SALE MATURITY TOTAL
<S> <C> <C> <C>
- --------------------------------------------------------------
Purchases of securities.... $1,875,207 $116,613 $1,991,820
Proceeds from sale of
securities............... 1,155,138 -- 1,155,138
Proceeds from maturities of
securities............... 445,450 567,532 1,012,982
</TABLE>
As of September 30, 1994, there were no securities of a single issuer,
other than U.S. Treasury securities and other U.S. government
agencies, which exceeded 10% of stockholders' equity.
5. BORROWED FUNDS
<TABLE>
<CAPTION>
SEPT 30 Dec 31 Sept 30
(In Thousands) 1994 1993 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------
U.S. Treasury demand
notes and Federal
funds borrowed-term...... $ 759,103 $ 309,832 $ 346,105
Trading account
liabilities-short
sales.................... 19 -- 100,031
Securities sold with
recourse................. 4,919 12,805 13,902
Notes payable to Student
Loan Marketing
Association.............. 300,000 243,400 243,400
Military banking
liabilities.............. 264,789 185,493 192,732
Other...................... 68,057 50,632 51,086
---------- ---------- ----------
Bank subsidiaries........ 1,396,887 802,162 947,256
Commercial paper........... 435,224 398,790 312,386
Other...................... 61 59 229
---------- ---------- ----------
Other subsidiaries....... 435,285 398,849 312,615
---------- ---------- ----------
Total.............. $1,832,172 $1,201,011 $1,259,871
========== ========== ==========
</TABLE>
6. CORPORATE LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPT 30 Dec 31 Sept 30
(In Thousands) 1994 1993 1993
<S> <C> <C> <C>
- ---------------------------------------------------------------------
6 5/8% Subordinated Notes due
2004......................... $250,000 $ -- $ --
Less discount.................. (1,220) -- --
8 3/8% Notes due 1996.......... 100,000 100,000 100,000
Less discount................ (114) (174) (195)
Floating Rate Sub. Notes due
1997.......................... 75,000 75,000 75,000
Less discount................ (44) (58) (63)
9 7/8% Sub. Notes due 1999..... 65,000 65,000 65,000
Less discount................ (233) (268) (291)
Floating Rate Notes due 1997... 50,000 50,000 50,000
Less discount................ (64) (80) (85)
Medium-Term Notes.............. 2,000 6,000 6,000
Less discount................ (1) (9) (12)
Floating Rate Notes due 1994... -- 5,000 5,000
Other.......................... 5,901 7,609 4,191
-------- -------- --------
Total parent company......... 546,225 308,020 304,545
6 1/2% Sub. Notes due 2003..... 200,000 200,000 200,000
Less discount................ (643) (699) (718)
Other.......................... 2,522 2,852 3,730
-------- -------- --------
Total subsidiaries........... 201,879 202,153 203,012
-------- -------- --------
Total.................. $748,104 $510,173 $507,557
========= ========= =========
</TABLE>
In March 1994 the Corporation issued $250 million principal amount of
6 5/8% Subordinated Notes Due 2004. Interest on the notes is payable
semi-annually. The notes are not redeemable prior to their maturity and qualify
as Tier 2 capital for regulatory purposes.
A credit agreement dated June 30, 1994 with a group of banks allows the
Corporation to borrow up to $300 million until June 30, 1997, with a provision
to extend the expiration date under certain circumstances. There were no
borrowings outstanding under this agreement at September 30, 1994.
7. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPT 30 Dec 31 Sept 30
(Outstanding Shares) 1994 1993 1993
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Preferred Stock, no par
value, authorized
5,000,000 shares.......... 757,160 793,240 800,000
Common Stock, $4.00
par value, authorized
350,000,000 shares........ 150,148,676 158,779,611 158,243,950
</TABLE>
9
<PAGE> 10
8. INCOME TAX EXPENSE
The composition of income tax expense follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------------
(In Thousands) 1994 1993
<S> <C> <C>
- ------------------------------------------------------------
Applicable to income exclusive
of security transactions..... $ 136,793 $ 121,712
Applicable to security
transactions................. 3,373 3,128
----------- -----------
Total.................. $ 140,166 $ 124,840
=========== ===========
</TABLE>
The effective tax rate was approximately 30.6% and 29.4% for the nine
months ended September 30, 1994 and 1993, respectively. The increase reflects
declining levels of tax-exempt interest income and a higher federal statutory
rate.
9. REGULATORY DIVIDENDS
A significant source of liquidity for the Parent company is dividends from
subsidiaries. Dividends paid by the subsidiary banks are subject to various
legal and regulatory restrictions. At September 30, 1994, bank subsidiaries may
pay the Parent company, without prior regulatory approval, approximately $194.3
million of dividends. During the first nine months of 1994, dividends totalling
$118.9 million were declared and $169.5 million of previously declared dividends
were paid to the Parent company.
10. EARNINGS PER SHARE
The calculation of net income per common share follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30 Sept 30
------------------------ ------------------------
(Dollars In
Thousands, except
per share amounts) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------
PRIMARY:
Net income....... $108,411 $102,676 $318,059 $300,452
Less preferred
dividend
requirements... 3,786 4,000 11,449 12,000
----------- ----------- ----------- -----------
Net income
applicable to
common stock... $104,625 $98,676 $306,610 $288,452
=========== =========== =========== ===========
Average common
shares
outstanding.... 152,077,200 160,109,139 154,166,306 160,968,761
=========== =========== =========== ===========
Net income per
common share... $.69 $.61 $1.99 $1.79
=========== =========== =========== ===========
ASSUMING FULL
DILUTION:
Net income....... $108,411 $102,676 $318,059 $300,452
=========== =========== =========== ===========
Average common
shares
outstanding.... 152,077,200 160,109,139 154,166,306 160,968,761
Stock option
adjustment..... 85,008 72,150 85,008 72,150
Preferred stock
adjustment..... 9,025,347 9,535,160 9,025,347 9,535,160
----------- ----------- ----------- -----------
Average common
shares
outstanding, as
adjusted....... 161,187,555 169,716,449 163,276,661 170,576,071
=========== =========== =========== ===========
Pro forma fully
diluted net
income per
common share... $.67 $.60 $1.95 $1.76
=========== =========== =========== ===========
</TABLE>
The stock option adjustment in the calculation of fully diluted common
shares outstanding represents the assumed exercise of all outstanding stock
options as of the beginning of the year or date of grant, if later, computed
using the treasury stock method.
