<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1995.
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:
JAMES F. ROSE
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507-1749
(606) 231-0000
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 United Bancorp of Kentucky, Inc.
("UBK") with and into the Registrant, pursuant to an Agreement and Plan of
Merger dated as of January 12, 1995, 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
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE AGGREGATE PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
-------------------------
Common Stock, par value
$4.00 per share........ 2,482,079 shares $13.02 $32,322,000 $11,145.52
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
(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
UBK 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)(2) on the basis of the book value of the UBK
common shares computed as of March 31, 1995. There is no market for UBK's
common shares.
------------------
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 PROXY STATEMENT
--------------------------------------------- ------------------------------------------
<C> <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 UBK Capital Stock;
General Comparison of NCC and UBK 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.................................. General Comparison of NCC and UBK Capital
Stock
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.................................... Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................... Summary; Merger; Pro Forma Condensed Com-
bined Consolidated Financial Information,
Information about UBK; UBK Selected
Consolidated Financial Data; UBK
Consolidated Balance Sheet; UBK
Consolidated Statements of Income; UBK
Consolidated Statements of Changes in
Stockholders' Equity; UBK Consolidated
Statements of Cash Flows; UBK Notes to
Consolidated Financial Statements;
Management's Discussion and Analysis
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Summary; The Special Meeting; Management
After the Merger; Incorporation of Certain
Documents by Reference
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................ Not Applicable
</TABLE>
<PAGE> 3
UNITED BANCORP OF KENTUCKY, INC.
, 1995
Dear Shareholder:
The Board of Directors cordially invites you to attend a Special Meeting of
Shareholders of United Bancorp of Kentucky, Inc. ("UBK") to be held at the
offices of UBK at 250 West Main Street, Suite 3100, Lexington, Kentucky 40507,
on , commencing at Lexington, Kentucky
Time.
At this important meeting, you will be asked to consider and vote on the
Agreement and Plan of Merger (the "Merger Agreement") providing for a merger
transaction (the "Merger") whereby UBK 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 2.35 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 series A and common stock series AA of UBK ("UBK
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 UBK
Common (except cash in lieu of fractional shares).
THE UBK BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE MERGER
PROVIDED FOR THEREIN AS BEING IN THE BEST INTERESTS OF UBK AND ITS SHAREHOLDERS
AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF 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. The
Directors plan to vote their shares in favor of the Merger Agreement and the
Merger and collectively own shares of UBK Common which represent a majority of
the votes required to approve the transaction. Approval of the proposal is
therefore assured.
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 a majority of votes represented
by the outstanding shares of UBK 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, stamped envelope. You are, of course, welcome to
attend the Special Meeting and to vote your shares in person.
James L. Rose, Chairman
<PAGE> 4
UNITED BANCORP OF KENTUCKY, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of United
Bancorp of Kentucky, Inc., a Kentucky corporation ("UBK"), will be held at the
offices of UBK at 250 West Main Street, Suite 3100, Lexington, Kentucky 40507,
on , at , Lexington, Kentucky Time, for the
following purpose:
(1) to consider and vote upon the Agreement and Plan of Merger dated as of
January 12, 1995 (the "Merger Agreement") by and among National City
Corporation, a Delaware corporation ("NCC"), UBK and James L. Rose, a
copy of which Merger Agreement is included in the accompanying
Prospectus and Proxy Statement as Appendix A, under the terms of which
UBK would be merged with and into NCC (the "Merger"), with NCC as the
surviving corporation, and each outstanding share of common stock
series A and common stock series AA of UBK ("UBK Common") would be
converted into 2.35 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 to authorize such further action by the Board of
Directors of UBK and any of its proper officers as may in their
discretion be necessary or desirable to carry out the objects, intents
and purposes of the Merger Agreement; and
(2) to transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof. The Board of
Directors is not aware of any other business to come before the Special
Meeting.
Only holders of UBK Common Stock of record at the close of business on
, 1995, 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 Prospectus
and Proxy Statement 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
James L. Rose, Chairman
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN
AND MAIL THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
PRE-ADDRESSED STAMPED ENVELOPE.
<PAGE> 5
PROSPECTUS AND PROXY STATEMENT
NATIONAL CITY CORPORATION
2,482,079 SHARES OF COMMON STOCK
This Prospectus and Proxy Statement relates to the proposed merger of
UNITED BANCORP OF KENTUCKY, INC., a Kentucky corporation ("UBK"), with and into
NATIONAL CITY CORPORATION, a Delaware corporation ("NCC"). If the proposed
merger is consummated, the outstanding shares of common stock series A and
common stock series AA of UBK ("UBK Common") will be converted into shares of
common stock, par value $4.00 per share, of NCC ("NCC Common") at a rate of 2.35
shares of NCC Common for each share of UBK Common (the "Exchange Ratio") and
cash in lieu of fractional shares. The transaction is subject to various
conditions, including approval by the shareholders of UBK 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 , 1995 was $ .
All information concerning NCC contained in this Prospectus and Proxy
Statement has been furnished by NCC, and all information concerning UBK has been
furnished by UBK. NCC has represented and warranted to UBK, and UBK 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 UBK.
------------------------
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
UNITED BANCORP OF KENTUCKY, INC.
to be held on , 1995
THIS PROSPECTUS SERVES AS THE PROXY STATEMENT OF UNITED BANCORP OF
KENTUCKY, INC. IN CONNECTION WITH THE SOLICITATION OF PROXIES TO BE USED AT
UBK'S SPECIAL MEETING TO BE HELD FOR THE PURPOSES DESCRIBED HEREIN.
--------------------------------------------------------------------------------
The date of this Prospectus and Proxy Statement is , 1995, and
is first being mailed to UBK shareholders,
together with notices and forms of proxy, on or about , 1995.
<PAGE> 6
AVAILABLE INFORMATION
NCC is subject to the information reporting requirements of the Securities
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 may be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
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, UBK 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 into this Prospectus and Proxy Statement by
reference its Annual Report on Form 10-K for the year ended December 31, 1994,
its Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, its
Report on Form 8-K dated February 28, 1995, 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 39 of NCC's Proxy
Statement for the Annual Meeting of Shareholders held April 24, 1995.
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 UBK shall be deemed to be incorporated
by reference in this Prospectus and Proxy Statement and to be a part hereof from
the respective 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 UBK. 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 PROSPEC-
2
<PAGE> 7
TUS 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 UBK 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 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. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY , 1995.
3
<PAGE> 8
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
--------------------
<S> <C>
AVAILABLE INFORMATION.................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 2
SUMMARY.................................................................. 6
THE SPECIAL MEETING...................................................... 13
Record Date and Voting Rights.......................................... 13
Voting and Revocation of Proxies....................................... 13
PRINCIPAL HOLDERS OF VOTING SECURITIES................................... 13
MERGER................................................................... 14
Background of and Reasons for the Merger -- UBK........................ 14
Background of and Reasons for the Merger -- NCC........................ 16
Terms of the Merger.................................................... 17
Conversion of Shares of UBK Common..................................... 17
Conditions to the Merger............................................... 18
Regulatory Approvals................................................... 19
Waiver; Amendment; Termination......................................... 20
Effective Time......................................................... 21
Conduct of UBK's Business Pending the Merger........................... 21
Interest of Management in the Merger................................... 22
Employee Matters.................................................... 22
Indemnification and Insurance....................................... 22
Certain Federal Income Tax Consequences................................ 23
Accounting Treatment................................................... 23
Resales by Affiliates.................................................. 23
Appraisal and Dissenters' Rights....................................... 24
PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)............................................................ 26
NCC PRO FORMA CONDENSED COMBINED BALANCE SHEET (Unaudited)............... 27
NCC PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (Unaudited)........ 28
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)............................................................ 30
MANAGEMENT AFTER THE MERGER.............................................. 31
INFORMATION ABOUT NCC.................................................... 31
INFORMATION ABOUT UBK.................................................... 31
UBK SELECTED CONSOLIDATED FINANCIAL DATA................................. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS..................................... 43
CERTAIN REGULATORY CONSIDERATIONS........................................ 47
General................................................................ 47
Payment of Dividends................................................... 47
Certain Transactions by Bank Holding Companies With Their Affiliates... 48
FDIC Insurance......................................................... 49
Capital................................................................ 49
Holding Company Support of Subsidiary Banks and Savings Banks.......... 50
FDICIA................................................................. 50
Recent and Proposed Legislation........................................ 51
DESCRIPTION OF NCC CAPITAL STOCK......................................... 51
Common Stock........................................................... 51
Preferred Stock........................................................ 51
DESCRIPTION OF UBK CAPITAL STOCK......................................... 54
Common Stock........................................................... 54
Preferred Stock........................................................ 54
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
--------------------
<S> <C>
GENERAL COMPARISON OF NCC AND UBK CAPITAL STOCK.......................... 56
General................................................................ 56
Directors.............................................................. 56
Limitation of Director Liability in Certain Circumstances.............. 57
Indemnification and Insurance.......................................... 57
Antitakeover Statutes.................................................. 58
Issuance of Preferred Stock............................................ 59
Cumulative Voting...................................................... 60
Action Without a Meeting............................................... 60
Special Meetings....................................................... 60
Voting, Appraisal Rights and Corporate Reorganizations................. 60
By-Laws................................................................ 61
Preemptive Rights...................................................... 62
Dividends.............................................................. 62
EXPERTS.................................................................. 62
LEGAL OPINIONS........................................................... 63
REPORT OF INDEPENDENT AUDITORS........................................... 64
UBK CONSOLIDATED BALANCE SHEETS.......................................... 65
UBK CONSOLIDATED STATEMENTS OF INCOME.................................... 66
UBK CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY........... 67
UBK CONSOLIDATED STATEMENTS OF CASH FLOWS................................ 68
UBK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................... 69
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Opinion of Brown, Todd & Heyburn PLLC
APPENDIX C -- Provisions of the Kentucky Business Corporation Act
Relating to Rights of Dissenting Shareholders
</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 UBK 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
UBK. UBK is a registered savings and loan holding company under the Home
Owners' Loan Act of 1933, as amended (the "HOLA"), is a registered multi-bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA") and is incorporated under the laws of the Commonwealth of Kentucky. As
of March 31, 1995, UBK owned all of the outstanding stock of one federal savings
bank in Kentucky, all of the outstanding stock of six commercial banks in
Kentucky and approximately 82% of the outstanding stock of one commercial bank
in Kentucky, and through these banks operated twenty-nine (29>) offices in
Kentucky. UBK, through its federal savings bank, commercial banks, and other
subsidiaries, offers a broad range of lending, deposit and other financial
services to retail and commercial customers in its market areas. At March 31,
1995, UBK, its affiliate federal savings bank, commercial banks, and other
subsidiaries had consolidated total assets of $625 million and consolidated
total deposits of $515 million. See "SUMMARY -- Selected Financial Data";
"SUMMARY -- Comparative Per Share Data"; "PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)" and "INFORMATION ABOUT UBK." The
principal office of UBK is located at 250 West Main Street, Suite 3100,
Lexington, Kentucky 40507, and its telephone number is (606) 259-4100.
NCC. NCC is a registered multi-bank holding company under the BHCA and is
incorporated under the laws of the State of Delaware. As of March 31, 1995, NCC
owned substantially all of the outstanding stock of 10 commercial banks in Ohio,
Kentucky and Indiana, and through these banks, operated 615 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 March 31, 1995, NCC, its
affiliate banks and other subsidiaries had consolidated total assets of $32
billion and consolidated total deposits of $24 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, UBK
believes that the Merger offers the greatest potential for achieving long-term
value for UBK shareholders while providing superior banking services to its
customers.
Since establishing a major presence in Kentucky by acquiring First Kentucky
National Corporation in 1988, NCC has sought to enhance its Kentucky network
through internal growth and select acquisitions. Both NCC and UBK believe that
the Merger will result in a combined entity which will be greater than the sum
of NCC and UBK standing alone.
See "MERGER -- Background of and Reasons for the Merger -- UBK" and "--
Background of and Reasons for the Merger -- NCC."
TERMS OF THE MERGER
Pursuant to the Agreement and Plan of Merger dated January 12, 1995 (the
"Merger Agreement"), by and among NCC, UBK and James L. Rose (the "Principal
Shareholder"), UBK will merge with and into NCC and
6
<PAGE> 11
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 UBK Common (except shares held by UBK, NCC or any of their
direct or indirect wholly-owned subsidiaries (other than shares of UBK 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 2.35 shares of NCC
Common (the "Exchange Ratio").
No fractional shares of NCC Common will be issued in the Merger. In lieu
thereof, each holder of UBK 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 10 consecutive trading days ending at the Date of the Special
Meeting (the "Market Price").
The closing price of NCC Common on the NYSE on , 1995 was
$ (which is the equivalent of $ for 2.35 shares of NCC Common).
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) approval by the shareholders of UBK of the Merger
Agreement and the Merger provided for therein, (b) approval by certain federal
and state banking authorities, (c) authorization for listing on the NYSE of the
NCC Common issuable in the Merger, (d) the issuance by the Commission of an
order declaring the Registration Statement effective, (e) the receipt by NCC and
UBK of the opinion of Brown, Todd & Heyburn PLLC, counsel to UBK, 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"), (g) NCC and its directors and officers
who sign the Registration Statement shall have received from KPMG Peat Marwick
LLP, UBK's independent certified public accountants, a comfort letter dated
shortly prior to the closing, 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 UBK or stockholders of NCC. In addition, the Agreement may be
terminated under certain circumstances, and such termination would not require
shareholder approval. The Merger Agreement may be amended or supplemented upon
the written agreement of NCC and UBK 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 (15th day under certain circumstances) after
FRB approval is received. Application requesting such approval was accepted for
filing by the FRB on April 10, 1995. It is anticipated that the FRB approval of
the Merger will be received on or about June 9, 1995. See "MERGER -- Regulatory
Approvals."
THE SPECIAL MEETING
UBK. The Special Meeting of shareholders of UBK will be held on
, 1995, at the offices of UBK at 250 West Main Street, Suite
3100, Lexington, Kentucky 40507 commencing at , Lexington, Kentucky
Time. The Board of Directors of UBK has fixed the close of business on
, 1995, as the record date ("Record Date") for determination of
shareholders entitled to notice of and to vote at the Special Meeting of
shareholders of UBK. The purpose of the Special Meeting of shareholders of UBK
is (a) to consider
7
<PAGE> 12
and vote on a proposal to approve the Merger Agreement and the Merger and (b) 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 proposal to approve the Merger Agreement and the Merger to be
considered at the Special Meeting of shareholders of UBK must be adopted by a
majority of the votes represented by the outstanding shares of UBK Common. The
approval of the Merger Agreement and the Merger by the shareholders of UBK is
required by the Kentucky Business Corporation Act (the "KBCA") and is included
in the Merger Agreement as a condition to the parties' obligations to close. As
of the Record Date, the directors and executive officers of UBK and their
affiliates are entitled to vote approximately 84% of the outstanding shares of
UBK Common eligible to vote at the Special Meeting. UBK has been advised that
its directors and executive officers intend to vote their shares in favor of the
Merger Agreement and the Merger. Approval of the proposal is therefore assured.
The Merger Agreement provides that, absent certain circumstances (none of which
has occurred), UBK's Board of Directors shall recommend that its shareholders
vote in favor of and approve the Merger and the Merger Agreement at the Special
Meeting. See "THE SPECIAL MEETING -- Record Date and Voting Rights."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of UBK (a) has unanimously approved the Merger
Agreement, (b) has unanimously recommended the approval by shareholders of the
Merger Agreement, (c) believes that the proposed Merger is in the best interests
of UBK's shareholders, and (d) unanimously recommends that UBK's shareholders
vote FOR the approval of the Merger Agreement and the Merger. See "MERGER --
Background of and Reasons for the Merger -- UBK."
APPRAISAL AND DISSENTERS' RIGHTS
Holders of UBK Common are entitled to assert dissenters' rights and
statutory appraisal rights in connection with the Merger in accordance with the
KBCA. 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."
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 UBK shall have
received the opinion of Brown, Todd & Heyburn PLLC 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 UBK who convert their shares
of UBK 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."
COMPARATIVE RIGHTS OF HOLDERS OF SHARES OF UBK COMMON AFTER THE MERGER
The rights of holders of shares of UBK Common currently are governed by the
KBCA, UBK's Articles of Incorporation ("UBK's Articles"), and UBK's By-Laws
("UBK's By-Laws"). At the Effective Time, UBK's common stockholders 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 as amended ("NCC's By-Laws"). See "GENERAL COMPARISON OF NCC AND
UBK CAPITAL STOCK."
8
<PAGE> 13
STOCK MARKET AND DIVIDEND INFORMATION
MARKET PRICES OF AND DIVIDENDS PAID ON NCC COMMON
NCC Common is traded on the NYSE. UBK Common is not publicly traded.
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 "MERGER -- Conditions to the Merger." The information set forth in
the table below presents (a) the closing price for NCC Common on the NYSE on
January 13, 1995, the first business date preceding the public announcement of
the Merger, and on , 1995, (b) the high and low sale prices for
NCC Common on such dates, and (c) the UBK equivalent per share prices as of
January 13, 1995 and , 1995, calculated by multiplying the
closing price of NCC Common on the NYSE on such dates by the Exchange Ratio.
<TABLE>
<CAPTION>
EQUIVALENT
NCC VALUE
COMMON PER SHARE
------------ ------------
<S> <C> <C>
January 13, 1995
Closing Price............ $ 26.375 $ 61.98
High..................... 26.625 62.57
Low...................... 25.875 60.81
, 1995
Closing Price............ $ -- $ --
High..................... -- --
Low...................... -- --
</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
, 1995, the estimated total value of the NCC Common issued in
the Merger would have been $ million.
The following table sets forth, for the periods indicated, the high and low
reported closing sale prices per share of NCC Common on the NYSE and cash
dividends per share of NCC Common.
<TABLE>
<CAPTION>
1993 HIGH LOW DIVIDENDS
----------------------------------------------------------- ------ ------ ---------
<S> <C> <C> <C>
First Quarter............................................ $27.44 $24.31 $0.26
Second Quarter........................................... $28.06 $23.38 $0.26
Third Quarter............................................ $27.25 $24.00 $0.27
Fourth Quarter........................................... $27.00 $23.13 $0.27
1994 HIGH LOW DIVIDENDS
----------------------------------------------------------- ------ ------ ---------
First Quarter............................................ $28.38 $24.00 $0.29
Second Quarter........................................... $29.00 $25.63 $0.29
Third Quarter............................................ $28.38 $26.00 $0.30
Fourth Quarter........................................... $28.13 $23.75 $0.30
1995 HIGH LOW DIVIDENDS
----------------------------------------------------------- ------ ------ ---------
First Quarter............................................ $27.88 $25.25 $0.32
</TABLE>
9
<PAGE> 14
MARKET PRICES OF AND DIVIDENDS PAID ON UBK COMMON
No established public trading market exists for UBK Common, and no
brokerage firm makes a market in UBK Common. Trading in shares of UBK Common has
historically occurred locally in isolated, privately negotiated transactions. In
many instances, UBK has no knowledge of the purchase price or other terms of the
sale. Since January 1, 1993, UBK is aware of the purchase price in certain
transfers of UBK Common negotiated in arm's-length transactions. In the first
quarter of 1993, 198 shares of UBK Common were transferred at a purchase price
of $25.25 per share. In the third quarter of 1993, 270 shares of UBK Common were
transferred for $26.50 per share. In the third quarter of 1994, 2,022 shares
were transferred for a purchase price of $30.00 per share. In the fourth quarter
of 1994, 800 shares of UBK Common were transferred at prices ranging from $29.61
to $30.00 per share. All transactions in UBK Common for which UBK is aware of
the purchase price have been at the approximate book value of UBK Common at the
time of the trade. All other transactions in UBK Common since January 1, 1993,
have been in related-party transactions between family members or between
corporate owners of UBK Common and their shareholders.
Since there is no established public trading market for UBK Common, there
can be no assurance that the price information set forth above is representative
of prices which could be obtained for UBK Common in open market transactions. As
shown above, the high and low closing sales price per share for NCC Common
during the first quarter of 1995 was $27.88 and $25.25, respectively. At these
prices, the equivalent per share prices of the UBK Common during the first
quarter of 1995 (calculated by multiplying the high and low price of NCC Common
during the first quarter of 1995 by the Exchange Ratio) would be $65.52 and
$59.34, respectively.
In the second quarter of 1994, UBK began paying a cash dividend on the UBK
Common of $0.25 per share, and has continued to pay a cash dividend in the same
amount in each calendar quarter through March 31, 1995. The Merger Agreement
limits UBK's ability to pay dividends to a regular $0.25 per share quarterly
dividend on the UBK Common, plus a special $0.50 per share cash dividend on the
UBK Common if the Merger is effected after April 13, 1995.
As of the Record Date of the Special Meeting, UBK had 517,302 shares of
common stock series A outstanding held by approximately 65 shareholders and
538,902 shares of common stock series AA outstanding held by approximately 61
shareholders.
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for (a)
NCC on a historical basis,
(b) UBK on a historical basis, and (c) NCC and UBK on an unaudited condensed
combined consolidated 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 UBK, 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 CONDENSED
COMBINED CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)."
10
<PAGE> 15
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>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED ---------------------------------------------------
MARCH 31, 1995 1994 1993 1992 1991 1990
---------------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
NCC:
Earnings (In millions,
except per share data)
Net interest income......... $ 321 $ 1,237 $ 1,200 $ 1,152 $ 1,131 $ 1,094
Provision for loan losses... 23 79 93 129 251 231
Net income................. 111 429 404 347 237 249
Net income per common
share.................... .72 2.70 2.41 2.09 1.46 1.62
Dividends paid per common
share.................... .32 1.18 1.06 0.94 0.94 0.94
Average Balances (In millions)
Assets..................... $32,290 $30,614 $28,834 $28,635 $29,343 $28,564
Earning assets............. 28,612 27,261 25,745 25,681 26,279 25,663
Deposits................... 24,372 22,835 21,646 21,967 22,474 21,757
Other borrowings........... 4,012 3,954 3,712 3,615 3,978 4,183
Corporate long term debt... 743 712 452 329 318 309
Stockholders' equity....... 2,606 2,619 2,606 2,362 2,156 1,922
UBK:
Earnings (In millions, except per
share data)
Net interest income........ $ 6 $ 21 $ 20 $ 19 $ 18 $ 17
Provision for loan losses.. 0 0 0 2 3 2
Net income................. 1 4 5 4 3 3
Income before cumulative
effect of change in
accounting principle and
extraordinary items per
share.................... $ .92 $ 3.78 $ 4.77 $ 3.60 $ 2.80 $ 2.92
Cumulative effect of change
in accounting for income
taxes per share.......... -- -- .07 -- -- --
Extraordinary credit --
utilization of net
operating loss
carryforward per share... -- -- -- -- .08 .76
Net income per share....... .92 3.78 4.84 3.60 2.88 3.68
Dividends paid per common
share.................... .25 .75 0 0 0 0
Ending balances (In millions)
Assets..................... $ 625 $ 619 $ 485 $ 481 $ 484 $ 490
Earning assets............. 568 561 441 434 438 449
Deposits................... 515 513 419 421 429 433
Other borrowings........... 49 46 16 12 10 10
Corporate long-term debt... 15 14 8 10 10 13
Stockholders' equity....... 41 39 39 34 31 27
</TABLE>
11
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
PRO FORMA NCC:
Earnings (Dollars in millions, except share data)
Net interest income.......................................... $327 $1,260
Provision for loan losses.................................... 23 79
Net income................................................... 111 432
Net income per common share.................................. .71 2.69
Average number of common shares outstanding.................. 151,319,297 155,835,634
Ending balances (Dollars in millions)
Assets....................................................... $33,296
Earning assets............................................... 29,520
Deposits..................................................... 25,198
Other borrowings............................................. 3,984
Corporate long-term debt..................................... 758
Stockholders' equity......................................... 2,741
</TABLE>
COMPARATIVE PER SHARE DATA
Based upon the Exchange Ratio of 2.35 shares of NCC Common for each share
of UBK Common outstanding immediately prior to the Merger, the following table
sets forth per common share book value, market value, cash dividends paid, and
net income of (a) NCC on a historical basis and (b) NCC pro forma adjusted to
give effect to the Merger as if the Merger had been effected for the period
presented. The following information should be read in conjunction with the
historical financial statements of NCC 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>
UBK
NCC -----------------------
----------------------- EQUIVALENT
PER COMMON SHARE HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------------------------------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Book value:
March 31, 1995..................... $16.97 $ 17.14 $30.60 $ 40.28
December 31, 1994.................. 16.36 16.53 29.08 38.85
Market value:
March 31, 1995..................... 26.63 26.63 n/a 62.58
December 31, 1994.................. 25.88 25.88 n/a 60.82
Cash dividends paid:
Three months ended March 31,
1995............................. .32 .32 .25 .75
Year ended December 31, 1994....... 1.18 1.18 .75 2.77
Net income:
Three months ended March 31,
1995............................. .72 .71 .73 1.67
Year ended December 31, 1994....... 2.70 2.69 3.11 6.32
</TABLE>
INTEREST OF MANAGEMENT IN THE MERGER
NCC has agreed to certain arrangements relating to indemnification of
officers and directors of UBK. See "MERGER -- Interest of Management in the
Merger."
12
<PAGE> 17
THE SPECIAL MEETING
This Proxy Statement is being furnished to the shareholders of UBK in
connection with the solicitation of proxies by the Board of Directors of UBK for
its Special Meeting of shareholders and at any adjournment or adjournments
thereof. The Special Meeting of shareholders of UBK will be held on
, 1995, at the offices of UBK at 250 West Main Street, Suite
3100, Lexington, KY 40507, commencing at p.m., Lexington, KY time.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of UBK has fixed the close of business on
, 1995 as the record date for determination of shareholders
entitled to notice of and to vote at the Special Meeting of shareholders of UBK.
As of the Record Date, UBK had outstanding and entitled to vote 517,302 shares
of common stock series A and 538,902 shares of common stock series AA. Holders
of UBK common stock series A are entitled to 100 votes per share and holders of
UBK common stock series AA are entitled to one vote per share. A majority of the
votes of the outstanding UBK Common is required to approve the Merger Agreement
and the Merger under the KBCA.
VOTING AND REVOCATION OF PROXIES
Proxies for use at the Special Meeting of the shareholders of UBK 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 UBK 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 UBK Common represented by proxy will be voted
FOR the Merger Agreement and the Merger and for the other matters to be acted
upon at the Special Meeting. Because a majority of all the votes represented by
the outstanding UBK 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.
UBK 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. Officers and regular employees of UBK or
its subsidiaries, acting on behalf of UBK may solicit proxies personally or by
telephone or wire. UBK does not expect to pay any compensation for the
solicitation of proxies.
The Board of Directors of UBK 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 Special Meeting 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.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table, with accompanying footnotes, sets forth the persons
known by UBK to own beneficially (as determined in accordance with the rules and
regulations of the Securities and Exchange Commission (the "Commission")) more
than five percent of each series of the UBK Common outstanding as of the Record
Date.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
--------------------------------------------------- ------------ --------
<S> <C> <C>
James L. and Judy S. Rose 884,050(2) 83.70%(2)
3180 Pepperhill Road
Lexington, Kentucky 40502
</TABLE>
13
<PAGE> 18
The following table sets forth the amount and percent of UBK Common owned
beneficially (as determined in accordance with the rules and regulations of the
Commission) as of the Record Date, by all directors and executive officers of
the UBK as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OWNED BENEFICIALLY
BY DIRECTORS AND EXECUTIVE OFFICERS PERCENT
AS A GROUP (8 PERSONS)(1)(3) OF CLASS
----------------------------------- --------
<S> <C>
886,570 shares 83.94%
<FN>
---------------
(1) For purposes of this Proxy Statement, in accordance with Rule 13d-3 under
the Exchange Act, a person is deemed to be the beneficial owner of any
shares of UBK Common if he or she has or shares voting or investment power
with respect to such security.
(2) James L. Rose individually owns 277,224 shares, or 53.59%, of UBK common
stock series A, and 294,024 shares, or 54.56%, of UBK common stock series
AA. Judy S. Rose individually owns 156,401 shares, or 30.23%, of UBK common
stock series A, and 156,401 shares, or 29.02%, of UBK common stock series
AA. Each of Mr. Rose and Mrs. Rose exercise sole voting and investment power
over the UBK Common registered in their respective names.
(3) In addition to the shares set forth in Note 2 above, directors and executive
officers of UBK as a group own 1,260 shares, or 0.24%, of UBK common stock
series A and 1,260 shares, or 0.23%, of UBK common stock series AA. Each
director or executive officer exercises sole voting and investment power
over the UBK Common registered in their names.
</TABLE>
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 which is attached as Appendix A to this Prospectus and Proxy Statement
and is incorporated herein by reference. Shareholders of UBK are urged to read
the Merger Agreement in its entirety.
BACKGROUND OF AND REASONS FOR THE MERGER -- UBK
Since the passage of legislation during the last ten years permitting bank
holding companies to operate in more than one state, both the Kentucky banking
market and the United States banking industry as a whole have undergone
accelerated consolidation, a trend UBK's management expects to continue. Along
with consolidation, the banking industry in the United States and in Kentucky
has become more competitive, with financial institutions offering new and
innovative products to its customers. Due to the advances in technology and
computer systems, financial institutions have been able to offer increased
services to their customers as well.
In light of the recent and expected changes in the banking industry,
management of UBK has, from time to time, analyzed various strategic options for
continuing the success of UBK as a banking organization and for increasing
shareholder value. Management identified three potentially viable courses of
action to achieve these goals. In no particular order, these courses were: (i)
continuing to remain independent while generating capital internally to fund
growth through small acquisitions of unrelated financial institutions in Central
and Southeastern Kentucky; (ii) initiating a public offering of UBK common stock
to raise capital to fund an aggressive growth strategy, again focusing on
unrelated financial institutions in Central and Southeast Kentucky; and (iii) a
merger with a publicly-traded bank holding company substantially larger than
UBK.
Like other financial institutions of comparable asset size in the current
environment, UBK has been contacted from time to time in recent years by
directors and officers of larger regional financial institutions who informally
expressed interest in a possible affiliation with UBK. UBK also explored the
possibility of a public offering of its stock as a means of raising capital to
fund aggressive growth through the acquisition of other financial institutions
located in smaller markets in Central and Southeastern Kentucky.
After considering these options, management decided that UBK's best course
of action was to continue to remain independent while generating capital
internally to fund its growth. To this end, UBK's focus sharpened on
14
<PAGE> 19
the primary goal of maintaining an acceptable return for its shareholders by
reducing expenses through increased operational efficiency. Increased
operational efficiency was seen by management as vital to keeping UBK
competitive in the changing banking industry. To achieve this goal, UBK
considered, among other things, the consolidation of one or more of its banking
subsidiaries which would have reflected, on a much smaller scale, developments
in the banking industry as a whole.
In November 1994, James L. Rose, the Chairman and President of UBK, and the
beneficial owner of approximately 84% of the outstanding shares of UBK Common,
met with Leonard V. Hardin, the President of National City Bank, Kentucky, on a
business matter unrelated to UBK. During the course of the conversation, Mr.
Hardin expressed an interest in the UBK organization and indicated that NCC
would be interested in discussing an affiliation of the two organizations. At
Mr. Hardin's request, he was provided with certain basic financial information
concerning UBK. During the next six weeks or so, Mr. Rose had several informal
discussions with Mr. Hardin and Morton Boyd, the Chairman of National City Bank,
Kentucky, and an Executive Vice-President of NCC, concerning a possible
affiliation of UBK and NCC.
On December 23, 1994, Mr. Rose received a proposal from NCC providing that
the UBK Common owned by the controlling shareholders of UBK would be exchanged
for NCC Common in a tax-free transaction, while the remaining minority holders
of UBK Common would receive cash in a taxable merger transaction. At Mr. Rose's
request, the proposal was restructured to give all holders of UBK Common the
opportunity to exchange each share of UBK Common for 2.35 shares of NCC Common
in a tax-free transaction.
From January 2, 1995, to January 12, 1995, UBK's management and legal
advisors negotiated the terms of a definitive merger agreement with senior
officers of NCC. At its January 12, 1995 meeting, UBK's Board of Directors
reviewed the Merger Agreement with its legal advisors and unanimously approved
the Merger Agreement and the transactions contemplated thereby.
The terms of the Merger and the Merger Agreement, including the Exchange
Ratio, were the result of arm's-length negotiations between UBK and NCC. In the
course of reaching its decision to approve the Merger Agreement, the Board of
Directors and management of UBK considered numerous factors, including but not
limited to the following, which were not assigned any relative or specific
weight:
1. The financial terms of the Merger. The Board of Directors of UBK
determined that the Exchange Ratio of 2.35 shares of NCC Common for each share
of UBK Common (based on a recent closing price of NCC Common on the NYSE)
indicated a per share value on the UBK Common of approximately 19 times
estimated 1994 earnings per share and approximately twice its book value per
share and was, therefore, acceptable.
2. The effect on shareholder value of UBK continuing as an independent
entity compared to the effect of the Merger with NCC. In this regard, the Board
believed that UBK's present course of asset growth generated by internal growth
and small acquisitions would not be as likely to provide the same value to
shareholders as the Merger, especially in light of increased competition in the
banking industry. The Board also noted that the UBK Common was not publicly
traded and had only recently begun paying a quarterly cash dividend, while the
NCC Common was publicly traded on the NYSE and paid a cash dividend
substantially in excess of the dividend paid on the UBK Common. Thus, with the
NCC Common to be received in the Merger, UBK common shareholders will gain
liquidity in their investment and substantially increased dividend income, in
addition to the long-term capital appreciation opportunities with the NCC
Common.
3. The terms and structure of the Merger. The Board considered in
particular the terms and conditions of the Merger Agreement and the fact that
the Merger would be tax-free to UBK shareholders.
4. Financial information and other information about NCC. In this regard,
the Board evaluated historical financial and operational information concerning
NCC contained in public filings made by NCC as well as certain other publicly
available information with respect to NCC and its future prospects. The Board
also regarded the banking and business philosophies of NCC and UBK to be
compatible.
5. The likelihood that the Merger would provide the employees of UBK and
its subsidiaries opportunities in a larger organization that are not currently
available to them.
15
<PAGE> 20
6. The impact generally of the Merger on the customers, communities and
other constituencies served by UBK. The Board of Directors considered that the
Merger would enable UBK to offer its customers a greater variety of banking
products and services than it could as an independent entity.
7. Industry conditions generally. The Board considered the probability of
nationwide interstate banking, the continued erosion of traditional geographic
and industry lines, and the likelihood of further consolidation and competition
in the banking industry.
Based on these matters, and such other matters as members of the Board
deemed relevant, the UBK Board of Directors has unanimously approved the Merger
Agreement as being in the best interests of UBK, its shareholders, employees and
customers, and the communities served by UBK.
IN VIEW OF ALL THE CONSIDERATIONS DESCRIBED ABOVE, THE BOARD OF DIRECTORS
OF UBK UNANIMOUSLY RECOMMENDS THAT UBK 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 Kentucky by acquiring First Kentucky
National Corporation, now known as National City Bank, Kentucky, in 1988, NCC
has sought to enhance its Kentucky network through internal growth and select
acquisitions. UBK was an attractive candidate, offering an opportunity to fill
in gaps in NCC's Kentucky franchise and expand its presence in the Lexington,
Kentucky market.
Conversations among senior members of both organizations related to a
possible transaction started in early November, 1994 and progressed to an
exchange of information. Initial analysis revealed that a transaction may be
feasible and beneficial to both parties. Discussions of possible financial terms
and conditions, all contingent upon a thorough "due diligence", proceeded in
December, 1994 and January, 1995. Preliminary terms and conditions were agreed
upon in January and resulted in due diligence being performed in late January,
1995. Due diligence did not reveal any significant issues.
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 UBK as determined from
the business review conducted by NCC management; (b) the terms of the Merger
Agreement; and (c) regulatory approval requirements.
NCC believes that the affiliation of UBK with NCC and the acquisition of
its subsidiary banks and thrift will enhance NCC's presence in southeast
Kentucky and the Lexington area 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 UBK into NCC within eight 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 UBK standing alone.
The realization of anticipated cost savings, coupled with revenue enhancements
at UBK, 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 UBK and
NCC will occur in such period or at any time in the future. It is anticipated
that UBK's commercial banks will be merged with National City Bank, Kentucky
("NCB") at such time as their operations are integrated with NCB.
16
<PAGE> 21
TERMS OF THE MERGER
The Merger Agreement provides for the merger of UBK with and into NCC. Upon
consummation of the Merger, (a) the separate corporate existence of UBK 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 property owned by UBK will be vested in NCC,
and all proceedings, rights of creditors against and any liens upon the property
of UBK will become the obligations of NCC.
CONVERSION OF SHARES OF UBK COMMON
Conversion of Shares of UBK Common. At the Effective Time, (a) each then
outstanding share of UBK Common not owned by NCC or any direct or indirect
wholly owned subsidiary of NCC (except any such shares of UBK 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 UBK Common held in the treasury of UBK, will be cancelled,
retired and converted into the right to receive 2.35 shares of NCC Common; (b)
each then outstanding share of UBK 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 UBK
Common issued and held in UBK's treasury will be cancelled and retired. If
between January 12, 1995 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 or to any
other rights of stockholders of NCC. In lieu thereof, each holder of UBK 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 10 consecutive trading
days ending at the date of the Special Meeting.
Manner of Exchanging UBK Certificates for NCC Certificates. NCC has
designated NCB to act as exchange agent (the "Exchange 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 UBK 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 2.35 shares
of NCC Common for each share of UBK 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.