The preferred stock adjustment in the calculation of fully diluted common
shares outstanding represents the proforma effect of the assumed conversion of
8% Cumulative Convertible Preferred Stock.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNINGS SUMMARY
Net income for the quarter ended September 30, 1994 was $108.4 million,
or $.69 per common share, compared with $102.7 million, or $.61 per common
share, for the quarter ended September 30, 1993, representing a 13% increase per
share.
Per share earnings were $1.99 for the first nine months, up 11% over
$1.79 in 1993. Net income for the first nine months was $318.1 million, compared
with $300.5 million in the prior year.
Returns on average common equity for the third quarter and nine months
of 1994 were 17.21% and 16.87%, respectively, compared with 16.26% in both of
the same periods in 1993. Return on average assets for the third quarter 1994
was 1.41%, compared with 1.43% for the corresponding period in 1993. For the
first nine months of 1994, return on average assets was 1.40% versus 1.42% a
year ago.
Net income per share included net after-tax security gains of $.01 for
the third quarter 1994 and $.04 year-to-date, compared with $.01 and $.03 per
share for the third quarter and year-to-date 1993, respectively.
The improved profitability for the quarter and year-to-date was driven
by several factors including higher net interest income resulting from loan
growth and a continuing decline in the provision for loan losses. Average loan
outstandings in the third quarter increased 2.1% over second quarter 1994 (an
8.4% annualized growth rate). Fee income increased 5.2% and 6.3%, respectively,
over the third quarter and year-to-date 1993. Noninterest expenses increased
4.2% and 4.5% for the quarter and year-to-date, respectively, versus the same
periods last year due mainly to the acquisition of Ohio Bancorp in October 1993.
Excluding the effect of acquired companies, noninterest expense in 1994 was flat
compared to 1993.
UNIT PROFITABILITY
Tables 1 and 2 present profitability contributions by the Corporation's
major units to consolidated results. The units shown are reflective of how
management operates and monitors these businesses internally. Inherent in the
reported amounts are cost allocations for centrally provided services that
approximate the pro-rata cost to the units using such services. Equity has been
allocated among the business units in the current and prior year to reflect
well-capitalized levels as defined by bank regulatory agencies. An income credit
is granted to the functional units to reflect their use of this
noninterest-bearing source of funds. Return on equity as reported in both years
reflects these allocations. Corporate and retail banking net income results
include actual interest earned and paid on transactions with customers, with
adjustments for matched-maturity, internal funds transfer charges and credits
for loans and deposits. Income on investment securities and all gains and losses
associated with interest rate risk are reported in the investment/funding unit.
The corporate and retail banking businesses' earnings improved for the
first nine months of 1994 compared with 1993 due primarily to higher net
interest income that resulted from loan growth and the continuing decline in the
provision for loan losses. Also contributing to the improvement are lower
expense levels, as seen in the improved overhead and efficiency ratios
(Table 4).
The decline in national credit card net income is due to the
<TABLE>
TABLE 1: UNIT PROFITABILITY
<CAPTION>
NINE MONTHS ENDED Nine months ended
SEPTEMBER 30, 1994 September 30, 1993
------------------------------------- ----------------------------------
NET RETURN ON RETURN ON Net Return on Return on
(Dollars in Millions) INCOME ASSETS(1) EQUITY Income Assets(1) Equity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Corporate banking......... $137.3 1.76% 16.60% $121.4 1.63% 16.58%
Retail banking............ 125.8 .87 17.57 104.0 .77 17.04
National credit card...... 6.4 1.47 9.19 17.4 3.55 24.59
Investment/funding........ 35.8 .56 12.72 43.9 .73 22.34
Trust..................... 24.7 23.55 23.88 24.5 24.69 26.69
Item processing........... 11.6 5.03 11.49 12.5 6.42 14.85
Mortgage banking.......... .7 1.34 3.52 (5.1) (8.27) (16.29)
Corporate................. (24.2) -- -- (18.1) -- --
------ ------
Total..................... $318.1 1.40% 16.87% $300.5 1.42% 16.26%
======== ======= ======== ======= ======== ========
<FN>
(1) Return on revenue in the case of fee-based businesses.
</TABLE>
<PAGE> 12
<TABLE>
TABLE 2: GEOGRAPHIC UNIT PERFORMANCE
<CAPTION>
NINE MONTHS ENDED Nine months ended
SEPTEMBER 30, 1994 September 30, 1993
--------------------------------------------- -----------------------------------------------
CORPORATE BANKING RETAIL BANKING Corporate Banking Retail Banking
-------------------- -------------------- ----------------------- ---------------------
(Dollars NET RETURN ON NET RETURN ON Net Return on Net Return on
in millions) INCOME ASSETS INCOME ASSETS Income Assets Income Assets
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cleveland...... $51.7 2.02% $33.0 1.06% $43.0 1.77% $25.8 .84%
Columbus....... 24.5 1.87 22.3 .80 22.1 1.71 20.4 .73
Indiana........ 11.9 1.65 27.9 1.05 11.9 1.49 19.8 .72
Kentucky....... 25.3 1.45 17.3 .76 24.5 1.36 17.6 .76
Akron(1)....... 8.4 1.43 11.6 .60 7.0 2.17 6.4 .72
Dayton......... 8.4 1.68 9.4 .91 7.5 1.54 10.7 .98
Toledo......... 7.1 1.92 4.3 .75 5.4 1.59 3.3 .57
------ ------ ------ ------
Total....... $137.3 1.76% $125.8 .87% $121.4 1.63% $104.0 .77%
======== =========== ======== =========== ======== ============ ======== ============
<FN>
(1) Includes Ohio Bancorp in 1994.
</TABLE>
11
<PAGE> 13
settlement of litigation in the sec-
ond quarter 1994, the loss of a
major customer in the fourth quarter 1993, and increased marketing expenses
directed at replacing the lost business.
The lower return on equity in the item processing business relative to the
other functional units reflects a higher equity allocation to this business as
if it were an independent organization. The decline in return on equity versus
the prior year is due to increased equity allocations to cover the full purchase
price of companies acquired in 1993.
The increase in mortgage banking net income was due to the sale of mortgage
servicing in the second quarter 1994 and reduced amortization of purchased
mortgage servicing rights from the level recorded in 1993. An additional sale of
servicing is scheduled to close in the fourth quarter 1994. The reduced
amortization is expected to continue unless mortgage refinancings accelerate.