17
<PAGE> 22
CERTIFICATES FOR SHARES OF UBK COMMON SHOULD NOT BE FORWARDED TO THE
EXCHANGE AGENT UNTIL A UBK 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
2.35 shares of NCC Common, multiplied by the number of shares of UBK Common
evidenced by such Certificate, together with any dividends or other
distributions as provided in "Distribution with Respect to 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 UBK shall be liable to any holder of shares of UBK
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 UBK 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 UBK on UBK 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 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 UBK shareholder who has lost or misplaced a
Certificate for any of his or her shares of UBK Common should immediately call
UBK (telephone number: (606) 259-4100) 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 UBK
shareholder will be unable to properly submit the transmittal letter.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations. The respective obligations of each
of NCC and UBK to effect the Merger are subject to the fulfillment or waiver of
certain conditions, including, but not limited to, the following conditions:
(a) The Merger shall have been approved and adopted by the holders of
the UBK Common;
(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, 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
18
<PAGE> 23
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 UBK, 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) Brown, Todd & Heyburn PLLC, counsel to UBK, shall have delivered
to UBK 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 UBK's Obligations. The obligation of UBK 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; and
(c) UBK shall have received all officers' certificates of NCC required
by the Merger Agreement.
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) UBK 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 UBK 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) NCC shall have received all officers' certificates of UBK required
by the Merger Agreement;
(d) NCC shall have received all certificates of Principal Shareholder
required by the Merger Agreement; and
(e) NCC and its directors and officers who sign the Registration
Statement shall have received from KPMG Peat Marwick LLP, UBK's independent
certified public accountants, the comfort letter 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
19
<PAGE> 24
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 thirteenth day (15th day under certain
circumstances) 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 UBK) prepared an application for the FRB
approval of the Merger, which was accepted for filing on April 10, 1995. It is
anticipated that the FRB approval of the merger will be received on or about
June 9, 1995.
NCC and UBK 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 UBK approve the Merger Agreement and the Merger by
the requisite affirmative votes. See "MERGER -- Regulatory Approvals" and "THE
SPECIAL MEETING -- Record Date and Voting Rights."
Amendment. Subject to the applicable provisions of the DGCL and the KBCA,
the Merger Agreement may be amended or supplemented upon the written agreement
of NCC and UBK 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 UBK
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 UBK;
(b) by either NCC or UBK if the Merger shall not have been consummated
on or before June 29, 1995 or if the Merger Agreement is not approved by
the UBK shareholders at UBK's Special Meeting (provided the terminating
party is not otherwise in material breach of its obligations under the
Merger Agreement);
(c) by UBK if any of the conditions to UBK's obligation to consummate
the Merger have not been met or waived by UBK 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 UBK's
Obligations"; or
(d) by 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".
20
<PAGE> 25
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 $ million in the aggregate.
(b) If UBK's shareholders fail to approve the Merger due to the fact that
the UBK's board of directors fails to recommend that the shareholders vote in
favor of the Merger in reliance upon an opinion of counsel that to do so would
be a breach of their fiduciary duties or if the Principal Shareholder fails to
vote in favor of the Merger in reliance upon an opinion of counsel that to do so
would be a breach of his fiduciary duties, then UBK will have to pay NCC $4.5
million.
Assignment. Without the prior written consent of the other parties to the
Agreement, neither NCC nor UBK 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 UBK 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 KBCA (the "Articles of Merger") to
be filed with the Secretary of State of the Commonwealth of Kentucky,
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 Kentucky or (b) such later date as is specified in such filings
(the "Effective Time"). NCC and UBK currently anticipate that the Merger will be
completed late in the second calendar quarter of 1995 or early in the third
calendar quarter of 1995. In the event the Merger is not consummated on or
before June 29, 1995, either NCC or UBK may terminate the Merger Agreement. See
"MERGER -- Waiver; Amendment; Termination -- Termination."
CONDUCT OF UBK'S BUSINESS PENDING THE MERGER
General. The Merger Agreement requires that from January 12, 1995 to the
Effective Time, UBK 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. UBK has covenanted to use reasonable efforts to
preserve intact the business organization of UBK 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 UBK or its subsidiaries. In addition, the Merger Agreement restricts UBK
and its subsidiaries from engaging in certain transactions during the interim
period from January 12, 1995 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 UBK 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 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) 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 UBK Common in an amount not to exceed $.25
per share of UBK Common (the parties agreeing that they will cooperate so that
there will not be any duplication or omission of a dividend payment to UBK
shareholders during any quarter); (ii) a one-time special dividend of $0.50 per
share if the Effective Date is after April 13, 1995; (iii) regular cash
dividends on UBK's preferred stock in accordance with the terms of UBK's
preferred stock; and (iv) dividends paid by any UBK subsidiary to another UBK
subsidiary or UBK with respect to its capital stock between January 12, 1995 and
the
21
<PAGE> 26
Effective Time; (e) adopting or amending (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, 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 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 UBK 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 UBK shall not be required to modify or change any such policies or
practices until after the FRB has approved the Merger. UBK'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. UBK does not currently anticipate that such
changes or modifications, assuming the Merger is consummated during the second
or third calendar quarter of 1995, will in the aggregate result in any material
change in the valuation of UBK's assets.
Acquisition Proposals. The Merger Agreement provides that each of the
Principal Shareholder, UBK and UBK's 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, UBK or any of its subsidiaries (each
such transaction an "Acquisition Event") or (b) except to the extent that the
Board of Directors of UBK is required, in a written opinion of counsel to UBK's
board of directors, 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 or entity any information with respect to, an
Acquisition Event. UBK 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. UBK 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, UBK.
Redemption of Preferred Stock. In accordance with the Merger Agreement, UBK
anticipates that it will call for redemption all of its outstanding Preferred
Stock A, Preferred Stock AA and Preferred Stock D. The notice of redemption will
state that all outstanding shares of preferred stock will be redeemed
simultaneously with the Merger at the Effective Time.
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 UBK's employee plans or agreements.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides that, from and after the Effective Time, NCC
will assume and honor any obligation of UBK immediately prior to the Effective
Time with respect to the indemnification of each person who was on January 12,
1995, or has been at any time prior to January 12, 1995, or who becomes prior to
the Effective Time, a director or officer of UBK or any of its subsidiaries or
was serving at the request of UBK 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 UBK's Articles or
UBK's By-Laws or any
22
<PAGE> 27
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 UBK or any of its
subsidiaries. Following the Effective Time, NCB will provide UBK and UBK
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 UBK have received
the opinion of Brown, Todd & Heyburn PLLC 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 UBK and NCC
(including, among others, representations that (a) to the best knowledge of UBK,
there is no agreement or plan on the part of the shareholders of UBK 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 UBK after the Merger, 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 UBK as a result of
the Merger;
(ii) no gain or loss will be recognized by shareholders of UBK who
exchange their shares of UBK 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); and
(iii) the tax basis of shares of NCC Common received by shareholders
of UBK who exchange all of their shares of UBK Common solely for shares of
NCC Common in the Merger will be the same as the tax basis of the shares of
UBK Common surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT
LAW. EACH UBK 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.
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
UBK 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 UBK'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 CONDENSED COMBINED
CONSOLIDATED FINANCIAL INFORMATION."
RESALES BY AFFILIATES
The shares of NCC Common issued to UBK 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 UBK who may be deemed to be "affiliates" of UBK, as that term is used in
paragraphs (c) and (d) of Rule 145 promulgated under the 1933 Act. NCC Common
received and beneficially owned by those UBK shareholders who are deemed to be
UBK Affiliates may be resold without registration as provided for by Rule 145
under the 1933 Act, or as otherwise permitted. Each UBK Affiliate who desires to
resell the NCC Common received in the Merger must sell such NCC Common either
(i) pursuant to an effective registration statement under the 1933 Act, (ii) in
accordance with the applicable provisions of Rule 145 under the
23
<PAGE> 28
1933 Act, or (iii) in a transaction that is otherwise exempt from the
registration requirements of the 1933 Act. Rule 145(d) requires that persons
deemed to be UBK Affiliates resell their NCC Common pursuant to certain of the
requirements of Rule 144 under the 1933 Act if such NCC Common is sold within
the first two years after the receipt thereof. After two years, if such person
is not a person who, directly or indirectly, controls, is controlled by, or is
under common control with NCC (an "NCC Affiliate") and NCC is current in the
filing of its periodic securities law reports, a former UBK Affiliate may freely
resell the NCC Common received in the Merger without limitation. After three
years from the issuance of the NCC Common, if such person is not an NCC
Affiliate at the time of sale or for at least three months prior to such sale,
such person may freely resell such NCC Common, without limitation, regardless of
the status of NCC's periodic securities law reports.
APPRAISAL AND DISSENTERS' RIGHTS
NCC. Because NCC Common is listed on the NYSE and is held of record by
more than 20,000 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.
UBK. The following is not a complete statement of the law pertaining to the
rights of dissenting shareholders and is qualified in its entirety by reference
to the full text of Subtitle 13, Chapter 271B of the Kentucky Revised Statutes
(KRS 271B.13-010 to .13-310), which is reprinted in its entirety as Appendix C
to this Prospectus-Proxy Statement.
Under Kentucky law, any shareholder of UBK may dissent from the Merger and
receive in cash the fair value of his or her shares of UBK Common immediately
before consummation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger unless such exclusion would be inequitable. The right
to dissent and receive such fair value requires that the exact procedure
specified by Kentucky law be followed.
Shareholders who wish to assert dissenter's rights (i) must deliver to UBK,
before the vote is taken at the Special Meeting, written notice of their intent
to demand payment for their shares if the Merger occurs; and (ii) must not vote
their shares in favor of the Merger. Shareholders who do not satisfy these
requirements are not entitled to rights to demand payment for their UBK Common.
The delivery of a written demand must be in addition to and separate from any
vote against the Merger by the shareholder. A vote against the Merger Agreement
will not itself satisfy the notice requirements of the Kentucky dissenters'
rights statute. A shareholder who submits a signed and unmarked proxy form will
be considered to have voted in favor of the Merger, which will constitute a
waiver of the dissenters' rights of the shareholder.
If the Merger is approved by the shareholders at the Special Meeting, then,
no later than ten days after such approval, UBK must deliver a written notice
("Notice") to all shareholders who dissented in compliance with Kentucky law.
The Notice must set forth, among other things, a date by which shareholders must
demand payment, which date may not be fewer than 30, nor more than 60, days
after the date of the Notice. Shareholders who receive the Notice must demand
payment, certify whether they acquired beneficial ownership of the shares before
January 16, 1995 (the date of the first public announcement regarding the
Merger), and deposit their certificates in accordance with the terms of the
Notice. Shareholders who do not demand payment or deposit their certificates by
the date set in the Notice will not be entitled to receive payment for their
shares as a dissenter.
Upon consummation of the Merger or upon receipt of a payment demand, the
surviving corporation in the Merger (the "Surviving Corporation") must pay each
shareholder who dissented in compliance with Kentucky law and who was the
beneficial owner of the shares before January 16, 1995, the estimated fair value
of the dissenter's shares. Payment must be accompanied by certain financial
information about UBK and certain statements apprising such shareholders of the
estimate of the fair value of the shares and their rights as "dissenters" under
Kentucky law.
A dissenter may notify the Surviving Corporation of the dissenter's own
estimate of the fair value of the dissenter's shares and demand payment of the
dissenter's estimate, if: (i) the dissenter believes the amount paid or offered
is less than the fair value of the dissenter's shares, (ii) the Surviving
Corporation fails to make payment within 60 days after the date set for
demanding payment, or (iii) UBK, having failed to effect the Merger, does
24
<PAGE> 29
not return the deposited certificates within 60 days after the date set for
demanding payment. A dissenter waives the right to demand payment unless he
notifies the Surviving Corporation of his demand in writing within 30 days after
payment is made for the dissenter's shares.
A procedure similar to that discussed above applies to shareholders who
acquired beneficial ownership of UBK Common on or after January 16, 1995. The
primary difference is that the Surviving Corporation may withhold payment on
these after-acquired shares to the dissenter until a price has been agreed upon
or determined by the court.
If a demand for payment remains unsettled, the Surviving Corporation must
commence a proceeding within 60 days after receiving the payment demand and
petition the Circuit Court of Fayette County, Kentucky, to determine the fair
value of the shares. If the proceeding is not commenced within the 60-day
period, each dissenter whose demand remains unsettled must be paid the amount
demanded. The Court may appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. In any
appraisal proceeding, the Court must determine all costs of the proceeding,
including reasonable compensation and expenses of appraisers appointed by the
Court, which generally will be assessed against the Surviving Corporation.
However, the Court can assess costs against the parties in such amounts as the
Court finds equitable.
25
<PAGE> 30
PRO FORMA CONDENSED COMBINED
CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited financial information on the following pages presents (a) the
historical condensed consolidated balance sheets of both NCC and UBK at March
31, 1995 and the pro forma condensed combined consolidated balance sheet as of
March 31, 1995, giving effect to the Merger as if it had occurred on that date;
and (b) the historical condensed consolidated statements of income of both NCC
and UBK and the pro forma condensed combined consolidated statements of income
for the three months ended March 31, 1995 and the year ended December 31, 1994,
giving effect to the Merger as if it had occurred at January 1, 1994.
The financial information assumes all of the outstanding shares of UBK
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 UBK 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.
26
<PAGE> 31
<TABLE>
NCC
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1995
(UNAUDITED)
<CAPTION>
PRO FORMA NCC
Dollars in Thousands NCC UBK ADJUSTMENTS PRO FORMA
----------- -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Total loans.............................. $24,045,037 $416,531 $(3,511) $24,458,057
Allowance for loan losses................ (474,838) (4,144) (478,982)
----------- -------- ----------- -----------
Net loans............................. 23,570,199 412,387 (3,511) 23,979,075
Securities............................... 4,471,621 145,415 (5,907) 4,611,129
Federal funds sold and security resale
agreements............................ 445,115 5,825 450,940
Cash and other money market
instruments........................... 2,155,854 26,486 (10,411) 2,171,929
Properties and equipment, net............ 393,352 20,372 (1,374) 412,350
Other assets............................. 1,604,881 15,009 50,800 1,670,690
----------- -------- ----------- -----------
TOTAL ASSETS........................ $32,641,022 $625,494 $29,597 $33,296,113
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Interest bearing deposits................ $19,927,571 $443,112 $20,370,683
Noninterest bearing deposits............. 4,755,404 71,615 4,827,019
----------- -------- ----------- -----------
Total deposits........................ 24,682,975 514,727 25,197,702
Federal funds borrowed and security
repurchase agreements................. 2,540,191 17,003 2,557,194
Borrowed funds........................... 1,393,130 32,048 $ 1,500 1,426,678
Accrued expenses and other liabilities... 607,456 6,147 2,064 615,667
Corporate long term debt................. 743,390 14,586 757,976
----------- -------- ----------- -----------
TOTAL LIABILITIES................... 29,967,142 584,511 3,564 30,555,217
STOCKHOLDERS' EQUITY
Preferred stock.......................... 186,040 8,661 (8,661) 186,040
Common stock............................. 586,284 10,562 (634) 596,212
Capital surplus.......................... 136,239 1,467 55,621 193,327
Retained earnings........................ 1,770,995 20,293 (20,293) 1,770,995
Unallocated shares held by ESOP.......... (5,678) -- -- (5,678)
----------- -------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY.......... 2,673,880 40,983 26,033 2,740,896
----------- -------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................... $32,641,022 $625,494 $29,597 $33,296,113
========== ======== ========== ==========
<FN>
See notes to pro forma condensed combined consolidated financial statements.
</TABLE>
27
<PAGE> 32
NCC
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Dollars in Thousands, except per share PRO FORMA NCC
amounts NCC UBK ADJUSTMENTS PRO FORMA
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans................................... $511,878 $ 9,527 $521,405
Securities.............................. 67,215 2,064 $ (24) 69,255
Other................................... 9,340 60 9,400
----------- --------- ----------- -----------
Total interest income.............. 588,433 11,651 (24) 600,060
INTEREST EXPENSE
Deposits................................ 204,617 4,526 209,143
Other borrowings........................ 49,184 665 49,849
Corporate long-term debt................ 13,375 313 13,688
----------- --------- ----------- -----------
Total interest expense............. 267,176 5,504 272,680
----------- --------- ----------- -----------
Net interest income................ 321,257 6,147 (24) 327,380
Provision for loan losses................. 22,590 90 22,680
----------- --------- ----------- -----------
Net interest income after provision
for loan losses................. 298,667 6,057 (24) 304,700
NONINTEREST INCOME
Item processing revenues................ 75,726 -- 75,726
Trust fees.............................. 33,455 -- 33,455
Service charges on deposits............. 38,133 547 38,680
Credit card fees........................ 17,162 -- 17,162
Mortgage banking revenues............... 20,358 -- 20,358
Other................................... 23,025 349 23,374
----------- --------- ----------- -----------
Fees and other income................ 207,859 896 208,755
Security gains.......................... 1,396 -- 1,396
----------- --------- ----------- -----------
Total noninterest income........... 209,255 896 210,151
NONINTEREST EXPENSE
Salaries and employee benefits.......... 164,385 2,742 167,127
Net occupancy........................... 22,891 515 23,406
Equipment............................... 23,847 428 24,275
Other................................... 136,281 1,769 583 138,633
----------- --------- ----------- -----------
Total noninterest expense.......... 347,404 5,454 583 353,441
----------- --------- ----------- -----------
Income before income taxes.............. 160,518 1,499 (607) 161,410
Income tax expense...................... 49,487 531 (8) 50,010
----------- --------- ----------- -----------
NET INCOME........................... $111,031 $ 968 $(599) $111,400
========== ======== ========== ==========
NET INCOME APPLICABLE TO COMMON
STOCK.............................. $107,311 $ 766 $(599) $107,478
========== ======== ========== ==========
NET INCOME PER COMMON SHARE -- PRIMARY.... $.72 $ .73 $.71
========== ======== ==========
AVERAGE COMMON SHARES OUTSTANDING......... 148,837,218 1,056,204 151,319,297
========== ======== ==========
</TABLE>
See notes to pro forma condensed combined consolidated financial statements.
28
<PAGE> 33
NCC
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Dollars in Thousands, except per share PRO FORMA NCC
amounts NCC UBK CORBIN & HARLAN ADJUSTMENTS PRO FORMA
----------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans................................. $1,765,898 $ 29,349 $ 3,221 $1,798,468
Securities............................ 244,548 6,013 866 $ (96) 251,331
Other................................. 31,418 668 44 32,130
----------- --------- ------- ----------- -----------
Total interest income............... 2,041,864 36,030 4,131 (96) 2,081,929
INTEREST EXPENSE
Deposits.............................. 592,870 12,937 1,507 607,314
Other borrowings...................... 162,947 1,352 44 164,343
Corporate long-term debt.............. 49,238 661 49,899
----------- --------- ------- ----------- -----------
Total interest expense.............. 805,055 14,950 1,551 821,556
----------- --------- ------- ----------- -----------
Net interest income................. 1,236,809 21,080 2,580 (96) 1,260,373
Provision for loan losses............... 79,356 30 111 79,497
----------- --------- ------- ----------- -----------
Net interest income after provision
for loan losses................... 1,157,453 21,050 2,469 (96) 1,180,876
NONINTEREST INCOME
Item processing revenues.............. 312,358 312,358
Trust fees............................ 125,668 125,668
Service charges on deposits........... 153,870 2,229 184 156,283
Credit card fees...................... 85,308 85,308
Mortgage banking revenues............. 67,406 67,406
Other................................. 108,228 1,498 97 109,823
----------- --------- ------- ----------- -----------
Fees and other income............... 852,838 3,727 281 856,846
Security gains........................ 10,530 479 -- 11,009
----------- --------- ------- ----------- -----------
Total noninterest income............ 863,368 4,206 281 867,855
NONINTEREST EXPENSE
Salaries and employee benefits........ 653,890 9,935 972 664,797
Net occupancy......................... 89,994 1,890 156 92,040
Equipment............................. 93,345 1,547 139 95,031
Other................................. 565,904 5,889 633 2,331 574,757
----------- --------- ------- ----------- -----------
Total noninterest expense........... 1,403,133 19,261 1,900 2,331 1,426,625
----------- --------- ------- ----------- -----------
Income before income taxes............ 617,688 5,995 850 (2,427) 622,106
Income tax expense.................... 188,254 1,994 295 (34) 190,509
----------- --------- ------- ----------- -----------
NET INCOME.......................... $ 429,434 $ 4,001 $ 555 $(2,393) $ 431,597
============ ========= ================ ============ ============
NET INCOME APPLICABLE TO COMMON
STOCK............................. $ 414,234 $ 3,288 $ 555 $(2,393) $ 415,684
============ ========= ================ ============ ============
NET INCOME PER COMMON SHARE - PRIMARY... $2.70 $3.11 $2.69
============ ========= ============
AVERAGE COMMON SHARES
OUTSTANDING........................... 153,353,555 1,056,204 155,835,634
============ ========= ============
</TABLE>
---------------
See notes to pro forma condensed combined consolidated financial statements.
29
<PAGE> 34
NCC
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) In October 1994, UBK acquired 82% of the outstanding shares of American
Fidelity Bank & Trust Company ("Corbin") of Corbin, Kentucky. In November 1994,
UBK acquired American Fidelity Bank, FSB ("Harlan") of Harlan, Kentucky. For
purposes of preparing a pro forma condensed combined consolidated statement of
income for the year ended December 31, 1994, the results of Harlan and Corbin
for the period prior to acquisition have been added to NCC and UBK. The pro
forma results of operations for the three months ended March 31, 1995 do not
show a separate Harlan or Corbin contribution as these entities are included in
UBK for that period.
(2) The following is an explanation of the pro forma accounting adjustments
included in the March 31, 1995 pro forma balance sheet:
- The UBK balance sheet is recorded at fair value as required under APB
Opinion No. 16. As such, securities, loans and other long term assets and
liabilities 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 acquisitions of Harlan and Corbin by UBK were completed in late 1994,
and as such the accounts of Harlan & Corbin are already included in UBK
at March 31, 1995.
- Expenses of the transaction totalling $2.1 million have been accrued in
the pro forma balance sheet.
- The UBK common stock and retained earnings have been eliminated in the
pro forma balance sheet.
(3) The following is the calculation of payment for the acquisition of UBK
by NCC. The calculation assumes a market value for NCC common stock of $27.00
per share. The actual transaction value will be determined at the date of
closing.
<TABLE>
<S> <C>
UBK common shares outstanding................................... 1,056,204
Exchange Ratio.................................................. 2.35
-----------
NCC shares to be issued....................................... 2,482,079
Estimated market value of stock................................. $ 27.00
-----------
$67,016,133
Redeem Preferred Stock @ par -- Cash............................ 8,661,000
Acquire outstanding minority interest in Corbin for cash........ 1,750,000
-----------
Total acquisition price....................................... $77,427,133
==========
</TABLE>
(4) 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, 1994. These
adjustments are not materially different from the adjustments that would arise
based upon a March 31, 1995 acquisition date.
30
<PAGE> 35
MANAGEMENT AFTER THE MERGER
Following the Merger, the directors and officers of NCC will continue as
the directors and officers of NCC. It is anticipated that the Principal
Shareholder will be elected to the Board of Directors of NCB.
INFORMATION ABOUT NCC
At March 31, 1995, NCC was the third largest bank holding company
headquartered in the State of Ohio and approximately the 28th 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 March 31, 1995, NCC, through these
banks, operated 615 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, 20,315 full-time equivalent employees at March 31, 1995.
As of December 31, 1994, 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).......... 97 $9,468 $5,721 $6,762 $ 569
National City Bank, Columbus............ 125 5,947 4,205 4,509 381
National City Bank, Indiana............. 125 5,176 3,709 3,964 371
National City Bank, Kentucky............ 90 6,398 4,127 4,288 475
</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, 1994, which is
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
INFORMATION ABOUT UBK
UBK was organized in December 1982, as a one-bank holding company under the
name "Manchester Bancorp, Inc." through an exchange of stock with the common
stockholders of The First State Bank and Trust Company of Manchester, Kentucky.
In November 1984, after the passage of Kentucky's multi-bank holding company
law, three one-bank holding companies controlled by James L. Rose (the Chairman
of the Board, President and principal shareholder of UBK), which holding
companies owned banks in London, Danville and Nicholasville, were merged with
and into Manchester Bancorp, Inc. which, upon consummation of the merger,
changed its name to United Bancorp of Kentucky, Inc.
After this merger, UBK continued to expand its organization by acquiring
additional banks. In August 1985, UBK acquired Richmond Bank and Trust Company
in Richmond, Kentucky. In November 1985, UBK acquired The Old Bank in
Perryville, Kentucky, which was then merged into UBK's subsidiary bank located
in Danville, Kentucky. In March 1986, UBK acquired The First National Bank &
Trust Co. of Woodford County in Versailles, Kentucky. In October 1994, UBK
acquired approximately 82% of the outstanding common stock of American Fidelity
Bank and Trust Company, with offices in Corbin and Barbourville, Kentucky. In
November, 1994, UBK acquired Harlan Federal Bank, a federal savings bank located
in Harlan, Kentucky, which immediately changed its name to American Fidelity
Bank, FSB.
31
<PAGE> 36
UBK currently operates as a multi-bank holding company registered under the
Bank Holding Company Act of 1956, as amended, and as a savings and loan holding
company registered under the Home Owners' Loan Act of 1933, as amended. At March
31, 1995, UBK had total consolidated assets of approximately $625 million. At
March 31, 1995 through its seven commercial bank subsidiaries and its federal
savings bank, UBK has a total of 29 offices in 9 counties in Central and
Southeastern Kentucky. UBK's banking subsidiaries are: The First State Bank and
Trust Company of Manchester, Kentucky, Manchester, Kentucky; The London Bank &
Trust Co., London, Kentucky; Bank of Danville and Trust Company, Danville,
Kentucky; The First National Bank and Trust Company, Nicholasville, Kentucky;
Richmond Bank and Trust Company, Richmond, Kentucky; First National Bank & Trust
Co. of Woodford County, Versailles, Kentucky; American Fidelity Bank and Trust
Company, Corbin, Kentucky; and American Fidelity Bank, FSB, Harlan, Kentucky.
UBK's banks conduct a complete range of commercial and personal banking
activities comparable to other local and regional commercial banks and financial
institutions. A more detailed description of the operations and activities of
UBK's subsidiary banks is contained in MANAGEMENT'S DISCUSSION AND ANALYSIS.
UBK also has two wholly-owned, non-banking subsidiaries located in
Lexington, Kentucky. Computer Bank Services, Inc. provides technical support,
training and data processing services to the UBK subsidiary banks and their
computer systems and automated teller machine network. UBK Realty, Inc. owns the
land and buildings on which some of the offices of the subsidiary banks are
located.
UBK, along with its subsidiaries, had 353 full-time equivalent employees as
of March 31, 1995. These employees are not represented by a collective
bargaining unit. Management believes its relationship with its employees to be
good.
UBK's executive offices are located at 250 West Main Street, Suite 3100,
Lexington, Kentucky 40507, and its telephone number is 606-259-4100.
32
<PAGE> 37
TABLE I
UBK
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED DECEMBER 31,
----------------------- -----------------------------------------------
1995 1994 1994 1993 1992 1991
--------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.......................... $ 11,651 $ 8,001 $ 36,030 $ 33,615 $ 37,359 $ 43,849
Interest expense......................... 5,504 3,196 14,950 13,518 17,960 25,545
Net interest income.................... 6,147 4,805 21,080 20,097 19,399 18,304
Provision for loan losses................ 90 28 30 215 2,071 2,679
Net interest income after provision.... 6,057 4,777 21,050 19,882 17,328 15,625
Noninterest income....................... 896 799 3,727 3,672 3,614 3,980
Securities gains......................... 458 479 1,277 1,158 1,099
Noninterest expenses..................... 5,454 4,370 19,261 17,420 16,769 16,700
Income before income taxes and
cumulative effect of change in
accounting principle and
extraordinary items.................. 1,499 1,664 5,995 7,411 5,331 4,004
Income tax expense....................... 531 553 1,994 2,365 1,526 1,047
Cumulative effect of change in accounting
for income taxes....................... 70
Extraordinary credit -- utilization of
net operating loss carryforward........ 87
Net income............................... 968 1,111 4,001 5,116 3,805 3,044
PER SHARE DATA:
Income before cumulative effect of change
in accounting principle and
extraordinary items.................... $ .92 $ 1.05 $ 3.78 $ 4.77 $ 3.60 $ 2.80
Cumulative effect of change in accounting
for income taxes....................... -- -- -- .07 -- --
Extraordinary credit -- utilization of
net operating loss carryforward........ -- -- -- -- -- .08
Net income............................... .92 1.05 3.78 4.84 3.60 2.88
Preferred stock cash dividends........... .19 .16 .67 .63 .64 .59
Common net income........................ .73 .89 3.11 4.21 2.96 2.29
Cash dividends........................... .25 -- .75 -- -- --
Book value............................... 30.60 28.86 29.08 29.24 24.73 21.78
BALANCE SHEET DATA:
Assets................................... $625,494 $487,578 $618,840 $485,232 $481,375 $484,384
Loans, net of unearned income............ 416,531 310,275 409,100 315,630 310,833 317,767
Securities............................... 145,415 104,978 144,867 105,045 94,991 90,129
Deposits................................. 514,727 417,007 513,374 418,682 420,554 428,586
Stockholders' equity..................... 40,983 38,594 39,375 38,987 33,918 30,500
Average number of shares outstanding..... 1,056 1,058 1,057 1,058 1,058 1,058
PERFORMANCE RATIOS:
Return on average assets................. .62% .91% .77% 1.07% .78% .63%
Return on average common equity.......... 9.79 12.15 10.58 15.60 12.65 11.03
Common dividend payout................... 34.25 -- 24.12 -- -- --
Average equity to average assets......... 6.41 8.02 7.58 7.65 6.69 5.97
CAPITAL AND LIQUIDITY RATIOS:
Leverage................................. 6.06% 7.72% 6.02% 7.56% 6.65% 5.86%
Tier 1 risk-based capital................ 8.79 12.09 8.73 11.60 10.28 9.12
Total risk-based capital................. 9.79 13.34 9.74 12.85 11.53 10.37
<CAPTION>
1990
--------
<S> <C>
INCOME STATEMENT DATA:
Interest income.......................... $ 47,519
Interest expense......................... 30,550
Net interest income.................... 16,969
Provision for loan losses................ 2,471
Net interest income after provision.... 14,498
Noninterest income....................... 5,170
Securities gains......................... 100
Noninterest expenses..................... 16,162
Income before income taxes and
cumulative effect of change in
accounting principle and
extraordinary items.................. 3,606
Income tax expense....................... 993
Cumulative effect of change in accounting
for income taxes.......................
Extraordinary credit -- utilization of
net operating loss carryforward........ 680
Net income............................... 3,293
PER SHARE DATA:
Income before cumulative effect of change
in accounting principle and
extraordinary items.................... $ 2.92
Cumulative effect of change in accounting
for income taxes....................... --
Extraordinary credit -- utilization of
net operating loss carryforward........ .76
Net income............................... 3.68
Preferred stock cash dividends........... .68
Common net income........................ 3.00
Cash dividends........................... --
Book value............................... 19.53
BALANCE SHEET DATA:
Assets................................... $490,303
Loans, net of unearned income............ 323,585
Securities............................... 87,321
Deposits................................. 433,478
Stockholders' equity..................... 27,050
Average number of shares outstanding..... 895
PERFORMANCE RATIOS:
Return on average assets................. .68%
Return on average common equity.......... 13.61
Common dividend payout................... --
Average equity to average assets......... 5.38
CAPITAL AND LIQUIDITY RATIOS:
Leverage................................. 5.03%
Tier 1 risk-based capital................ 7.91
Total risk-based capital................. 9.16
</TABLE>
33
<PAGE> 38
TABLE II
UBK
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans.................................. $411,947 $ 9,527 9.38% $311,414 $6,556 8.54%
Taxable investment securities.......... 142,066 1,905 5.44 100,314 1,162 4.70
Tax-exempt investment securities....... 5,856 132 9.14 2,075 81 15.83
Interest bearing deposits.............. 4,802 71 6.00 1,993 14 2.85
Federal funds sold..................... 4,496 60 5.41 28,990 215 3.01
-------- -------- ------- -------- -------- -------
Total earning assets............... 569,167 11,695 8.33 444,786 8,028 7.32
-------- ------- -------- -------
Allowance for loan losses................ (4,256) (4,193)
Market value appreciation (depreciation)
of securities available for sale....... (3,525) 463
Cash and due from banks.................. 25,506 24,246
Premises and equipment................... 20,308 14,157
Other assets............................. 16,195 8,069
-------- --------
Total assets....................... $623,395 $487,528
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest bearing demand deposits....... $ 89,133 $ 598 2.72% $ 83,083 $ 487 2.38%
Money market deposits.................. 41,327 310 3.04 40,109 255 2.58
Savings deposits....................... 37,212 264 2.88 34,112 225 2.68
Time deposits.......................... 272,286 3,354 5.00 198,600 1,910 3.90
Federal funds purchased and security
repurchase agreements................ 18,003 201 4.53 11,726 100 3.46
Borrowed funds......................... 29,912 464 6.29 7,872 103 5.31
Notes and capital leases............... 14,203 313 8.94 7,682 116 6.12
-------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities...................... 502,076 5,504 4.45 383,184 3,196 3.38
-------- ------- -------- -------
Noninterest bearing deposits........... 75,362 60,507
Other liabilities...................... 5,998 4,722
-------- --------
Total liabilities.................. 583,436 448,413
-------- --------
Preferred stock.......................... 8,661 8,065
Common equity............................ 31,298 31,050
-------- --------
Total stockholders' equity......... 39,959 39,115
-------- --------
Total liabilities and stockholders'
equity........................... $623,395 $487,528
======== ========
Net interest income........................ $ 6,191 $4,832
======= ======
Net interest spread........................ 3.88% 3.94%
======= =======
Net interest margin........................ 4.41% 4.41%
======= =======
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1994 1993
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Loans.................................. $334,319 $ 29,349 8.78% $308,219 $ 27,255 8.84%
Taxable investment securities.......... 116,367 5,714 4.91 105,395 5,502 5.22
Tax-exempt investment securities....... 2,353 303 12.88 3,274 514 15.70
Interest bearing deposits.............. 2,378 99 4.16 1,269 40 3.15
Federal funds sold..................... 17,834 668 3.75 16,108 479 2.97
-------- -------- ------- -------- -------- -------
Total earning assets............... 473,251 36,133 7.64 434,265 33,790 7.78
-------- ------- -------- -------
Allowance for loan losses................ (4,070) (4,529)
Market value appreciation (depreciation)
of securities available for sale....... (1,366) 382
Cash and due from banks.................. 23,984 21,529
Premises and equipment................... 15,811 14,330
Other assets............................. 10,244 10,441
-------- --------
Total assets....................... $517,854 $476,418
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest bearing demand deposits....... $ 85,055 $ 2,150 2.53% $ 74,516 $ 1,879 2.52%
Money market deposits.................. 39,768 1,142 2.87 39,767 1,099 2.76
Savings deposits....................... 35,520 968 2.73 32,441 927 2.86
Time deposits.......................... 210,847 8,677 4.12 205,369 8,507 4.14
Federal funds purchased and security
repurchase agreements................ 11,648 456 3.91 9,652 312 3.23
Borrowed funds......................... 16,643 896 5.38 4,026 234 5.81
Notes and capital leases............... 9,409 661 7.03 9,066 560 6.18
-------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities...................... 408,890 14,950 3.66 374,837 13,518 3.61
-------- ------- -------- -------
Noninterest bearing deposits........... 65,658 60,156
Other liabilities...................... 4,077 4,993
-------- --------
Total liabilities.................. 478,625 439,986
-------- --------
Preferred stock.......................... 8,164 7,911
Common equity............................ 31,065 28,521
-------- --------
Total stockholders' equity......... 39,229 36,432
-------- --------
Total liabilities and stockholders'
equity........................... $517,854 $476,418
======== ========
Net interest income........................ $ 21,183 $ 20,272
======= ========
Net interest spread........................ 3.98% 4.17%
======= =======
Net interest margin........................ 4.48% 4.67%
======= =======
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1992
--------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE
------- -------- -------
<S> <C> <C> <C>
ASSETS
Earning Assets:
Loans.................................. $313,241 $30,341 9.69%
Taxable investment securities.......... 102,212 5,756 5.63
Tax-exempt investment securities....... 6,547 1,012 15.46
Interest bearing deposits.............. 256 12 4.69
Federal funds sold..................... 17,361 582 3.35
-------- -------- -------
Total earning assets............... 439,617 37,703 8.58
-------- -------
Allowance for loan losses................ (4,550)
Market value appreciation (depreciation)
of securities available for sale.......
Cash and due from banks.................. 20,779
Premises and equipment................... 14,810
Other assets............................. 12,774
--------
Total assets....................... $483,430
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Interest bearing demand deposits....... $ 68,227 $ 2,123 3.11%
Money market deposits.................. 40,958 1,411 3.44
Savings deposits....................... 25,300 854 3.38
Time deposits.......................... 235,268 12,433 5.28
Federal funds purchased and security
repurchase agreements................ 9,710 387 3.99
Borrowed funds......................... 2,718 129 4.75
Notes and capital leases............... 9,779 623 6.37
-------- -------- ------
Total interest-bearing
liabilities...................... 391,960 17,960 4.58
-------- ------
Noninterest bearing deposits........... 53,505
Other liabilities...................... 5,640
--------
Total liabilities.................. 451,105
--------
Preferred stock.......................... 7,574
Common equity............................ 24,751
--------
Total stockholders' equity......... 32,325
--------
Total liabilities and stockholders'
equity........................... $483,430
========
Net interest income........................ $ 19,743
=======
Net interest spread........................ 4.00%
======
Net interest margin........................ 4.49%
======
</TABLE>
Nonperforming loans are included in average loans.