The decrease in the corporate contribution is due primarily to interest
expense associated with the $250 million subordinated debt issued in the first
quarter 1994.
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
Average earning assets totalled $27,188 million for the quarter ended
September 30, 1994, an increase of $345 million from the quarter ended June 30,
1994 and $1,839 million from the third quarter 1993. The increase in the quarter
was due to increased loan balances and a slightly higher securities portfolio.
The increase over third quarter last year is due to loan growth and the
acquisition of Ohio Bancorp in the fourth quarter of 1993.
Core deposits decreased slightly in the third quarter due mainly to runoff
in savings balances. The third quarter also
experienced a shifting of cus-
tomer savings balances into higher-paying certificates of de-
posit. At September 30, 1994,
average core deposits funded over 100% of average loans.
NET INTEREST INCOME
On a fully taxable equivalent basis, net interest income was
$317.4 million in the third quarter compared with $311.1 million for the
corresponding quarter 1993. For the nine months of 1994, fully taxable
equivalent net interest income increased 2.2% to $940.8 million from $920.2
million in 1993.
The tax equivalent net interest margin was 4.68% in the quarter ended
September 30, 1994, compared with 4.68% and 4.90% for the quarters ended June
30, 1994 and September 30, 1993, respectively. For the quarter, the net spread
between interest earned and paid on
assets and liabilities declined
3 basis points, however, the contribution of noninterest bearing
sources of funds increased by the same amount due to the
rising interest rate environment. The lower margin in comparison
to the prior year was mainly due to the loss of a large credit card customer in
the fourth quarter 1993.
Management attempts to prevent adverse swings in net
interest income resulting from interest rate movements by placing conservative
limits on interest rate risk. Interest rate risk is monitored through static
gap, simulation and duration analyses.
At September 30, 1994, the Corporation was less liability-sensitive than at
December 31, 1993. The cumulative one-year gap had contracted to 4.1% of
adjusted earning assets from 10.8% at year-end 1993. The earnings simulation
model projects that net income would decrease by .8% if rates rose two
percentage points over the next year. At the end of 1993, the corresponding
exposure was 2.0% of net income. Finally,
TABLE 3: CONTRIBUTION OF INTEREST RATE DERIVATIVE PORTFOLIO
<TABLE>
<CAPTION>
Nine months ended
September 30
-------------------
(In Millions) 1994 1993
<S> <C> <C>
----------------------------------------------------------------------------------
Interest adjustment to loans.................................... $ 36.5 $ 52.8
Interest adjustment to securities............................... (13.2) (21.7)
------ ------
Interest adjustment to earning assets......................... 23.3 31.1
Interest adjustment to deposits................................. (10.3) (16.6)
------ ------
Effect on net interest income................................. $ 33.6 $ 47.7
===== =====
</TABLE>
<PAGE> 14
NOTE: Amounts in brackets represent reductions of
the related interest income or expense line,
as applicable.
TABLE 4: FULL-TIME EQUIVALENT STAFFING AND OVERHEAD
PERFORMANCE MEASURES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 September 30, 1993
-------------------------------------- -----------------------
FULL-TIME Full-Time
EQUIVALENT OVERHEAD EFFICIENCY Equivalent Overhead
STAFF RATIO RATIO Staff Ratio
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
Corporate and retail
banking(1)......... 11,623 48.51% 59.13% 10,904 49.61%
National credit
card............... 529 56.86 63.37 624 40.42
Investment/ funding.. 284 (11.90) 41.96 234 (28.58)
Trust(1)............. 968 -- 63.82 943 --
Item processing...... 5,277 -- 91.23 4,460 --
Mortgage
servicing.......... 754 -- 97.68 859 --
Corporate............ 663 -- -- 878 --
---------- ----------
Total............ 20,098 43.58% 66.05% 18,902 43.76%
========== ========= ========== ========== ========
<CAPTION>
Efficiency
Ratio
<S> <C>
---------------------------------------------
Corporate and retail
banking(1)......... 60.28%
National credit
card............... 47.92
Investment/ funding.. 31.66
Trust(1)............. 62.11
Item processing...... 90.43
Mortgage
servicing.......... 113.52
Corporate............ --
Total............ 65.63%
=========
</TABLE>
(1) Includes Ohio Bancorp in 1994.
12
<PAGE> 15
the Corporation's duration model indicates that a two percentage point immediate
upward shock
in rates would cause a reduction in the value of expected asset and liability
cash-flows by an amount equal to 1.0% of total assets, down from 1.1% at
year-end 1993.
Contributing to the decreased liability sensitivity was a reduced volume of
interest-rate swaps where the Corporation receives a fixed rate along with
increased volume of swaps which hedge exposure to rising rates. The contribution
to net interest income of the interest-rate derivative portfolio is presented in
Table 3.
FEES AND OTHER INCOME
Fee income was $207.2 million for the third quarter 1994, up 5.2% from
$197.0 million for the third quarter 1993. Year-to-date fee income was $622.7
million, compared with $585.6 million for the same period in 1993, an increase
of 6.3%. The increases are due primarily to growth in item processing revenues
which have resulted from business growth and acquisitions. Year-to-date mortgage
banking revenues have increased due to a $4.3 million gain on sale of mortgage
servicing rights in the second quarter 1994. Also contributing to the improved
mortgage banking revenues was lower amortization of capitalized excess service
fees, which are recorded as adjustments to revenue. The 1994 amortization was
lower by $5.2 million for the quarter and $6.5 million year-to-date as compared
to 1993. Offsetting the revenue increases was a decline in credit card fees that
resulted from the loss of a large customer in the fourth quarter 1993 and the
unwinding of a credit card securitization. The fees associated with the credit
card securitization were replaced with net interest income as the re-
lated loan balances were returned to the balance sheet.
NONINTEREST EXPENSES
Noninterest expenses were $344.8 million for the quarter
ended September 30, 1994, com-
pared with $330.9 million for the corresponding quarter in 1993. Year-to-date
noninterest
expenses were $1,032.7 million
compared with $988.2 million in 1993. Excluding the impact of the acquired
companies, total expenses for the quarter and year-to-date were flat compared to
1993 levels. There were no significant nonrecurring expenses recorded in the
third quarter 1994. Included in other noninterest expense is the amortization of
purchased mortgage servicing rights. The 1994 amortization expense was lower by
$6.1 million for the quarter and $11.5 million year-to-date as
compared to 1993. Severance and other costs related to the
Corporation's cost redesign program, as well as writedowns of
OREO properties, totalled $18.4
million for the nine months ended September 30, 1993.
The efficiency ratio, defined as noninterest expense as a percentage of fee
income plus fully
taxable net interest income, was 66.1% for the first nine months of 1994 versus
65.6% for 1993.
The overhead ratio, defined as noninterest expense less fee income as a
percentage of fully taxable net interest income, was 43.6% for September 30,
1994 versus 43.8% a year ago.
Total corporate and retail banking staff at September 30, 1994 increased
from a year ago due to the acquisition of Ohio Bancorp. The increase in item
processing was due to both ac-
<PAGE> 16
TABLE 5: ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------
(In Thousands) 1994 1993
<S> <C> <C>
-------------------------------------------------------------------------------
Balance at beginning of year.......................... $443,412 $383,849
Provision............................................. 59,748 73,139
Reserves acquired .................................... 3,458 575
Charge-offs:
Commercial.......................................... 22,495 30,437
Real estate -- construction......................... 298 5,558
Real estate -- commercial........................... 4,864 7,753
Real estate -- residential.......................... 1,551 2,314
Revolving credit.................................... 27,599 29,515
Consumer............................................ 23,877 23,621
-------- --------
Total Charge-offs................................... 80,684 99,198
Recoveries:
Commercial.......................................... 12,742 15,084
Real estate -- construction......................... 1,095 712
Real estate -- commercial........................... 871 1,156
Real estate -- residential.......................... 723 690
Revolving credit.................................... 8,272 7,797
Consumer............................................ 17,635 15,658
-------- --------
Total Recoveries.................................... 41,338 41,097
-------- --------
Net Charge-offs....................................... 39,346 58,101
-------- --------
Balance at end of period.............................. $467,272 $399,462
========= =========
</TABLE>
TABLE 6: ANNUALIZED NET CHARGE-OFFS AS A PERCENTAGE OF
AVERAGE LOANS
<TABLE>
<CAPTION>
First Nine
Third Quarter Months
------------- -------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------
Commercial....................................... .20 % .26 % .15 % .25%
Real estate -- construction...................... (.07) 1.67 (.25) 1.28
Real estate -- commercial........................ .19 .76 .22 .41
Real estate -- residential....................... .03 .10 .03 .08
Revolving credit................................. 1.64 2.13 1.53 1.99
Consumer......................................... .22 .29 .19 .28
Total net charge-offs to average loans........... .29 .48 .24 .41
</TABLE>
13
<PAGE> 17
quisitions and increased business volume.
ASSET QUALITY
Table 5 summarizes the activity in the allowance for loan losses.
The allowance for loan losses was $467.3 million at September 30, 1994
representing 2.1% of loans outstanding at
that date. This ratio compared with 2.08% at year-end 1993 and 2.00% at
September 30, 1993.
The provision for loan losses declined to $19.2 million for the third
quarter 1994 and $59.7 million year-to-date from $23.9 million and $73.1 million
for the same periods in 1993, respectively.
Net charge-offs were $15.8 million and $23.4 million for the quarters ended
September 30, 1994 and 1993, respectively, and $39.3 million and $58.1 million,
respectively, for the first nine months of 1994 and 1993.
The decline in provision and net charge-offs for both the quarter and
year-to-date reflects the continued improvement in overall asset quality. Table
6
shows net charge-offs as a per-
centage of average loans by portfolio type.
Table 7 summarizes nonperforming assets and related data.
Nonperforming assets of $155 million at September 30, 1994 declined by $9
million from the prior quarter and $93 million from a year ago. The decline in
nonaccrual commercial loans was due to both charge-offs and customer paydowns
and the decline in OREO was due to the sale of foreclosed properties.
Nonperforming assets as a percentage of loans and OREO were .69% at
September 30, 1994 compared with 1.23% a year ago and .98% at December 31, 1993.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial
Accounting Standards No. 114, "Accounting By Creditors for
Impairment of a Loan". The Corporation plans to adopt this standard on January
1, 1995 and does not expect the adoption to have a material impact on financial
position or results of operations.
CAPITAL
Table 8 reflects various measures of capital at quarter-end. The changes in
the equity ratios reflect the repurchase of outstanding capital stock and a
slightly lower asset base.
In the first half of 1994, approximately 10 million shares of common
stock were repurchased in the open market. In July 1994, the Board of Directors
authorized the purchase, in the open market or otherwise, of
up to 10 million shares of its outstanding common stock, subject to a total
expenditure limit of $300 million. At September 30, 1994, 9.7 million common
shares remained available for repurchase under this authorization.
Book value per common share was $16.33 at September 30, 1994, compared with
$15.53 at September 30, 1993
and $16.15 at December 31, 1993. The book value at September 30, 1994 and
December 31, 1993 included ($.14) and $.22, respectively, related to the market
value (depreciation)/
appreciation of securities available for sale.
In March 1994 the Corporation issued $250 million principal amount of
6 5/8% Subordinated Notes which qualify as Tier 2 capital for regulatory
purposes.