Income from loans on nonaccrual status is included in loan interest income on a
cash basis.
Yields on securities are based on amortized historical cost.
Tax equivalent basis is computed on a Federal income tax rate of 34%.
34
<PAGE> 39
TABLE III
UBK
NET INTEREST INCOME VOLUME AND RATE CHANGES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1995 VS.
MARCH 31, 1994 1994 VS. 1993 1993 VS. 1992
--------------------------- --------------------------- -----------------------------
DUE TO DUE TO DUE TO
CHANGE IN CHANGE IN CHANGE IN
----------------- NET ----------------- NET ------------------ NET
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE
------- ------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in tax
equivalent interest
income:
Loans................. $2,276 $ 694 $2,970 $2,281 $ (187) $2,094 $ (483) $ (2,603) $ (3,086)
Taxable investment
securities.......... 539 204 743 551 (339) 212 175 (429) (254)
Tax-exempt investment
securities.......... 98 (46) 52 (129) (82) (211) (514) 16 (498)
Interest bearing
deposits............ 33 24 57 43 16 59 33 (5) 28
Federal funds sold.... (257) 102 (155) 54 135 189 (40) (63) (103)
------- ------- ------- ------ ------- ------ ------- ------ --------
Total..................... 2,689 978 3,667 2,800 (457) 2,343 (829) (3,084) (3,913)
------- ------- ------- ------ ------- ------ ------- ------ --------
(Increase) decrease in
interest expense:
Demand deposits....... (38) (73) (111) (264) (7) (271) (184) 428 244
Money market
deposits............ (8) (47) (55) (43) (43) 40 272 312
Savings deposits...... (21) (18) (39) (85) 44 (41) (218) 145 (73)
Time deposits......... (820) (624) (1,444) (213) 43 (170) 1,455 2,471 3,926
Federal funds
purchased and
security repurchase
agreements.......... (64) (37) (101) (71) (73) (144) 2 73 75
Borrowed funds........ (339) (22) (361) (680) 18 (662) (72) (33) (105)
Notes and capital
leases.............. (128) (69) (197) (22) (79) (101) 44 19 63
------ ------- ------ ------ ------- ------ ------ ------ --------
Total..................... (1,418) (890) (2,308) (1,335) (97) (1,432) 1,067 3,375 4,442
------ ------- ------ ------ ------- ------ ------ ------ --------
Increase in tax equivalent
net interest income..... $1,271 $ 88 $1,359 $1,465 $ (554) $ 911 $ 238 $ 291 $ 529
======= ======= ====== ======= ======= ====== ====== ====== ========
</TABLE>
Changes in interest income and expense due to both rate and volume have been
allocated to changes in average volume and changes in average rates in
proportion to the relationship of absolute dollar amounts of change in each.
35
<PAGE> 40
TABLE IV
UBK
INVESTMENT SECURITIES PORTFOLIO
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1995 COST DECEMBER 31, 1994 COST DECEMBER DECEMBER
----------------------------- ----------------------------- 31, 1993 31, 1992
HELD TO AVAILABLE HELD TO AVAILABLE CARRYING CARRYING
MATURITY FOR SALE YIELD MATURITY FOR SALE YIELD VALUE VALUE
--------- ---------- ------ --------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Treasury and agencies:
Within 1 year............ $ -- $38,932 4.21% $800 $ -- 5.87% $ -- $11,163
After 1 year but within 5
years.................. 30,829 42,666 5.18 29,512 80,656 4.80 83,216 62,558
After 5 years but within
10 years............... 3,970 -- 6.69 5,186 -- 6.48 -- --
After 10 years........... 3,134 -- 6.37 3,201 -- 6.39 -- --
--------- ---------- ------ --------- ---------- ------ --------- ---------
Total............... 37,933 81,598 4.95 38,699 80,656 4.92 83,216 73,721
--------- ---------- ------ --------- ---------- ------ --------- ---------
States and political
subdivisions:
Within 1 year............ 230 115 9.94 230 73 9.15 367 163
After 1 year but within 5
years.................. 1,079 422 10.21 1,079 492 9.71 1,131 1,420
After 5 years but within
10 years............... 1,826 177 8.64 1,826 192 7.85 663 2,029
After 10 years........... 1,801 232 9.39 1,801 235 8.38 272 515
--------- ---------- ------ --------- ---------- ------ --------- ---------
Total............... 4,936 946 9.38 4,936 992 8.59 2,433 4,127
--------- ---------- ------ --------- ---------- ------ --------- ---------
Other securities:
Within 1 year............ -- 2,502 6.22 -- 2,507 6.22 3,936 6,305
After 1 year but within 5
years.................. -- 11,112 6.40 -- 10,973 6.37 11,011 6,905
After 5 years but within
10 years............... -- -- -- -- -- -- -- 281
--------- ---------- ------ --------- ---------- ------ --------- ---------
Total............... -- 13,614 6.37 -- 13,480 6.34 14,947 13,491
--------- ---------- ------ --------- ---------- ------ --------- ---------
Total debt securities........ 42,869 96,158 5.27% 43,635 95,128 5.22% 100,596 91,339
======= =======
Equity securities............ -- 6,188 -- 6,104 4,449 3,652
--------- ---------- --------- ---------- --------- ---------
Total investment
securities................. $42,869 $102,346 $43,635 $101,232 $105,045 $94,991
======== ========= ======== ========= ========= ========
</TABLE>
Yields on tax-exempt securities are calculated on a fully taxable equivalent
basis.
Tax equivalent basis is computed on a Federal income tax rate of 34%.
At March 31, 1995, securities issued by the City of Richmond, Kentucky with an
aggregate book and market value of $4,500,000 were held in the held to maturity
portfolio.
36
<PAGE> 41
TABLE V
UBK
LOANS OUTSTANDING BY CATEGORY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------
MARCH 31, 1995 1994 1993 1992 1991 1990
--------------- --------------- --------------- --------------- --------------- ---------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
-------- --- -------- --- -------- --- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.... $ 57,092 14% $ 52,331 13% $ 48,664 15% $ 36,498 12% $ 42,947 14% $ 44,987 14%
Real estate -
construction.. 30,887 7 30,315 7 15,656 5 20,392 7 19,607 6 16,653 5
Real estate -
mortgage.... 270,009 65 270,531 66 204,417 65 200,396 64 194,056 61 193,411 60
Agricultural... 25,575 6 22,310 5 20,722 7 17,909 6 19,686 6 17,585 5
Consumer...... 32,968 8 33,613 9 26,171 8 35,638 11 41,471 13 50,949 16
-------- --- -------- --- -------- --- -------- --- -------- --- -------- ---
Total..... $416,531 100% $409,100 100% $315,630 100% $310,833 100% $317,767 100% $323,585 100%
========= ==== ========= ==== ========= ==== ========= ==== ========= ==== ========= ====
</TABLE>
37
<PAGE> 42
TABLE VI
UBK
INTEREST RATE SENSITIVITY ANALYSIS
AS OF MARCH 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
< 1 YEAR 1 - 5 YEARS > 5 YEARS TOTAL
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Fixed rate loans.......................... $ 83,397 $44,401 $21,629 $149,427
Floating rate loans....................... 237,008 23,789 5,376 266,173
</TABLE>
<TABLE>
<CAPTION>
3 - 12 > 12
< 3 MONTHS MONTHS MONTHS TOTAL
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Time certificates of deposit
of $100,000 or more..................... $ 32,941 $22,879 $11,654 $ 67,474
</TABLE>
UBK
INTEREST RATE SENSITIVITY ANALYSIS
AS OF DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
< 1 YEAR 1 - 5 YEARS > 5 YEARS TOTAL
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Fixed rate loans.......................... $ 90,596 $40,530 $19,905 $151,031
Floating rate loans....................... 229,748 21,094 5,682 256,524
</TABLE>
<TABLE>
<CAPTION>
3 - 12 > 12
< 3 MONTHS MONTHS MONTHS TOTAL
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Time certificates of deposit
of $100,000 or more..................... $ 25,877 $27,177 $12,288 $ 65,342
</TABLE>
38
<PAGE> 43
TABLE VII
UBK
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------------------------
1995 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans........................ $ 931 $1,545 $724 $1,000 $2,826 $2,772
Past due 90 days or more and still
accruing............................. 1,388 1,739 295 490 1,369 1,833
Restructured loans...................... 356 189 155 1,153 777 310
-------- ------- ------- ------- ------- -------
Total nonperforming loans............ $2,675 $3,473 $1,174 $2,643 $4,972 $4,915
======== ====== ====== ====== ====== ======
Ratio of nonperforming loans to loans
outstanding............................. .64% .85% .37% .85% 1.56% 1.52%
Income on nonperforming loans:
Income potential based on original
contract............................. $162 $86 $255 $569 $435
Actual income........................... 61 30 181 248 185
</TABLE>
39
<PAGE> 44
TABLE VIII
UBK
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
-------------- FOR THE YEARS ENDED DECEMBER 31,
MARCH 31, ------------------------------------------
1995 1994 1993 1992 1991 1990
-------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.................. $4,250 $4,175 $4,703 $4,161 $4,636 $4,602
Provision for loan losses....................... 90 30 215 2,071 2,679 2,471
Acquired allowance.............................. 639
Loans charged off:
Commercial.................................... (27) (629) (541) (1,038) (1,845) (1,323)
Real estate................................... (203) (480) (476) (950) (1,202) (803)
Consumer...................................... (15) (51) (83) (279) (554) (751)
------- ------ ------ ------ ------ ------
Total..................................... (245) (1,160) (1,100) (2,267) (3,601) (2,877)
------- ------ ------ ------ ------ ------
Recoveries:
Commercial.................................... 16 131 170 382 203 166
Real estate................................... 13 355 89 177 57 55
Consumer...................................... 20 80 98 179 187 219
------- ------ ------ ------ ------ ------
Total..................................... 49 566 357 738 447 440
------- ------ ------ ------ ------ ------
Net charged off loans........................... (196) (594) (743) (1,529) (3,154) (2,437)
------- ------ ------ ------ ------ ------
Balance at end of period........................ $4,144 $4,250 $4,175 $4,703 $4,161 $4,636
=============== ====== ====== ====== ====== ======
Ratio of net charged off loans to average loans
outstanding................................... .19% .18% .24% .49% .98% .78%
Ratio of ending allowance to ending loans....... .99 1.04 1.32 1.51 1.31 1.43
Ratio of nonperforming loans to ending
allowance..................................... 64.55 81.72 28.12 56.20 119.49 106.02
Allocation of the allowance:
Commercial.................................... $1,531 $1,526 $1,822 $1,905 $2,021 $2,119
Real estate -- construction................... 181 187 99 155 123 92
Real estate -- mortgage....................... 1,589 1,668 1,301 1,515 1,122 1,047
Agricultural.................................. 151 135 132 134 134 96
Consumer...................................... 232 224 320 477 501 818
Unallocated................................... 457 510 501 517 333 464
------- ------ ------ ------ ------ ------
$4,144 $4,250 $4,175 $4,703 $4,161 $4,636
=============== ====== ====== ====== ====== ======
Percent of loans to total loans:
Commercial.................................... 14% 13% 15% 12% 14% 14%
Real estate -- construction................... 7 7 5 7 6 5
Real estate -- mortgage....................... 65 66 65 64 61 60
Agricultural.................................. 6 5 7 6 6 5
Consumer...................................... 8 9 8 11 13 16
------- ------ ------ ------ ------ ------
100% 100% 100% 100% 100% 100%
=============== ====== ====== ====== ====== ======
</TABLE>
40
<PAGE> 45
TABLE IX
UBK
MATURITY OR PRICING OF ASSETS AND LIABILITIES
AS OF MARCH 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AFTER 90 AFTER 1 YEAR
WITHIN DAYS BUT BUT WITHIN AFTER NONINTEREST
90 DAYS WITHIN 1 YEAR 5 YEARS 5 YEARS BEARING TOTAL
-------- ------------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income........ $192,465 $127,940 $ 68,190 $27,005 $ 931 $ 416,531
Securities
Available for sale................. 1,114 40,435 54,200 6,597 -- 102,346
Held to maturity................... 5 225 31,908 10,731 -- 42,869
-------- -------- ------- -------- --------- ---------
Total securities................... 1,119 40,660 86,108 17,328 -- 145,215
Interest bearing deposits with
banks.............................. 200 -- -- -- -- 200
Federal funds sold................... 5,825 -- -- -- -- 5,825
-------- -------- ------- -------- --------- ---------
Total interest earning assets.... 199,609 168,600 154,298 44,333 931 567,771
Cash and due from banks.............. -- -- -- -- 26,486 26,486
Premises and equipment............... -- -- -- -- 20,372 20,372
Other assets......................... -- -- -- -- 15,009 15,009
Allowance for loan losses............ -- -- -- -- (4,144) (4,144)
-------- -------- ------- -------- --------- ---------
Total assets..................... $199,609 $168,600 $154,298 $44,333 $ 58,654 $ 625,494
======== ======== ======== ======= ======== =========
Interest bearing deposits
Demand............................. $126,941 $ -- $ -- $ -- $ -- $ 126,941
Savings............................ 37,091 -- -- -- -- 37,091
Time............................... 86,514 117,895 74,671 -- -- 279,080
-------- -------- ------- -------- --------- ---------
Total interest bearing deposits.... 250,546 117,895 74,671 -- -- 443,112
Repurchase agreements................ 17,003 -- -- -- -- 17,003
Notes payable and capital leases..... 14,371 1,095 21,854 9,314 -- 46,634
-------- -------- ------- -------- --------- ---------
Total interest bearing
liabilities...................... 281,920 118,990 96,525 9,314 -- 506,749
Demand deposits...................... -- -- -- -- 71,615 71,615
Other liabilities.................... -- -- -- -- 6,147 6,147
Stockholders equity.................. -- -- -- -- 40,983 40,983
-------- -------- ------- -------- --------- ---------
Total liabilities and equity..... $281,920 $118,990 $ 96,525 $ 9,314 $118,745 $ 625,494
======== ======== ======== ======= ======== =========
Excess interest earning assets
(liabilities)...................... $(82,311) $ 49,610 $ 57,773 $35,019
======== ======== ======== =======
Cumulative excess interest earning
assets (liabilities)............... $(82,311) $(32,701) $ 25,072 $60,091
======== ======== ======== =======
Cumulative interest rate sensitivity
ratio.............................. (14.5%) (5.8%) 4.4% 10.6%
======== ======== ======== =======
</TABLE>
41
<PAGE> 46
TABLE X
UBK
MATURITY OR PRICING OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
WITHIN AFTER 90 DAYS BUT AFTER 1 YEAR BUT AFTER NONINTEREST
90 DAYS WITHIN 1 YEAR WITHIN 5 YEARS 5 YEARS BEARING TOTAL
-------- ----------------- ----------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income........ $202,506 $117,838 $ 61,624 $25,587 $ 1,545 $409,100
Securities
Available for sale................. -- 2,580 92,121 6,531 -- 101,232
Held to maturity................... 800 230 30,591 12,014 -- 43,635
-------- -------- -------- ------- -------- --------
Total securities................. 800 2,810 122,712 18,545 -- 144,867
Interest bearing deposits with
banks.............................. 3,200 -- -- -- -- 3,200
Federal funds sold................... 4,275 -- -- -- -- 4,275
-------- -------- -------- ------- -------- --------
Total interest earning assets.... 210,781 120,648 184,336 44,132 1,545 561,442
Cash and due from banks.............. -- -- -- -- 25,072 25,072
Premises and equipment............... -- -- -- -- 20,403 20,403
Other assets......................... -- -- -- -- 16,173 16,173
Allowance for loan losses............ -- -- -- -- (4,250) (4,250)
-------- -------- -------- ------- -------- --------
Total assets..................... $210,781 $120,648 $184,336 $44,132 $ 58,943 $618,840
======== ======== ======== ======= ======== ========
Interest bearing deposits
Demand............................. $132,494 $ -- $ -- $ -- $ -- $132,494
Savings............................ 39,162 -- -- -- -- 39,162
Time............................... 77,446 125,337 60,724 221 -- 263,728
-------- -------- -------- ------- -------- --------
Total interest bearing deposits.... 249,102 125,337 60,724 221 -- 435,384
Repurchase agreements................ 16,319 -- -- -- -- 16,319
Notes payable and capital leases..... 12,099 1,185 22,201 8,656 -- 44,141
-------- -------- -------- ------- -------- --------
Total interest bearing
liabilities.................... 277,520 126,522 82,925 8,877 -- 495,844
Demand deposits...................... -- -- -- -- 77,990 77,990
Other liabilities.................... -- -- -- -- 5,631 5,631
Stockholders equity.................. -- -- -- -- 39,375 39,375
-------- -------- -------- ------- -------- --------
Total liabilities and equity..... $277,520 $126,522 $ 82,925 $ 8,877 $122,996 $618,840
======== ======== ======== ======= ======== ========
Excess interest earning assets
(liabilities)...................... $(66,739) $ (5,874) $101,411 $35,255
======== ======== ======== =======
Cumulative excess interest earning
assets (liabilities)............... $(66,739) $(72,613) $ 28,798 $64,053
======== ======== ======== =======
Cumulative interest rate sensitivity
ratio.............................. (11.9%) (12.9%) 5.1% 11.4%
======== ======= ======== =======
</TABLE>
42
<PAGE> 47
UBK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion analyzes the results of operations and financial condition
for United Bancorp of Kentucky, Inc. and subsidiaries as of December 31, 1994
and 1993 and for the three year period then ended and as of March 31, 1995 and
1994 and for the three month periods then ended. It should be read in
conjunction with the consolidated financial information presented in the
Selected Consolidated Financial Data and the consolidated financial statements
and related notes presented elsewhere in this Prospectus and Proxy Statement.
FINANCIAL CONDITION AS OF DECEMBER 31, 1994 AND 1993
Total assets increased $133,608,000 or 27.53% from $485,232,000 on December
31, 1993 to $618,840,000 on December 31, 1994. Acquisitions of two financial
institutions during the fourth quarter of 1994 account for $89,539,000 or 18.45%
of this increase. Loan demand was strong in 1994 as evidenced by the increase in
the loan portfolio from December 31, 1993 to December 31, 1994. Total loans
increased $93,470,000 or 29.61% from $315,630,000 at December 31, 1993 to
$409,100,000 at December 31, 1994 of which $54,863,000 or 17.38% is attributable
to acquisitions. Table V in the Selected Consolidated Financial Data presents
the balances of loans in various categories. As reflected in this table,
management has increased its efforts in residential mortgage lending.