TABLE 7: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
SEPT 30 Dec 31 Sept 30
(In Millions) 1994 1993 1993
<S> <C> <C> <C>
----------------------------------------------------------------------------------
Commercial:
Nonaccrual...................................... $ 58.3 $ 79.4 $ 93.6
Restructured.................................... .7 1.1 2.7
--------- ------- ---------
Total commercial.............................. 59.0 80.5 96.3
Real estate related:
Nonaccrual...................................... 56.9 64.4 80.2
Restructured.................................... 4.5 6.5 6.9
--------- ------- ---------
Total real estate related..................... 61.4 70.9 87.1
--------- ------- ---------
Total nonperforming loans..................... 120.4 151.4 183.4
Other real estate owned (OREO).................... 34.7 57.8 64.4
--------- ------- ---------
Nonperforming assets.............................. $ 155.1 $209.2 $ 247.8
========== ======= ==========
Loans 90 days past-due accruing interest.......... $ 48.4 $ 42.2 $ 34.3
========== ======= ==========
</TABLE>
<PAGE> 18
TABLE 8: CAPITAL AND CAPITAL/ASSET RATIOS
<TABLE>
<CAPTION>
SEPT 30, 1994 Dec 31, 1993
(In Millions) AMOUNT RATIO Amount Ratio
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
Total equity1............... $2,640.5 8.49 % $2,763.3 8.89%
Common equity1.............. 2,451.2 7.88 2,565.0 8.26
Tangible common equity2..... 2,062.7 6.71 2,185.2 7.12
Tier 1 capital3............. 2,446.9 9.30 2,468.9 8.94
Total risk-based capital4... 3,357.0 12.76 3,206.8 11.62
Leverage ratio5............. 2,446.9 8.09 2,468.9 8.18
<CAPTION>
Sept 30, 1993
(In Millions) Amount Ratio
<S> <C> <C>
-----------------------------------------------------------------------------
Total equity1............... $2,657.3 9.20 %
Common equity1.............. 2,457,3 8.51
Tangible common equity2..... 2,131.9 7.47
Tier 1 capital3............. 2,452.8 9.98
Total risk-based capital4... 3,148.9 12.81
Leverage ratio5............. 2,452.8 8.67
</TABLE>
--------------------------------------------
1 Computed in accordance with generally accepted
accounting principles, which includes the market
value adjustment to securities at December 31,
1993 and September 30, 1994.
2 Common equity less all intangible assets;
computed as a ratio to total assets less
intangible assets.
3 Stockholders' equity less certain intangibles and
the market value adjustment to securities
available for sale; computed as a ratio to
risk-adjusted assets, as defined in risk based
capital guidelines.
4 Tier 1 capital plus qualifying loan loss
allowance and subordinated debt; computed as a
ratio to risk-adjusted assets.
5 Tier 1 capital; computed as a ratio to average
total assets less certain intangibles.
14
<PAGE> 19
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars In Millions) Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial................................................ $ 9,062 $ 8,695 $ 9,101 $ 8,712
Real estate mortgage--nonresidential...................... 2,491 2,245 2,417 2,131
Real estate mortgage--residential......................... 3,724 2,741 3,576 2,463
Mortgage loans held for sale.............................. 177 421 280 382
Consumer.................................................. 4,498 3,886 4,358 3,792
Revolving credit.......................................... 1,863 1,512 1,688 1,454
-------- -------- -------- --------
Total loans............................................. 21,815 19,500 21,420 18,934
Securities.................................................. 4,723 5,407 4,778 5,506
Federal funds sold and security resale agreements........... 475 214 518 348
Trading account assets...................................... 8 32 17 24
Eurodollar time deposits in banks........................... 1 73 143 297
Other short-term money market investments................... 166 123 126 150
-------- -------- -------- --------
Total earning assets...................................... 27,188 25,349 27,002 25,259
Allowance for loan losses................................... (467) (402) (458) (395)
Market value appreciation (depreciation) of securities
available for sale........................................ (14) -- 12 --
Cash and demand balances due from banks..................... 2,012 1,948 2,024 1,908
Properties and equipment.................................... 390 362 390 360
Customers' acceptance liability............................. 68 45 64 49
Accrued income and other assets............................. 1,333 1,177 1,294 1,105
-------- -------- -------- --------
Total assets............................................ $ 30,510 $ 28,479 $ 30,328 $ 28,286
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................... $ 4,713 $ 4,524 $ 4,772 $ 4,463
Savings and NOW accounts.................................. 4,872 4,409 5,070 4,314
Insured money market accounts............................. 5,129 5,291 5,226 5,374
Time deposits of individuals.............................. 6,449 6,036 6,269 6,260
Other time deposits....................................... 448 510 476 600
Deposits in overseas office............................... 1,125 245 828 249
-------- -------- -------- --------
Total deposits.......................................... 22,736 21,015 22,641 21,260
Federal funds borrowed and security repurchase
agreements.............................................. 2,453 2,735 2,532 2,430
Borrowed funds............................................ 1,497 1,187 1,356 1,177
Acceptances outstanding................................... 68 45 64 49
Accrued expenses and other liabilities.................... 405 380 411 366
Corporate long-term debt.................................. 750 509 701 432
-------- -------- -------- --------
Total liabilities....................................... 27,909 25,871 27,705 25,714
STOCKHOLDERS' EQUITY:
Preferred stock........................................... 189 200 193 200
Common stock.............................................. 2,412 2,408 2,430 2,372
-------- -------- -------- --------
Total stockholders' equity.............................. 2,601 2,608 2,623 2,572
-------- -------- -------- --------
Total liabilities and stockholders' equity.............. $ 30,510 $ 28,479 $ 30,328 $ 28,286
======= ======= ======= =======
</TABLE>
15
<PAGE> 20
DAILY AVERAGE BALANCE SHEETS/NET INTEREST INCOME/RATES
<TABLE>
<CAPTION>
(Dollars In Millions; Fully Taxable Equivalent
Basis) Daily Average Balances
- ----------------------------------------------------------------------------------------------------------
1994 1993
----------------------------- ------------------
THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans:
Commercial...................................... $ 9,062 $ 9,148 $ 9,105 $ 9,123 $ 8,695
Real estate mortgage............................ 6,392 6,228 6,192 6,251 5,407
Consumer........................................ 6,361 5,983 5,780 5,623 5,398
------- ------- ------- ------- -------
Total loans................................... 21,815 21,359 21,077 20,997 19,500
Securities:
Taxable......................................... 3,977 3,903 4,164 4,636 4,560
Tax-exempt...................................... 746 788 759 839 847
------- ------- ------- ------- -------
Total securities.............................. 4,723 4,691 4,923 5,475 5,407
Federal funds sold................................ 76 52 46 86 28
Security resale agreements........................ 399 569 412 302 186
Eurodollar time deposits in banks................. 1 66 366 223 73
Short-term money market investments............... 174 106 147 135 155
------- ------- ------- ------- -------
Total earning assets/
Total interest income/rates................ 27,188 26,843 26,971 27,218 25,349
Market value appreciation (depreciation) of
securities available for sale..................... (14) 4 46 -- --
Allowance for loan losses........................... (467) (457) (450) (452) (402)
Cash and demand balances due from banks............. 2,012 2,029 2,033 2,111 1,948
Properties and equipment............................ 390 391 390 386 362
Customers' acceptance liability..................... 68 58 64 57 45
Accrued income and other assets..................... 1,333 1,278 1,271 1,148 1,177
------- ------- ------- ------- -------
Total assets.................................. $30,510 $30,146 $30,325 $30,468 $28,479
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Savings and NOW accounts.......................... $ 4,872 $ 5,169 $ 5,174 $ 5,065 $ 4,409
Insured money market accounts..................... 5,129 5,239 5,313 5,482 5,291
Time deposits of individuals...................... 6,449 6,209 6,146 6,291 6,036
Other time deposits............................... 448 488 487 565 510
Deposits in overseas offices...................... 1,125 716 640 305 245
Federal funds borrowed............................ 1,218 1,352 1,588 1,631 1,649
Security repurchase agreements.................... 1,235 1,127 1,079 1,158 1,086
Borrowed funds.................................... 1,497 1,301 1,266 1,237 1,187
Corporate long-term debt.......................... 750 757 592 509 509
------- ------- ------- ------- -------
Total interest bearing liabilities/
Total interest expense/rates............... 22,723 22,358 22,285 22,243 20,922
Non-interest bearing deposits..................... 4,713 4,779 4,828 5,087 4,524
Acceptances outstanding........................... 68 58 64 57 45
Accrued expenses and other liabilities............ 405 396 435 372 380
------- ------- ------- ------- -------
Total liabilities............................. 27,909 27,591 27,612 27,759 25,871
Stockholders' equity.......................... 2,601 2,555 2,713 2,709 2,608
------- ------- ------- ------- -------
Total liabilities and stockholders' equity.... $30,510 $30,146 $30,325 $30,468 $28,479
======= ======= ======= ======= =======
Net interest income.................................................................................
Interest spread.....................................................................................
Contribution of noninterest bearing sources of funds................................................
Net interest margin.................................................................................
</TABLE>
16
<PAGE> 21
<TABLE>
<CAPTION>
Quarterly Interest Average Annualized Rate
------------------------------------------------------- -------------------------------------------------------
1994 1993 1994 1993
------------------------------- ------------------- ------------------------------- -------------------
THIRD Second First Fourth Third THIRD Second First Fourth Third
QUARTER Quarter Quarter Quarter Quarter QUARTER Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$178.0 $175.4 $164.6 $167.6 $162.5 7.80% 7.69% 7.33% 7.29% 7.42%
124.4 118.9 116.5 120.0 106.6 7.78 7.63 7.53 7.68 7.89
148.9 135.7 129.1 127.8 134.1 9.31 9.09 9.02 9.03 9.88
------- ------- ------- ------- -------
451.3 430.0 410.2 415.4 403.2 8.23 8.07 7.85 7.87 8.23
51.8 48.7 48.8 54.1 53.6 5.19 4.99 4.71 4.65 4.69
15.3 15.7 14.3 17.7 18.1 8.18 7.97 7.52 8.45 8.56
------- ------- ------- ------- -------
67.1 64.4 63.1 71.8 71.7 5.66 5.49 5.14 5.23 5.30
.9 .5 .3 .7 .2 4.86 4.14 2.82 2.95 3.01
4.5 5.6 3.3 2.4 1.4 4.51 3.93 3.21 3.14 2.90
-- .6 2.4 1.9 .6 2.93 3.51 2.66 3.40 3.43
1.2 1.2 1.8 2.1 1.7 2.85 4.56 4.92 6.29 4.31
------- ------- ------- ------- -------
$525.0 $502.3 $481.1 $494.3 $478.8 7.69% 7.50% 7.19% 7.23% 7.52%
$ 31.7 $ 33.2 $ 33.0 $ 33.9 $ 29.7 2.59% 2.58% 2.58% 2.66% 2.67%
29.9 28.4 27.5 28.5 28.5 2.31 2.17 2.10 2.06 2.14
72.6 66.2 63.9 67.1 65.2 4.47 4.27 4.21 4.23 4.29
4.5 4.1 3.9 4.7 4.3 4.00 3.53 3.23 3.36 3.34
12.6 6.6 4.1 2.1 1.6 4.44 3.68 2.62 2.73 2.65
13.9 13.6 12.4 14.3 12.6 4.54 4.02 3.18 3.48 3.03
12.2 9.2 7.2 7.6 6.8 3.91 3.28 2.71 2.60 2.49
17.0 13.3 11.3 12.9 11.2 4.15 4.09 3.63 4.14 3.73
13.2 13.7 8.4 7.5 7.8 6.98 7.28 5.71 5.85 6.04
------- ------- ------- ------- -------
207.6 188.3 171.7 178.6 167.7 3.60% 3.38% 3.12% 3.19% 3.18%
------- ------- ------- ------- -------
$317.4 $314.0 $309.4 $315.7 $311.1
======= ======= ======= ======= =======
...........................................................
........................................................... 4.09% 4.12% 4.07% 4.04% 4.34%
........................................................... .59 .56 .54 .59 .56
- ----------------------------------------------------------- ------- ------- ------- ------- -------
4.68% 4.68% 4.61% 4.63% 4.90%
======= ======= ======= ======= =======
</TABLE>
17
<PAGE> 22
CORPORATE INVESTOR INFORMATION
CORPORATE HEADQUARTERS
National City Center
1900 East Ninth Street
Cleveland, Ohio 44114-3484
(216) 575-2000
TRANSFER AGENT AND REGISTRAR
National City Bank
Corporate Trust Department
1900 East Ninth Street
Cleveland, Ohio 44114-3484
1-800-622-6757
INVESTOR INFORMATION
Janis E. Lyons, Vice President
Corporate Investor Relations
Department 2145
P.O. Box 5756
Cleveland, Ohio 44101-0756
1-800-622-4204
COMMON STOCK LISTING
National City Corporation common stock is traded on the New York Stock
Exchange under the symbol NCC. The stock is abbreviated in financial
publications as NTLCITY.
PREFERRED STOCK LISTING
National City Corporation 8% Cumulative Convertible Preferred Stock
depositary shares are traded on the New York Stock Exchange under the
symbol NCC PR. The preferred stock is abbreviated as NTLCITY PF in
financial publications.