In 1994, investment securities increased by $39,822,000 or 37.91% from
$105,045,000 at December 31, 1993 to $144,867,000 at December 31, 1994.
Acquisitions contributed $24,347,000 or 23.18% of this increase. Funds in the
amount of $13,225,000 were shifted from federal funds sold and short term
interest bearing deposits with banks to investment securities. The Corporation
maintains securities for investment purposes in a held to maturity portfolio and
securities available for liquidity purposes in an available for sale portfolio.
At December 31, 1994, securities with a carrying value of $43,635,000 were in
the held to maturity portfolio and securities with a carrying value of
$101,232,000 were in the available for sale portfolio. Table IV in the Selected
Consolidated Financial Data presents major categories, maturities and yields of
these portfolios.
Loan growth was funded by an increase in deposits and by advances from the
Federal Home Loan Bank. Total deposits increased $94,692,000 or 22.62% from
$418,682,000 at December 31, 1993 to $513,374,000 at December 31, 1994 of which
$79,161,000 or 18.91% is attributable to acquisitions. The ratio of loans to
deposits increased from 75.39% at year end 1993 to 79.69% at December 31, 1994.
Borrowed funds from the Federal Home Loan Bank increased $21,208,000 or 244.7%
from $8,667,000 at December 31, 1993 to $29,875,000 at December 31, 1994. These
borrowings were used to fund residential mortgage loans and reflects
management's efforts to increase lending in this area.
FINANCIAL CONDITION AS OF MARCH 31, 1995
Total assets increased $6,654,000 or 4.3% on an annualized basis from
$618,840,000 at December 31, 1994 to $625,494,000 at March 31, 1995. Loan growth
continued to be strong at $7,431,000 or 7.27% from $409,100,000 at December 31,
1994 to $416,531,000 at March 31, 1995. Investment securities increased by
$348,000 or .96% from $144,867,000 at December 31, 1994 to $145,215,000 at March
31, 1995 due primarily to an increase of $1,676,000 in the market value of the
available-for-sale portfolio.
Deposit growth remains flat at $1,353,000 or 1.05% on an annualized basis
from $513,374,000 at December 31, 1994 to $514,727,000 at March 31, 1995. The
ratio of loans to deposits continued its increase to 80.94% at quarter end.
Additional advances from the Federal Home Loan Bank of $2,173,000 during the
quarter supplemented the deposit increase to fund loan growth increasing the
total amount borrowed from $29,875,000 at December 31, 1994 to $32,048,000 at
March 31, 1995.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Net income for 1994 was $4,001,000 compared to $5,116,000 in 1993, a
decrease of $1,115,000 or 21.79%. Net income in 1993 increased $1,311,000 or
34.45% from $3,805,000 in 1992. The primary factors affecting
43
<PAGE> 48
1994 net income were a $798,000 decrease in securities gains and increased
personnel and occupancy expenses. The primary factor affecting increased 1993
net income was a decreased provision for loan losses of $1,856,000 over 1992.
Net interest income on a tax equivalent basis for 1994 increased $911,000
or 4.49% from 1993. The decrease of nineteen basis points in the net interest
margin from 4.67% to 4.48% was offset by an increase of 8.98% in average earning
assets. The average rate earned on earning assets declined fourteen basis points
from 7.78% for 1993 to 7.64% for 1994 while the average rate paid on interest
bearing liabilities increased five basis points from 3.61% for 1993 to 3.66% for
1994. The decrease in the rate on earning assets is due primarily to a decline
in the rate earned on investment securities, while the increase in the rate on
interest bearing liabilities is due primarily to the increased utilization of
Federal Home Loan Bank advances for funding loan growth. Tax equivalent net
interest income for 1993 increased $529,000 or 2.68% from 1992 due to an
increase of eighteen basis points in the net interest margin to 4.67% offset by
a decrease of 1.22% in average earning assets. The average rate earned on
earning assets declined eighty basis points from 8.58% in 1992 to 7.78% in 1993
while the average rate paid on interest bearing liabilities decreased ninety
seven basis points from 4.58% in 1992 to 3.61% in 1993. These decreases are
attributable to a general decline in interest rates and to the shift in customer
deposit balances from time deposits to transaction and savings accounts. Further
details on net interest income are presented in Tables II and III in the
Selected Consolidated Financial Data.
Provision for loan losses declined from $2,071,000 in 1992 to $215,000 in
1993 and $30,000 in 1994. An increased emphasis on asset quality in 1990 and
1991 resulted in significant declines in net loans charged off and in problem
loans in 1992, 1993 and 1994. Provision expense reduced significantly to reflect
the current problem loan and reserve position, and net charge-off experience.
Personnel costs increased $646,000 or 7.18% from 1993 to 1994, excluding
increases of $291,000 attributable to acquisitions, due to additional staff,
merit increases and higher employee benefit costs. Net occupancy and equipment
expenses increased $250,000 or 8.07% in the same period, excluding increases of
$89,000 attributable to acquisitions, due in part to depreciation and other
expenses related to the upgrade of PC network, telephone and data processing
systems.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Net income for the three months ended March 31, 1995 was $968,000 compared
to $1,111,000 for the three months ended March 31, 1994, a decrease of $143,000
or 12.87%. The decrease is due primarily to the absence of securities gains in
the first quarter of 1995 compared to $458,000 in the same period of 1994.
Acquisitions in the fourth quarter of 1994 contributed $236,000 to net income in
the first quarter of 1995.
Net interest income on a tax equivalent basis increased $1,359,000 from
$4,832,000 for the three months ended March 31, 1994 to $6,191,000 for the same
period of 1995 of which $1,078,000 is attributable to acquisitions. Average
earning assets increased $124,381,000 or 27.04% from $444,786,000 for the first
quarter of 1994 to $569,167,000 for the first quarter of 1995. Of this increase,
$84,469,000 or 18.99% is attributable to acquisitions that occurred in the
fourth quarter of 1994. The net interest margin for the three months ended March
31, 1995 and 1994 was unchanged at 4.41%. The average rate earned on earning
assets increased 101 basis points from 7.32% for the first quarter of 1994 to
8.33% for the first quarter of 1995 and the average rate paid on interest
bearing liabilities increased 107 basis points from 3.38% for the first quarter
of 1994 to 4.45% for the first quarter of 1995. These increases are attributable
to the increase in overall interest rates throughout 1994 and early 1995.
Noninterest income, excluding securities gains, increased $97,000 from
$799,000 for the three months ended March 31, 1994 compared to $896,000 for the
same period in 1995 of which $79,000 is attributable to fourth quarter 1994
acquisitions. Noninterest expenses increased $1,084,000 from $4,370,000 for the
first quarter of 1994 compared to $5,454,000 for the same period in 1995 of
which $767,000 is attributable to acquisitions. The remaining increase in
noninterest expenses is primarily attributable to depreciation and other
expenses related to the PC network, telephone and data processing upgrades that
occurred throughout 1994.
44
<PAGE> 49
CAPITAL
Total stockholders' equity at March 31, 1995 and December 31, 1994 included
$4,504,000 of 10% cumulative Preferred Stock Series A, $4,109,000 of variable
rate cumulative Preferred Stock Series AA and $48,000 of 10% cumulative
Preferred Stock Series D.
The leverage, Tier 1 and total risk-based capital ratios are all above the
required minimum levels of 4.00%, 4.00% and 8.00%, respectively. At March 31,
1995 and December 31, 1994, each of the subsidiary banks were well-capitalized
under the capital definitions prescribed in the FDIC Improvement Act of 1991.
Table I in the Selected Consolidated Financial Data presents details on these
ratios.
Book value per common share was $30.60 at March 31, 1995 compared to $29.08
at December 31, 1994 and $29.24 at December 31, 1993. Market value appreciation
(depreciation) in the securities available for sale portfolio of $(1,233,000),
$(2,339,000) and $319,000, net of income tax, at March 31, 1995, December 31,
1994 and December 31, 1993, respectively, represented $(1.17), $(2.21) and $.30
of book value per common share.
Cash dividends of $.75 per common share were declared in 1994, representing
a dividend payout ratio of 24%. No cash dividends were paid on common shares in
1993 or 1992. In March 1995, a dividend of $.25 per common share was declared.
ASSET QUALITY
A summary of nonperforming assets at March 31, 1995, December 31, 1994,
1993, 1992, 1991 and 1990 is presented in Table VII in the Selected Consolidated
Financial Data. Loans are designated as nonperforming when payments are 90 or
more days past due, when credit terms are renegotiated below market levels, or
when individual analysis of a credit indicates that it should be placed on
nonaccrual status. Generally, when loans are classified as nonperforming, unpaid
accrued interest is written off, and future income is recorded only as cash
payments are received. As indicated in Table VII, nonperforming loans declined
significantly in 1992 and 1993 due to management's increased emphasis on asset
quality. Nonperforming loans increased $2,299,000 from $1,174,000 at December
31, 1993 to $3,473,000 at December 31, 1994 of which $1,347,000 is attributable
to acquisitions and another $560,000 is due to two real estate loans in
bankruptcy of which $400,000 was returned to an accrual status in the first
quarter of 1995 due to the receipt of regular payments. Nonperforming loans
represent .85% of loans outstanding at year end 1994. During the first quarter
of 1995, nonperforming loans declined $798,000 from $3,473,000 at December 31,
1994 to $2,675,000 at March 31, 1995, representing .64% of loans outstanding.
The decrease includes the $400,000 loan returned to an accrual status discussed
earlier and $245,000 of loans charged off.
Table VIII in the Selected Consolidated Financial Data presents details of
the allowance for loan losses, including loans charged off and recoveries. As
indicated, net charge-offs as a percentage of average loans outstanding has
dropped each year since 1991, from .98% in 1991 to .18% in 1994. This is a
reflection of management's increased emphasis on asset quality since 1990. The
December 31, 1994 allowance has decreased from 1.32% of loans outstanding at
December 31, 1993 to 1.04% at December 31, 1994 and .99% at March 31, 1995. The
ratio of nonperforming loans to the allowance declined from 81.72% at December
31, 1994 to 64.55% at March 31, 1995. Management believes that nonperforming
loans are generally adequately collateralized and that the allowance is adequate
to cover potential losses.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity to satisfy contractual liabilities, meet deposit withdrawal
requirements, fund operations and meet the credit needs of its customers is
monitored by analyzing the funds available from various sources. Securities with
a market value of $102,346,000 are classified as available for sale at March 31,
1995 and could be sold prior to maturity in implementing asset/liability
management strategies, interest rate risk management strategies or to meet
liquidity needs. The subsidiary banks are members of and, accordingly, are
eligible to borrow from the Federal Home Loan Bank of Cincinnati. This funding
source has been used in implementing management's efforts to increase
residential mortgage lending and in implementing interest rate risk management
strategies. Terms obtained on these advances are generally designed to relate to
terms on the loans funded in order to
45
<PAGE> 50
minimize interest rate risk. Borrowings from the Federal Home Loan Bank
increased from $8,667,000 at December 31, 1993 to $29,875,000 at December 31,
1994 to $32,048,000 at March 31, 1995.
The main source of funds for the parent company cash requirements is
dividends from its subsidiaries. At January 1, 1995, approximately $2,672,000
was available within the bank subsidiaries to pay the parent company dividends
without prior regulatory approval compared to $6,237,000 at January 1, 1994.
During 1994, subsidiary banks declared $6,650,000 in dividends to the parent
company.
The asset/liability mix and interest rate sensitivity are monitored to
maximize net interest income while maintaining a mix that balances liquidity
needs and interest rate risk. Table IX presents a summary of the Corporation's
interest rate sensitivity position at March 31, 1995 and December 31, 1994.
Adjustments have not been made to reflect anticipated prepayments or scheduled
amortization of loans. In general, the table indicates that within the one year
period, a rising interest rate environment would lower the net interest margin
and a declining interest rate environment would raise the net interest margin.
Because the repricing of certain assets and liabilities is discretionary and is
subject to competitive and other pressures, assets and liabilities indicated as
repricing within the same time period may in fact reprice at different times and
at different rate levels.
46
<PAGE> 51
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 UBK.
As a bank holding company, NCC and UBK are 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 savings and loan holding company, UBK is also subject to
regulation, examination and supervision by the OTS and to OTS reporting
requirements. As a federally-chartered savings bank, Harlan is also subject to
such regulation, examination, supervision and reporting requirements. Harlan's
deposits are insured by the Savings Association Insurance Fund ("SAIF"), and
accordingly, the institution is also subject to examination by and the
regulations of the Federal Deposit Insurance Corporation (the "FDIC"). Like NCC,
UBK is affected significantly by the actions of the FRB as it attempts to
control the money supply and credit availability.
UBK 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.
Harlan 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 Cincinnati ("FHLB of Cincinnati"). The FHLB System provides a central
credit facility primarily for member savings and loan associations, savings
banks, and other member financial institutions. Harlan is required to hold
shares of capital stock in the FHLB of Cincinnati 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. Harlan is currently in compliance with this
requirement.
PAYMENT OF DIVIDENDS
Each of NCC and UBK is a legal entity separate and distinct from its
banking, savings bank, and other subsidiaries. Most of NCC's and UBK'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 UBK to its stockholders.
Each state bank subsidiary and each national banking association is
required by federal law to obtain the prior approval of the FRB, FDIC or the
Comptroller of the Currency (the "Comptroller"), as applicable, 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
47
<PAGE> 52
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 March 31, 1995, NCC's subsidiary banks, without obtaining
governmental approvals, could declare aggregate dividends of approximately $120
million.
The payment of dividends by NCC and UBK and their 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 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 Harlan can pay
to UBK 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. Harlan is now, and expects
to continue to be, a tier one institution and, therefore, would be able to pay
cash dividends to UBK, 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, Harlan could, without regulatory approval,
declare dividends of approximately $567 thousand to UBK at March 31, 1995.
Including Harlan, UBK's subsidiary banks, without obtaining governmental
approval, could declare aggregate dividends of approximately $3.2 million at
March 31, 1995.
CERTAIN TRANSACTIONS BY BANK HOLDING COMPANIES WITH THEIR AFFILIATES
There are also various legal restrictions on the extent to which NCC, UBK
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.
FDIC INSURANCE
The FDIC has the authority to raise the insurance premiums for institutions
in Bank Insurance Fund ("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."
48
<PAGE> 53
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 Harlan 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 to risk weighted
assets 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 UBK
individually and on a pro forma combined basis as of March 31, 1995.
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 UBK COMBINED
------ ------ --------
<S> <C> <C>
8.99% 8.79% 8.92%
</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 UBK COMBINED
------ ------ --------
<S> <C> <C>
12.22% 9.79% 12.12%
</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 Leverage Ratio must be
5% or more. NCC's Leverage Ratio at March 31, 1995 was 7.59%. UBK's Leverage
Ratio at March 31, 1995 was 6.06%. At March 31, 1995, on a pro forma combined
basis, NCC's Leverage Ratio would be 7.51%. The guidelines further provide that
bank holding companies making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels.
49
<PAGE> 54
Harlan is subject to substantially similar capital requirements adopted by
the OTS. At March 31, 1995, Harlan's tangible capital ratio, core capital ratio,
and total risk-based capital ratios were 8.51%, 8.51%, and 15.04%, respectively.
Thus, Harlan had capital well in excess of all applicable requirements.
Each of NCC's and UBK's subsidiary banks is subject to similar capital
requirements adopted by the FRB, the Comptroller or the FDIC, as the case may
be. At March 31, 1995, each of NCC's and UBK'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 and UBK'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 UBK
do not expect the aggregate impact of 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 UBK 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 and UBK are 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 or UBK would not otherwise be required to provide it. In
addition, any capital loans by NCC or UBK 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 the Financial Institutions Reform Recovery and Enforcement Act, 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.
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 UBK 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
50
<PAGE> 55
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 UBK'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 consolidate 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
146,570,786 shares were issued and outstanding on March 31, 1995, and an
additional 16,919,461 shares were reserved for issuance in connection with NCC's
Stock Option Plans (options to purchase 8,303,311 shares of NCC Common have been
granted and are outstanding) and Restricted Stock Plan (332,608 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.
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.
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
51
<PAGE> 56
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
744,160 shares (3,720,800 depositary shares) were issued and outstanding as of
March 31, 1995. 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 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.
52
<PAGE> 57
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 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
53
<PAGE> 58
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 UBK CAPITAL STOCK
COMMON STOCK
General. UBK has 4,000,000 authorized shares of UBK Common with a par
value of $10.00 per share, of which 1,056,204 shares were issued and outstanding
on March 31, 1995. The 4,000,000 authorized shares of UBK Common are further
divided into two series of stock. One series consists of 2,000,000 authorized
shares of Common Stock Series A with a par value of $10.00 per share, of which
517,302 shares were issued and outstanding on March 31, 1995. The other series
consists of 2,000,000 authorized shares of Common Stock Series AA with a par
value of $10.00 per share, of which 538,902 shares were issued and outstanding
on March 31, 1995. Except with respect to the number of votes per share
allocated to each series of common stock as discussed below, these two series of
common stock are identical in all material respects. The shares of UBK Common
are not listed or publicly traded on any national securities exchange. UBK
serves as the transfer agent for the UBK Common.
Dividend and Liquidation Rights. Holders of UBK Common are entitled to
such dividends as may be declared by UBK's Board of Directors out of funds
legally available therefor, provided, however, that full cumulative dividends
have been paid on any shares of preferred stock then outstanding. In the event
of liquidation, holders of UBK Common will be entitled to receive pro rata any
assets distributable to stockholders in respect of the number of shares of UBK
Common held by them. The dividend and liquidation rights of UBK Common are
subject to the rights of any preferred stock issued by UBK.
Voting, Preemptive, Conversion and Redemption Rights. The holders of UBK
Common Stock Series A are entitled to 100 votes per share at all meetings of UBK
shareholders and the holders of UBK Common Stock Series AA are entitled to one
vote per share at all meetings of UBK shareholders. All holders of UBK Common
are entitled to cumulative voting rights in the election of directors. However,
the holders of UBK Common are not entitled to preemptive rights to purchase
additional shares of any class or series of UBK's stock. UBK Common has no
conversion or redemption rights.
PREFERRED STOCK
General. UBK has 100,000 authorized shares of Preferred Stock A with a par
value of $100.00 per share, of which 45,039 shares were issued and outstanding
on March 31, 1995. UBK has 100,000 authorized shares of Preferred Stock AA with
a par value of $100.00 per share, of which 41,092 shares were issued and
outstanding on March 31, 1995. Except with respect to the cumulative cash
dividends paid with respect to the Preferred Stock A and the Preferred Stock AA
as discussed below, Preferred Stock A and Preferred Stock AA are identical in
all material respects. UBK has 150,000 authorized shares of Preferred Stock AAA
for which the board of directors of UBK has not determined the preferences,
limitations and relative rights and, as such, none of which was issued and
outstanding on March 31, 1995. UBK has 10,000 authorized shares of Preferred
Stock D with a par value of $10.00 per share, of which 4,800 shares were issued
and outstanding on March 31, 1995. Ownership of Preferred Stock D is restricted
to members of the Board of Directors of UBK or any of its subsidiary banks. None
of the
54
<PAGE> 59
shares of UBK preferred stock are listed or publicly traded on any national
securities exchange. UBK serves as the transfer agent for the UBK preferred
stock.