DIVIDEND REINVESTMENT AND STOCK
PURCHASE PLAN
Common stockholders participating in the plan receive a three percent
discount from market price when they reinvest their National City dividends
in additional shares. Participants can also make optional cash purchases of
common stock at a three percent discount from market price and pay no
brokerage commissions. To obtain our Plan prospectus and authorization
card, write or call:
National City Bank
Corporate Trust Department
Dividend Reinvestment Plan
P.O. Box 92301
Cleveland, Ohio 44193-0900
1-800-622-6757
DEBT RATINGS
<TABLE>
<CAPTION>
STANDARD DUFF & THOMSON
MOODY'S & POOR'S PHELPS BANKWATCH
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
National City Corporation........................ A/B
Commercial paper (short-term debt)............. P-1 A-1 Duff 1+
Senior debt.................................... A1 A AA-
Subordinated debt.............................. A2 A- A+
Preferred stock................................ "a1" BBB+ A
Certificates of deposit:
National City Bank (Cleveland)................. Aa3 A+ AA
National City Bank, Columbus................... Aa3 A+ AA
National City Bank, Kentucky................... Aa3 A+ AA
National City Bank, Indiana.................... Aa3 A+ AA
National City Bank, Northeast (Akron).......... Aa3 -- --
National City Bank, Dayton..................... Aa3 -- --
National City Bank, Northwest (Toledo)......... Aa3 -- --
Subordinated Bank Notes:
National City Bank (Cleveland)................. A1 A AA
National City Bank, Columbus................... A1 A AA
</TABLE>
18
<PAGE> 23
[LOGO]
FORM 10-Q -- SEPTEMBER 30, 1994
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CITY CORPORATION
Date: October 31, 1994
/s/ ROBERT G. SIEFERS
--------------------------------------
Robert G. Siefers
Executive Vice President
Chief Financial Officer
(Duly Authorized Signer and
Principal Financial Officer)
19
<PAGE> 24
<TABLE>
<S> <C>
NEW LOGO HERE Bulk Rate
National City Center U.S. Postage
1900 East Ninth Street PAID
Cleveland, Ohio 44114-3484 National City
Corporation
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT (22.1) -- SUBSIDIARIES
<CAPTION>
STATE OR
% OF JURISDICTION
VOTING UNDER THE LAW
SECURITIES OF WHICH
OWNED ORGANIZED
---------- ---------------
<S> <C> <C>
SUBSIDIARIES OF NATIONAL CITY CORPORATION:
National City Bank.............................................. 100% United States
National City Bank, Northwest................................... 100% United States
National City Bank, Columbus.................................... 100% United States
National City Bank, Dayton...................................... 100% United States
National City Bank, Northeast................................... 100% United States
National City Bank, Ashland..................................... *99.5% United States
Buckeye Service Corporation..................................... 100% Ohio
National City Capital Corporation............................... 100% Delaware
NCC Services, Inc............................................... 100% Ohio
National City Credit Corporation................................ 100% Ohio
National City Venture Corporation............................... 100% Ohio
National City Community Development Corporation................. 100% Ohio
National City Life Insurance Company............................ 100% Arizona
National City Mortgage Company.................................. 100% Ohio
National City Trust Company..................................... 100% United States
Money Station Inc............................................... 16.3% United States
National City Financial Corporation............................. 100% Ohio
Ohio National Corporation of Columbus........................... 100% Ohio
Gem America Realty and Investment Corporation................... 100% Ohio
National City Bank, Southern Indiana............................ 100% United States
National City Bank, Kentucky.................................... 100% United States
National City Processing Company................................ 100% Arizona
National Asset Management Corporation........................... 100% Kentucky
Second Premises Corporation..................................... 100% Kentucky
National City Bank, Indiana..................................... 100% United States
Circle Equity Leasing Corporation of Michigan................... 100% Michigan
Circle Leasing Corporation...................................... 100% Indiana
Madison Bank & Trust Company.................................... 100% Indiana
Merchants Capital Management Inc................................ 100% Indiana
Merchants Mortgage Corporation.................................. 100% Indiana
Merchants Service Corporation................................... 100% Indiana
Mortgage Company of Indiana, Inc................................ 100% Indiana
National City Investments Capital, Inc.......................... 100% Indiana
Cortland Bancorp................................................ 7.15% Ohio
NC Acquisition, Inc............................................. 100% Delaware
National City Holding Company................................... 100% Delaware
SUBSIDIARIES OF NATIONAL CITY BANK
Capstone Realty, Inc............................................ 100% Indiana
National City Investments Corporation........................... 100% Kentucky
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OR
% OF JURISDICTION
VOTING UNDER THE LAW
SECURITIES OF WHICH
OWNED ORGANIZED
---------- ---------------
<S> <C> <C>
SUBSIDIARIES OF NATIONAL CITY BANK, COLUMBUS
Scott Street Properties, Inc.................................... 100% Ohio
Buckeye Capital Corp............................................ 100% Ohio
SUBSIDIARY OF NATIONAL CITY BANK, NORTHEAST
AKREO Service Corp.............................................. 100% Ohio
SUBSIDIARY OF GEM AMERICA REALTY AND INVESTMENT CORP.
Gem Financial Insurance Agency, Inc............................. 100% Ohio
SUBSIDIARIES OF NATIONAL CITY BANK, KENTUCKY
Churchill Insurance Agency, Inc................................. 100% Kentucky
National City Leasing Corporation............................... 100% Kentucky
NCBK Holdings, Inc.............................................. 100% Kentucky
First National Broadway Corp.................................... 100% Kentucky
First Premises Corporation...................................... 100% Kentucky
FNB Service Corporation......................................... 100% Kentucky
National Capital Properties..................................... 100% Kentucky
SUBSIDIARIES OF NATIONAL CITY PROCESSING COMPANY
NPC International S.A. de C.V................................... 100% Mexico
B & L Consultants, Inc.......................................... 100% Massachusetts
SUBSIDIARIES OF NATIONAL CITY BANK, INDIANA
Ash Realty Company, Inc......................................... 100% Indiana
Bank Service Corporation of Indiana............................. 33 1/3% Indiana
MNB Financial Corp.............................................. 100% Indiana
MNB Trustee Company (UK) Ltd.................................... 50% United Kingdom
Newcorp, Inc.................................................... 100% Indiana
SUBSIDIARY OF CIRCLE LEASING CORPORATION
Circle Acceptance Leasing Corporation........................... 100% Ohio
SUBSIDIARY OF MADISON BANK & TRUST COMPANY
National City Insurance Agency, Inc............................. 100% Indiana
SUBSIDIARY OF ASH REALTY COMPANY, INC.