Dividend and Liquidation Rights. Holders of UBK Preferred Stock A are
entitled to receive on a quarterly basis, out of funds legally available
therefor, cumulative cash dividends at an annual rate of ten percent (10%) of
the par value per share, when and as may be declared from time to time by the
Board of Directors of UBK. Holders of UBK Preferred Stock AA are entitled to
receive on a quarterly basis, out of funds legally available therefor,
cumulative cash dividends of the par value per share at a variable rate equal to
the higher of the "Treasury Bill Rate" plus 0.75% or the "Ten Year Constant
Maturity Rate" plus 0.75% (as those terms are defined in UBK's Articles)
when and as may be declared from time to time by the Board of Directors of UBK.
Holders of UBK Preferred Stock D are entitled to receive on a quarterly basis,
out of funds legally available therefor, cumulative cash dividends at an annual
rate of ten percent (10%) of the par value per share, when and as may be
declared from time to time by the Board of Directors of UBK.
With respect to the payment of dividends and to the right to receive the
net assets of UBK in the event of a liquidation, (i) the holders of Preferred
Stock A and Preferred Stock AA shall rank on a parity with each other and will
be entitled to receive pro rata any assets distributable to stockholders in
respect of the number of shares of Preferred Stock A and Preferred Stock AA held
by them, (ii) the holders of Preferred Stock A and Preferred Stock AA shall have
a preference over Preferred Stock D and the UBK Common, and (iii) the holders of
Preferred Stock D shall have a preference over the UBK Common.
Voting, Preemptive, Conversion and Redemption Rights. The holders of
Preferred Stock A, Preferred Stock AA, and Preferred Stock D are not entitled to
vote at meetings of UBK shareholders, except as may otherwise be required by
applicable law, and are not entitled to preemptive rights to purchase additional
shares of any class or series of UBK's stock. The holders of Preferred Stock A,
Preferred Stock AA, and Preferred Stock D have no conversion rights.
However, UBK may at any time, and from time to time, on or after December
31, 1993, redeem out of funds legally available, the whole or any part of the
shares of Preferred Stock A and Preferred Stock AA. The redemption price shall
be $100 per share, plus cumulating or accrued and unpaid dividends thereon to
the date fixed for redemption. Notice of redemption, setting forth the number of
shares to be redeemed, the date and place of redemption and the redemption
price, shall (unless waived in writing) be mailed, first class, postage prepaid,
not less than thirty (30) nor more than sixty (60) days prior to the date fixed
for redemption, to each holder of record of shares to be redeemed, as of the
record date fixed by UBK's Board of Directors, at such holder's last address as
it shall appear upon the books of the corporation. Preferred Stock D is
mandatorily redeemable at $10 per share upon termination of service of the
holder thereof as a director of UBK or any of its subsidiaries. See "CONDUCT OF
UBK'S BUSINESS PENDING THE MERGER -- Redemption of Preferred Stock".
55
<PAGE> 60
GENERAL COMPARISON OF NCC AND UBK CAPITAL STOCK
GENERAL
If the shareholders of UBK approve the Merger Agreement, and the Merger is
subsequently consummated, all shareholders of UBK will become stockholders of
NCC. NCC is a corporation organized under, and governed by, the DGCL, whereas
UBK is a corporation organized under, and governed by, the KBCA.
The following is a brief summary of certain differences between the
Delaware corporate laws applicable to NCC and the Kentucky corporate laws
applicable to UBK and certain differences between NCC's Certificate and By-Laws
and UBK's Articles and By-Laws. The purpose of this summary is to briefly
indicate the differences between holding NCC capital stock and UBK capital stock
to the extent such differences are created by the state corporation laws
applicable to NCC and UBK or arise because of differences between NCC's
Certificate and By-Laws and UBK's Articles and By-Laws. THIS SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DGCL, THE KBCA, NCC'S CERTIFICATE
AND BY-LAWS AND UBK'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 of NCC, 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 15. 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 of NCC resulting from death,
resignation, retirement, disqualification, removal from office or any other
cause shall be filled by the Board of Directors of NCC.
UBK's Articles provide that the number of directors of UBK shall be fixed,
and may be increased or decreased from time to time, by a resolution adopted by
vote of the shareholders who are present in person or by proxy at a meeting held
to elect directors, and have a majority of the voting power of the shares
represented at such meeting and entitled to vote in the election. The number of
UBK directors is currently set at eight. Pursuant to KRS 271B.7-280, Kentucky
law requires cumulative voting in the election of directors. Under cumulative
voting, each shareholder is entitled to cast, in person or by proxy, as many
votes in the aggregate as he shall be entitled to vote under the corporation's
articles of incorporation, multiplied by the number of directors to be elected
at such election; and each shareholder may cast the whole number of votes for
one candidate, or distribute such votes among two or more candidates. The
members of the board of directors of UBK are elected annually as a single class.
Section 4.04 of UBK's By-Laws provides that, at a meeting of shareholders called
expressly for the purpose, directors may be removed, with or without cause, by a
majority of the shareholders then entitled to vote at an election of directors,
provided that if less than the entire board is removed, no director may be
removed if the votes cast against his removal would be sufficient to elect him
if then cumulatively voted at an election of the entire board of directors.
UBK's By-Laws provide that any vacancy occurring in the board of directors by
reason of the death, resignation, retirement, disqualification or inability to
act of any director may be filled by the affirmative vote of the majority of the
remaining directors even though less than a quorum of the board of directors,
and a director so elected to fill such vacancy shall be elected for the
unexpired term of his predecessor in office. The number of directors of UBK may
be increased from time to time by the board of directors of UBK, and any
directorship to be filled by reason of such increase may be filled by the
affirmative vote of a majority of the full board of directors for a term of
office continuing until the next election of directors by the shareholders.
56
<PAGE> 61
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.
KRS 271B.8-300, provides that a director of a Kentucky corporation must
discharge his duties as a director in good faith, on an informed basis, and in a
manner he honestly believes to be in the best interests of the corporation. To
discharge his duties on an informed basis, a director must make inquiry into the
business and affairs of the corporation, or into a particular action to be taken
or decision to be made, with the care an ordinary prudent person in a like
position would exercise under similar circumstances. Unless the corporation's
articles of incorporation contain a provision further limiting a director's
liability for monetary damages, any action taken as a director, or any failure
to take any action as a director, will not be the basis for monetary damages or
injunctive relief unless (a) the director has breached or failed to perform his
duties as a director in good faith, on an informed basis, and in a manner he
honestly believes to be in the best interests of the corporation; and (b) in the
case of an action for monetary damages, the breach or failure to perform
constitutes willful misconduct or wanton or reckless disregard for the best
interests of the corporation and its shareholders. A person bringing an action
for monetary damages for breach of duty has the burden of proving by clear and
convincing evidence the provisions of (a) and (b) above, and the burden of
proving that the breach or failure to perform was the legal cause of the damages
suffered by the corporation.
As permitted by KRS 271B.2-020, Article 7 of UBK's Articles provides that a
director of UBK will not be personally liable to UBK or its shareholders for
monetary damages for breach of duty as a director, except for liability (i) for
any transaction in which the director's personal financial interest is in
conflict with the financial interest of UBK or its shareholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or are
known to the director to be a violation of law; (iii) under KRS 271B.8-330
(relating to liability for unlawful distributions); or (iv) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of Article 7 by the shareholders of UBK shall not adversely affect
any limitation on the liability of a director of UBK arising before the time of
such repeal or modification. The limitations on the personal liability of a
director under Article 7 extend only to the elimination of a recovery of a
monetary remedy. Shareholders may still seek equitable relief, such as an
injunction, against any action by a director that is inappropriate.
INDEMNIFICATION AND INSURANCE
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
57
<PAGE> 62
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.
Under Kentucky law, a corporation has broad powers of indemnification. A
person may be indemnified for judgments, penalties, fines, settlements, and
reasonable expenses incurred by that person in proceedings in connection with
the person's official capacity with the corporation. Indemnification against
reasonable legal expenses incurred by a person in such a proceeding is mandatory
when the person is wholly successful in the defense of the proceeding. Under no
circumstances may a person be indemnified for actions taken in bad faith.
Article 7 of UBK's By-Laws generally provides that UBK may indemnify any person
who was, is or is threatened to be made a party to any threatened, pending or
contemplated suit or proceeding, by reason of the fact that he is or was a
director, officer, employee or agent of UBK, against judgments, penalties,
fines, amounts paid in settlement, and reasonable expenses actually incurred by
such person, and further sets forth the standards for such indemnification by
the corporation. Section 7.04 of UBK's By-Laws require that UBK indemnify any
director, officer, employee or agent who has been "wholly successful" on the
merits or otherwise in any proceeding he was a party to by reason of the fact
that he is or was a director, officer, employee or agent of UBK.
ANTITAKEOVER STATUTES
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
58
<PAGE> 63
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.
Like Section 203 of the DGCL, certain business combinations with interested
shareholders in Kentucky are subject to KRS 271B.12-210 under the KBCA, which
imposes supermajority voting requirements or conditions approval of the business
combination by independent members of the board of directors. These restrictions
are not applicable to UBK or to the Merger.
ISSUANCE OF PREFERRED STOCK
NCC's Certificate and UBK'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 UBK 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 UBK 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 UBK's Articles with respect to the ability of the Boards of
Directors of NCC and UBK 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 UBK 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 UBK CAPITAL STOCK -- Preferred Stock --
General."
Generally, the issuance of preferred stock by either NCC or UBK could (a)
result in a class of securities outstanding which will have certain preferences
regarding distributions in a liquidation over their respective common stock and
might provide for certain rights (whether general, special, conditional or
limited) that could dilute the voting rights of their respective common stock
and (b) result in dilution of the net income per share and net book value per
share relating to their respective common stock. Further, the issuance of any
additional shares of NCC Common or UBK 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 Convertible Preferred Stock provide that
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 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 Convertible Preferred Stock is in arrears,
the number of directors of NCC will be increased by two, and the holders of
Convertible 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 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 11.919 shares of NCC Common for each share of Convertible
Preferred Stock and 2.384 shares for each Depository Share). See "DESCRIPTION OF
NCC CAPITAL STOCK -- Preferred Stock."
59
<PAGE> 64
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.
KRS 271B.7-280 of the KBCA provides that shareholders shall have cumulative
voting rights in all elections of directors of a corporation, and that directors
of a corporation shall not be elected in any other manner.
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.
KRS 271B.7-040 of the KBCA permits any action required or permitted to be
taken at a stockholder's meeting to be taken by written consent signed by all of
the shareholders entitled to vote on the action and, if the articles of
incorporation expressly provide, any action required or permitted to be taken at
a stockholder meeting (other than the election of directors) may be taken by
written consent signed by stockholders entitled to vote on the action
representing not less than 80% (or such higher percentage required by the KBCA
or the articles of incorporation) of the votes entitled to be cast. The KBCA
requires that prompt notice of the taking of any action by stockholders without
a meeting by less than unanimous written consent shall be given to those
stockholders entitled to vote on the action who have not consented in writing.
Article 8 of UBK's Articles provides that any action required or permitted to be
taken at a shareholders' meeting, except the election of directors, may be taken
without a meeting and without prior notice if the action is taken by
shareholders entitled to vote on the action who represent not less than eighty
percent (80%) (or such higher percentage otherwise required by law) of the votes
entitled to be cast on such action; provided, however, that notice of the taking
of any action by shareholders without a meeting by less than unanimous written
consent shall be given promptly after the action becomes effective to those
shareholders entitled to vote on the action who have not consented in writing.
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.
Under KRS 271B.7-020 of the KBCA, special meetings of shareholders of a
Kentucky corporation may be called by its board of directors or the persons
authorized to do so by the articles of incorporation or bylaws, or by holders of
at least one-third (or such higher or lower percentage as is contained in the
articles of incorporation) of all votes entitled to be cast on any issue at the
special meeting. UBK's By-Laws provide that special meetings of its shareholders
may be called by the President, by the board of directors or by the holders of
not less than one-fifth of all the shares entitled to vote at such meetings.
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
60
<PAGE> 65
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."
Kentucky law generally requires the affirmative vote of a majority of the
votes represented by outstanding shares of each class or voting group entitled
to vote to approve a merger, share exchange or sale, lease, exchange or other
disposition of all or substantially all of UBK's assets other than in the
ordinary course of business. As a bank holding company, UBK is also subject to
various provisions of federal law with respect to mergers, consolidations and
certain other corporate transactions.
Under Kentucky law, a shareholder is entitled to dissent from, and obtain
payment of the fair value of his shares, in the event of any of the following
corporate actions: (i) consummation of a plan of merger, if shareholder approval
is required for the merger and the shareholder is entitled to vote thereon, or
if the corporation is merged into a parent corporation under a "short-form"
merger; (ii) consummation of a plan of share exchange involving the acquisition
of the corporation's shares and with respect to which the shareholder is
entitled to vote thereon; (iii) consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the ordinary
course of business, if the shareholder is entitled to vote thereon; (iv) an
amendment of the articles of incorporation of the corporation that materially
and adversely affects the shareholder's rights, such as affecting distribution
or voting rights; (v) any transaction subject to Kentucky's statutory business
combination provisions; or (vi) any corporate transaction with respect to which
the corporation's articles of incorporation, bylaws or board of directors
provide dissenter's rights.
The DGCL requires approval of stockholders holding a majority of the voting
power of NCC in order to amend NCC's Certificate.
In order to amend a corporation's articles of incorporation, the KBCA
generally requires that, after the amendment has been recommended to the
shareholders by the board of directors, the amendment must be approved by
stockholders holding a majority of the voting power of the corporation (unless
the articles of incorporation require a greater vote). Unless the articles of
incorporation provide otherwise, the board of directors of a corporation can
amend the corporation's articles of incorporation without shareholder action in
certain limited circumstances which do not affect the relative equity ownership
interests of the stockholders. UBK's Articles do not contain any specific
provisions regarding amendments.
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.
KRS 271B.10-220 of the KBCA generally places the power to amend or repeal a
corporation's bylaws in the corporation's directors, unless the articles of
incorporation or the KBCA reserve this power exclusively to the stockholders in
whole or in part, or unless the stockholders in amending or repealing a
particular bylaw provide expressly that the board of directors may not amend or
repeal that bylaw. Section 8.01 of UBK's By-Laws provide that its Board of
Directors shall have the power and authority to alter, amend or repeal UBK's
By-Laws, subject always to the power of the shareholders to change or repeal its
bylaws.
61
<PAGE> 66
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.
Under KRS 271B.6-300 of the KBCA, the stockholders of a corporation shall
not have a preemptive right to acquire the corporation's unissued shares, except
to the extent the articles of incorporation so provide. However, shareholders of
a corporation that existed on January 1, 1989, whose articles of incorporation
did not on January 1, 1989, contain a provision specifically addressing
preemptive rights shall have a preemptive right to acquire the corporation's
unissued shares. Article 5 of UBK's Articles specifically states that no
shareholder shall have any preemptive right to acquire any shares of stock of
any class or series of the corporation.
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.
Holders of UBK Common are entitled to dividends and other distributions as
may be declared from time to time by the Board of Directors of UBK out of funds
legally available therefor. The board of directors of a Kentucky corporation may
make a distribution to its shareholders so long as, after giving effect to the
distribution, (i) the corporation is able to pay its debts as they become due in
the usual course of business, (ii) the corporation's total assets would not be
less than the sum of its total liabilities plus the amount that would be needed,
if the corporation were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution, and (iii)
the corporation's articles of incorporation do not otherwise prohibit such
dividend or distribution.
NCC and UBK are 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 UBK 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 Harlan.
EXPERTS
The consolidated financial statements of NCC appearing in NCC's Annual
Report on Form 10-K for the year ended December 31, 1994, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of UBK as of December 31, 1994 and
1993, and for each of the years in the three-year period ended December 31,
1994, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP included
herein refers to changes in accounting for investment securities and income
taxes during 1993.
An opinion on the Federal income tax consequences of the proposed
transaction will be issued by Brown, Todd & Heyburn PLLC, Lexington, Kentucky.
James F. Rose, an attorney with Brown, Todd & Heyburn PLLC, beneficially owned
3,107 shares of UBK Common and 200 shares of preferred stock series A, as of the
record date for the Special Meeting. As part of his legal practice, Mr. Rose
regularly represents UBK in a wide variety of matters, including but not limited
to the negotiation of the Merger Agreement and the preparation of this
Prospectus and Proxy Statement. Mr. Rose also serves as a member of the Board of
Directors of First National Bank and Trust Company, Nicholasville, Kentucky, and
American Fidelity Bank, FSB, two wholly-owned
62
<PAGE> 67
subsidiaries of UBK. Mr. Rose is the son of James L. Rose and Judy S. Rose, who
beneficially own approximately 83.70% of the UBK Common.
LEGAL OPINIONS
The Merger Agreement provides as a condition to the parties' obligation to
close that NCC and UBK shall have received the opinion of Brown, Todd & Heyburn
PLLC, substantially to the effect, among other things, that no gain or loss will
be recognized by the shareholders of UBK who exchange their shares of UBK 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).