Sterling Equities Corp.......................................... 100% Indiana
SUBSIDIARY OF MNB FINANCIAL CORP.
Indiana Plaza Leasing, Inc...................................... 100% New York
- ---------------
<FN>
* Except for directors' qualifying shares
</TABLE>
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-4 and related prospectus of National City Corporation for the proposed merger
of Central Indiana Bancorp), of our report dated January 21, 1994, with respect
to the consolidated financial statements of National City Corporation included
in its Annual Report on Form 10-K for the year ended December 31, 1993, filed
with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cleveland, Ohio
November 17, 1994
<PAGE> 1
EXHIBIT 23.2
CROWE CHIZEK
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the use in the Registration Statement on Form S-4 of National
City Corporation of our report dated October 24, 1994 on the consolidated
financial statements of Central Indiana Bancorp as of September 30, 1994 and
1993 and for the three years ended September 30, 1994, and we consent to the
use of our name and the statements with respect to us appearing under the
heading "Experts" in the Prospectus and Proxy Statement.
Crowe, Chizek and Company
South Bend, Indiana
November , 1994
<PAGE> 1
EXHIBIT 23.3
CONSENT OF McDONALD & COMPANY
We consent to the inclusion in this Registration Statement on Form S-4
of National City Corporation of the form of our opinion set forth as Appendix B
to the Prospectus and Proxy Statement, which is part of this Registration
Statement, and to the summarization thereof in the Prospectus and Proxy
Statement under the caption "Opinions of CIB's Financial Advisor."
/s/ McDonald & Company Securities, Inc.
-----------------------------------------
McDONALD & COMPANY SECURITIES, INC.
Cleveland, Ohio
November , 1994
<PAGE> 1
EXHIBIT 24.1
DIRECTORS AND OFFICERS OF
NATIONAL CITY CORPORATION
REGISTRATION STATEMENT ON FORM S-4
POWER OF ATTORNEY
The undersigned directors and officers of National City Corporation (the
"Registrant") hereby constitute and appoint Edward B. Brandon, David A. Daberko,
William R. Robertson, Thomas A. Richlovsky, David L. Zoeller and Carlton E.
Langer, or any of them, with full power of substitution and resubstitution, as
attorneys or attorney of the undersigned, to sign and file under the Securities
Act of 1933, as amended, a Registration Statement on Form S-4 relating to the
registration of the shares of Common Stock, par value $4.00 per share, of the
Registrant to be issued pursuant to the Agreement and Plan of Merger, dated as
of July 25, 1994,, by and betweeen Central Indiana Bancorp and Registrant, and
any all amendments and exhibits thereto, including post-effective amendments,
and any and all applications or other documents to be filed with the Securities
and Exchange Commission pertaining to such registration, with full power and
authority to do and perform any and all acts and things whatsoever required and
necessary to be done in the premises, hereby ratifying and approving the acts of
said attorneys and any of them and any such substitute.
Executed this 25th day of July, 1994.
<TABLE>
<S> <C>
/s/ SANDRA H. AUSTIN Director
- -----------------------------------
Sandra H. Austin
/s/ JAMES M. BIGGAR Director
- -----------------------------------
James M. Biggar
/s/ CHARLES H. BOWMAN Director
- -----------------------------------
Charles H. Bowman
/s/ EDWARD B. BRANDON Chairman of the Board and
- ----------------------------------- Chief Executive Officer
Edward B. Brandon (Principal Executive Officer)
/s/ JOHN G. BREEN Director
- -----------------------------------
John G. Breen
/s/ DAVID A. DABERKO Director, President and COO
- -----------------------------------
David A. Daberko
/s/ RICHARD E. DISBROW Director
- -----------------------------------
Richard E. Disbrow
/s/ DANIEL E. EVANS Director
- -----------------------------------
Daniel E. Evans
/s/ OTTO N. FRENZEL III Director
- -----------------------------------
Otto N. Frenzel III
/s/ JOSEPH H. LEMIEUX Director
- -----------------------------------
Joseph H. Lemieux
/s/ A. STEVENS MILES Director
- -----------------------------------
A. Stevens Miles
/s/ BURNELL R. ROBERTS Director
- -----------------------------------
Burnell R. Roberts
/s/ WILLIAM R. ROBERTSON Director and Deputy Chairman of the
- ----------------------------------- Board
William R. Robertson
/s/ STEPHEN A. STITLE Director
- -----------------------------------
Stephen A. Stitle
Director
- -----------------------------------
Morry Weiss
/s/ ROBERT G. SIEFERS Executive Vice President and Chief
- ----------------------------------- Financial Officer
Robert G. Siefers
Senior Vice President and Treasurer
- ----------------------------------- (Principal Accounting Officer)
Thomas A. Richlovsky
</TABLE>
- 2 -
<PAGE> 1
Exhibit 99.2
PROXY -- CENTRAL INDIANA BANCORP
The undersigned shareholder of Central Indiana Bancorp ("CIB") hereby
appoints Robert J. Heltzel and Timothy A. Renie, or either of them, as attorneys
and proxies with full power of substitutions to vote all of the stock of CIB
which the undersigned is entitled to vote at the Special Meeting of Shareholders
to be held on December 27, 1994, and at any adjournment or adjournments thereof
(the "Special Meeting") as follows:
1. / / FOR / / AGAINST / / ABSTAIN WITH REGARD TO, the approval of an
amendment to the Articles of Incorporation of CIB to repeal Article 11
thereof, which prohibits the acquisition of beneficial ownership of more than
10% of any class of equity security of CIB, all as more fully described in
the accompanying Proxy Statement.
2. / / FOR / / AGAINST / / ABSTAIN WITH REGARD TO, the proposal to approve
the Agreement and Plan of Merger, dated as of July 25, 1994, pursuant to
which CIB would be merged into National City Corporation ("NCC"), and the
shareholders of CIB would receive shares of the common stock of NCC, all as
more fully described in the accompanying Proxy Statement.
3. In their discretion to vote upon such other matters as may properly come
before the Special Meeting or any adjournment or adjournments thereof;
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSALS NUMBERED 1 AND
2 ABOVE.
PLEASE SIGN AND DATE THIS PROXY AND RETURN IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on the other side)
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF CENTRAL INDIANA BANCORP
Date:
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(Signature of Shareholder)
When signing as attorney,
executor, administrator or
guardian, please give full
title. All joint owners must
sign.
Proxy Card