63
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
The Board of Directors
United Bancorp of Kentucky, Inc.:
We have audited the accompanying consolidated balance sheets of United Bancorp
of Kentucky, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Bancorp of
Kentucky, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, in 1993 the
Corporation adopted the provisions of the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", and No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
KPMG PEAT MARWICK LLP
Lexington, Kentucky
March 17, 1995
64
<PAGE> 69
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks (note 12)....................................... $ 25,072 $ 25,066
Interest-bearing deposits with banks.................................... 3,200 --
Federal funds sold and securities purchased under resale agreements..... 4,275 20,700
Securities available for sale (amortized cost of $104,776 and $104,563
at
December 31, 1994 and 1993, respectively) (note 4).................... 101,232 105,045
Securities held to maturity (approximate fair value of $43,325 at
December 31, 1994) (note 4)........................................... 43,635 --
Loans (notes 5, 10 and 16).............................................. 409,491 316,155
Less:
Allowance for loan losses.......................................... 4,250 4,175
Unearned income.................................................... 391 525
-------- --------
Net loans..................................................... 404,850 311,455
Premises and equipment, net (note 6).................................... 20,403 14,333
Accrued interest receivable and other assets (note 8)................... 16,173 8,633
-------- --------
$618,840 $485,232
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing.................................................. $ 77,990 63,862
Interest bearing (note 7)............................................. 435,384 354,820
-------- --------
Total deposits................................................ 513,374 418,682
Federal funds purchased and securities sold under repurchase
agreements............................................................ 16,319 7,748
Advances from the Federal Home Loan Bank (note 10)...................... 29,875 8,667
Notes payable and capital lease obligations (notes 9 and 14)............ 14,266 7,819
Accrued interest payable and other liabilities.......................... 4,139 3,206
-------- --------
Total liabilities............................................. 577,973 446,122
-------- --------
Minority interest in consolidated subsidiary (note 2)................... 1,492 123
Stockholders' equity (note 11):
Preferred stock....................................................... 8,661 8,064
Common Stock, Series A, $10 par value. Authorized 2,000,000 shares;
issued and outstanding 517,302 shares in 1994 and 518,052 shares in
1993............................................................... 5,173 5,181
Common Stock, Series AA, $10 par value. Authorized 2,000,000 shares;
issued and outstanding 538,902 shares in 1994 and 539,652 shares in
1993............................................................... 5,389 5,397
Additional paid-in capital............................................ 1,467 1,497
Retained earnings (note 12)........................................... 21,024 18,529
Net unrealized (loss) gain on securities available for sale (note
4)................................................................. (2,339) 319
-------- --------
Total stockholders' equity.................................... 39,375 38,987
Commitments and contingent liabilities (notes 14 and 15)
-------- --------
$618,840 $485,232
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
65
<PAGE> 70
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
-----------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees......................................... $29,349 $27,255 $30,341
Federal funds sold and securities purchased under resale
agreements................................................. 668 479 582
U. S. Treasury and Federal agencies........................... 4,570 4,141 4,964
Obligations of states and political subdivisions.............. 200 339 668
Other securities.............................................. 1,243 1,401 804
------- ------- -------
Total interest income................................. 36,030 33,615 37,359
------- ------- -------
Interest expense:
Deposits...................................................... 12,937 12,412 16,821
Federal funds purchased and securities
sold under repurchase agreements........................... 456 312 387
Advances from the Federal Home Loan Bank...................... 896 66 111
Notes payable and capital lease obligations................... 661 728 641
------- ------- -------
Total interest expense................................ 14,950 13,518 17,960
------- ------- -------
Net interest income................................... 21,080 20,097 19,399
Provision for loan losses (note 5)............................ 30 215 2,071
------- ------- -------
Net interest income after provision for loan losses... 21,050 19,882 17,328
------- ------- -------
Non-interest income:
Service charges on deposit accounts........................... 2,229 2,076 2,077
Securities gains, net (note 4)................................ 479 1,277 1,158
Data processing fees.......................................... 105 452 620
Other......................................................... 1,393 1,144 917
------- ------- -------
Total non-interest income............................. 4,206 4,949 4,772
------- ------- -------
Non-interest expenses:
Salaries and employee benefits (note 13)...................... 9,935 8,998 8,149
Net occupancy expense (note 16)............................... 1,890 1,689 1,784
Furniture and equipment expense............................... 1,547 1,409 1,519
Deposit insurance............................................. 1,041 1,014 1,028
Professional fees............................................. 765 444 444
Other......................................................... 4,083 3,866 3,845
------- ------- -------
Total non-interest expenses........................... 19,261 17,420 16,769
------- ------- -------
Income before income taxes and cumulative effect of
change in accounting principle...................... 5,995 7,411 5,331
Income tax expense (note 8)..................................... 1,994 2,365 1,526
------- ------- -------
Income before cumulative effect of change in
accounting principle................................ 4,001 5,046 3,805
Cumulative effect of change in accounting for income taxes (note
8)............................................................ -- 70 --
------- ------- -------
Net income............................................ 4,001 5,116 3,805
Dividends on preferred stock.................................... 713 666 675
------- ------- -------
Net income applicable to common stock................. $ 3,288 $ 4,450 $ 3,130
======= ======= =======
Income per common share before cumulative effect of change in
accounting principle.......................................... $ 3.11 4.14 2.96
Cumulative effect of change in accounting for income taxes...... -- .07 --
------- ------- -------
Net income per common share..................................... $ 3.11 $ 4.21 $ 2.96
======= ======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
66
<PAGE> 71
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT FOR SHARE AND PER-SHARE DATA)
<CAPTION>
COMMON STOCK, COMMON STOCK,
PREFERRED STOCK SERIES A SERIES AA
-------------------- -------------------- -------------------- ADDITIONAL
NUMBER NUMBER NUMBER PAID-IN RETAINED
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL EARNINGS
--------- ------ --------- ------ --------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1992..... 79,185 $7,463 518,052 $5,181 539,652 $5,397 $1,510 $10,949
Net income..................... -- -- -- -- -- -- -- 3,805
Dividends on preferred stock
(note 11).................... -- -- -- -- -- -- -- (675)
Issuance of Preferred Stock
A............................ 3,000 300 -- -- -- -- (10) --
Issuance of Preferred Stock
D............................ 100 1 -- -- -- -- -- --
Redemption of Preferred Stock
D............................ (250) (3) -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ---------- --------
Balance at December 31, 1992... 82,035 7,761 518,052 5,181 539,652 5,397 1,500 14,079
Net income..................... -- -- -- -- -- -- -- 5,116
Dividends on Preferred Stock
(note 11).................... -- -- -- -- -- -- -- (666)
Issuance of Preferred Stock
A............................ 3,026 303 -- -- -- -- (3) --
Net unrealized gain on
securities available for sale
(note 4)..................... -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ---------- --------
Balance at December 31, 1993... 85,061 8,064 518,052 5,181 539,652 5,397 1,497 18,529
Net income..................... -- -- -- -- -- -- -- 4,001
Dividends on Preferred Stock
(note 11).................... -- -- -- -- -- -- -- (713)
Dividends on Common Stock ($.75
per share)................... -- -- -- -- -- -- -- (793)
Issuance of Preferred Stock
A............................ 4,000 400 -- -- -- -- -- --
Issuance of Preferred Stock
AA........................... 2,250 225 -- -- -- -- -- --
Issuance of Preferred Stock
D............................ 100 1 -- -- -- -- -- --
Redemption of Preferred Stock
A............................ (280) (28) -- -- -- -- -- --
Redemption of Preferred Stock
D............................ (200) (1) -- -- -- -- -- --
Redemption of Common Stock A... -- -- (750) (8) -- -- (15) --
Redemption of Common Stock AA.. -- -- -- -- (750) (8) (15) --
Net unrealized loss on
securities available for sale
(note 4)..................... -- -- -- -- -- -- -- --
--------- ------ --------- ------ --------- ------ ---------- --------
Balance at December 31, 1994... 90,931 $8,661 517,302 $5,173 538,902 $5,389 $1,467 $21,024
======== ======= ======== ======= ======== ======= ========= =======
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
ON SECURITIES
AVAILABLE
FOR SALE TOTAL
-------------- -------
<S> <C> <C>
Balance at January 1, 1992..... $ -- $30,500
Net income..................... -- 3,805
Dividends on preferred stock
(note 11).................... -- (675)
Issuance of Preferred Stock
A............................ -- 290
Issuance of Preferred Stock
D............................ -- 1
Redemption of Preferred Stock
D............................ -- (3)
------- -------
Balance at December 31, 1992... -- 33,918
Net income..................... -- 5,116
Dividends on Preferred Stock
(note 11).................... -- (666)
Issuance of Preferred Stock
A............................ -- 300
Net unrealized gain on
securities available for sale
(note 4)..................... 319 319
------- -------
Balance at December 31, 1993... 319 38,987
Net income..................... -- 4,001
Dividends on Preferred Stock
(note 11).................... -- (713)
Dividends on Common Stock ($.75
per share)................... -- (793)
Issuance of Preferred Stock
A............................ -- 400
Issuance of Preferred Stock
AA........................... -- 225
Issuance of Preferred Stock
D............................ -- 1
Redemption of Preferred Stock
A............................ -- (28)
Redemption of Preferred Stock
D............................ -- (1)
Redemption of Common Stock A... -- (23)
Redemption of Common Stock AA.. -- (23)
Net unrealized loss on
securities available for sale
(note 4)..................... (2,658) (2,658)
------- -------
Balance at December 31, 1994... $ (2,339) $39,375
============ =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
67
<PAGE> 72
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 4,001 $ 5,116 $ 3,805
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses.......................................... 30 215 2,071
Securities gains, net:
Available for sale............................................... (479) (1,239) (1,158)
Held to maturity................................................. -- (38) --
Depreciation, amortization and accretion, net...................... 3,729 3,443 2,917
Deferred income taxes.............................................. 1,507 333 (60)
Minority interest in net income (loss) of subsidiaries............. 9 (310) 24
Gain on sales of premises and equipment............................ (76) (10) (12)
Decrease (increase) in accrued interest receivable and other
assets............................................................ (6,693) 329 3,879
Decrease in accrued interest payable and other liabilities......... (302) (504) (1,614)
-------- -------- --------
Net cash provided by operating activities..................... 1,726 7,335 9,852
-------- -------- --------
Cash flows from investing activities:
Net increase in interest-bearing deposits with banks.................. (3,000) -- --
Net decrease in federal funds sold and securities purchased under
resale agreements.................................................. 16,425 7,875 1,525
Proceeds from sales of securities:
Available for sale................................................. 1,069 80,118 57,806
Held to maturity................................................... -- 1,891 --
Proceeds from maturities of securities:
Available for sale................................................. 9,988 6,562 4,000
Held to maturity................................................... 568 6,552 4,045
Purchases of securities:
Available for sale................................................. (12,860) (92,204) (63,111)
Held to maturity................................................... (20,011) (13,432) (8,198)
Net (increase) decrease in loans...................................... (38,562) (4,064) 3,303
Proceeds from sales of premises and equipment......................... 348 27 152
Purchases of premises and equipment................................... (3,874) (648) (800)
Net assets acquired in business combinations, net of cash and cash
equivalents........................................................ (1,213) -- --
-------- -------- --------
Net cash used in investing activities......................... (51,122) (7,323) (1,278)
-------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits................................... 15,531 (1,872) (8,032)
Net increase (decrease) in federal funds purchased and securities sold
under repurchase agreements........................................ 7,571 (4,179) 2,313
Proceeds from advances from the Federal Home Loan Bank................ 36,844 7,959 1,260
Repayment of advances from the Federal Home Loan Bank................. (16,036) (285) -
Proceeds from notes payable........................................... 8,060 200 440
Repayment of notes payable............................................ (1,509) (2,277) (600)
Repayment of capital lease obligations................................ (104) (106) (218)
Issuance of preferred stock........................................... 626 300 291
Redemption of preferred stock......................................... (29) - (3)
Redemption of common stock............................................ (46) - -
Dividends paid........................................................ (1,506) (666) (675)
-------- -------- --------
Net cash provided by (used in) financing activities........... 49,402 (926) (5,224)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.................... 6 (914) 3,350
Cash and cash equivalents at beginning of year.......................... 25,066 25,980 22,630
-------- -------- --------
Cash and cash equivalents at end of year (note 3)....................... $ 25,072 $ 25,066 $ 25,980
======= ======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
68
<PAGE> 73
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the consolidated
balance sheet and revenues and expenses for the period. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near-term relate to the determination
of the allowance for loan losses.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of United
Bancorp of Kentucky, Inc. (United Bancorp) and its wholly-owned subsidiaries;
London Bank & Trust Company (London), First State Bank and Trust Company
(Manchester), Bank of Danville and Trust Company (Danville), First National Bank
and Trust Company (Nicholasville), Richmond Bank and Trust Company (Richmond),
First National Bank & Trust Company of Woodford County (Woodford County),
American Fidelity Bank, FSB (Harlan) (collectively, the Banks), UBK Realty,
Inc., and Computer Bank Services, Inc. (CBSI). The consolidated financial
statements also include the accounts of American Fidelity Bank and Trust Company
(Corbin), which in the aggregate is a majority-owned subsidiary of United
Bancorp (see note 2). Significant intercompany balances and transactions have
been eliminated in consolidation.
SECURITIES
On December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". Accordingly, all debt securities in which the
Corporation does not have the positive intent to hold to maturity are classified
as available for sale and are carried at fair value. All equity securities are
classified as securities available for sale at December 31, 1994 and 1993. Net
unrealized gains and losses on securities available for sale are reported as a
separate component of stockholders' equity (net of income taxes). Securities
classified as held to maturity are carried at amortized cost. The Corporation
has no securities classified as trading securities. Amortization of premiums and
accretion of discounts are recorded on the level yield method. The specific
identification method is used in determining gains and losses on the sale of
securities.
LOANS
Loans are stated at the unpaid principal balance. Interest income on loans
is recorded on the accrual basis, except for those loans in a nonaccrual status.
Loans are placed in a nonaccrual status, when in the opinion of management, the
prospects for recovering both principal and accrued interest are considered
doubtful. Unearned income, arising principally from consumer installment loans,
is reflected as a reduction of loans and is recognized as income using a method
which approximates the interest method. The recognition of interest income on
loans is discontinued at the earlier of 90 days or when in the opinion of
management the collection of principal or interest is doubtful. A nonaccrual
loan may be restored to an accruing status when principal and interest are no
longer past due and unpaid and future collection of principal and interest on a
timely basis is not in doubt. Loan fees are not significant.
(continued)
69
<PAGE> 74
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Corporation is required to adopt SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," on January 1,
1995. SFAS No. 114 requires that impaired loans be measured based on either the
present value of expected future cash flows, the loan's market value, or for
collateral dependent loans, the market value of the collateral. Management does
not expect the adoption of this standard to have a significant impact on the
Corporation's financial position or results of operations.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level adequate to absorb
probable losses in the loan portfolio. Management determines the adequacy of the
allowance based upon review of individual credits, recent loss experience,
current economic conditions, the risk characteristics of the various categories
of loans and such other factors which, in management's judgment, deserve current
recognition in estimating loan losses. The allowance for loan losses is
increased by the provision for loan losses and reduced by net charge-offs.
OTHER ASSETS
Unamortized costs of purchased subsidiaries in excess of the net assets
acquired (goodwill) are included in other assets and aggregate approximately
$6,345,000 and $2,142,000 at December 31, 1994 and 1993, respectively. Goodwill
is being amortized on the straight-line method over fifteen to twenty years. The
Corporation assesses recoverability of goodwill by comparing the carrying amount
with the projected undiscounted future net cash flows. Based on this
calculation, the Corporation determined that there was no impairment of this
undiscounted future net cash flow. Also included in other assets is real estate
acquired in settlement of loans and loans classified as in-substance
foreclosures aggregating $599,000 and $653,000 at December 31, 1994 and 1993.
Real estate acquired in settlement of loans and loans classified as in-substance
foreclosures are carried at the lower of fair value minus estimated selling
costs. Costs relating to holding real estate acquired in settlement of loans are
charged against income as incurred.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation of premises and equipment is computed using both
accelerated and straight-line methods over the estimated useful lives of the
assets. Leasehold improvements are amortized on the straight-line method over
the term of the related lease or over the useful life of the improvements,
whichever is shorter. Assets under capital leases are amortized over the terms
of the leases.
INCOME TAXES
The Corporation accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the asset and liability
method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future income tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
Corporation previously followed SFAS No. 96, "Accounting for Income Taxes," and
adopted SFAS No. 109 January 1, 1993. The cumulative effect of the change has
been reported separately in the 1993 consolidated statement of income.
(continued)
70
<PAGE> 75
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NET INCOME PER COMMON SHARE
Net income per common share data are based on the weighted average number
of common shares and common stock equivalents of 1,057,328 in 1994 and 1,057,704
in 1993 and 1992.
(2) BUSINESS COMBINATIONS
On October 12, 1994, the Corporation acquired 35,084 shares (77.96%) of the
45,000 outstanding shares of common stock of Corbin. The aggregate costs,
including consideration and acquisition costs, were $8,179,000. The excess of
the costs over the fair value of net assets acquired of $2,681,000 was recorded
as goodwill. As of December 31, 1994, the Corporation owned 36,975 shares
(82.17%) of Corbin's common stock.
The Corbin acquisition has been accounted for under the purchase method of
accounting and, accordingly, the results of operations and cash flows of this
entity have been included in the Corporation's consolidated financial statements
since the date of acquisition.
The aggregate fair value of Corbin's net assets acquired included the
following:
<TABLE>
<S> <C>
(In thousands)
Cash due from banks...................................................... $ 4,183
Securities............................................................... 15,073
Net loans................................................................ 40,901
Premises and equipment................................................... 2,855
Other assets............................................................. 705
Deposits................................................................. (56,316)
Federal funds purchased.................................................. (1,000)
Other liabilities........................................................ (904)
Minority interest in consolidated bank subsidiary........................ (1,463)
--------
Net assets acquired...................................................... $ 4,034
=======
</TABLE>
Total revenues and net income from Corbin of approximately $1,156,000 and
$162,000, respectively, are included in the Corporation's 1994 consolidated
statement of income.
On November 18, 1994, the Corporation acquired all of the outstanding
shares of common stock of Harlan. The aggregate costs, including consideration
and acquisition costs, were $3,852,000. The excess of the costs over the fair
value of net assets acquired of $1,607,000 was recorded as goodwill.
The Harlan acquisition has been accounted for under the purchase method of
accounting and, accordingly, the results of operations and cash flows of the
entity have been included in the Corporation's consolidated financial statements
since the date of acquisition.
(continued)
71
<PAGE> 76
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The aggregate fair value of Harlan's net assets acquired included the
following:
<TABLE>
<S> <C>
(In thousands)
Cash due from banks...................................................... $ 987
Interest-bearing deposits with banks..................................... 200
Securities............................................................... 9,274
Net loans................................................................ 13,962
Premises and equipment................................................... 881
Other assets............................................................. 518
Deposits................................................................. (22,845)
Other borrowings......................................................... (400)
Other liabilities........................................................ (331)
--------
Net assets acquired...................................................... $ 2,246
=======
</TABLE>
Total revenue and net income from Harlan of approximately $226,000 and
$14,000, respectively, is included in the Corporation's 1994 consolidated
statement of income.
Also during 1994, the Corporation acquired the remaining minority interest
of approximately $103,000 in CBSI and simultaneously consolidated the operations
of a second data processing subsidiary, UBK Data Systems, Inc. into CBSI.
(3) STATEMENT OF CASH FLOWS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash on hand and amounts due from banks.
The following summarizes supplemental cash flow data for the years ended
December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest................................. $15,127 $14,284 $19,457
Cash paid for Federal income taxes..................... 2,111 1,985 1,525
Non-cash transactions:
Loans transferred to other real estate................. $ 814 $ 1,476 $ 2,102
======= ======= =======
</TABLE>
(4) SECURITIES
As discussed in note 1, the Corporation adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." In conjunction with the
adoption of SFAS No. 115 on December 31, 1993, the Corporation reclassified
$26,153,000 of securities to the available-for-sale classification from the
held-to-maturity classification. At that date, unrealized appreciation on total
securities available for sale was approximately $482,000, resulting in an
increase in stockholders' equity of approximately $319,000, net of taxes. There
was no impact on the Corporation's consolidated net income as a result of the
adoption of SFAS No. 115.
(continued)
72
<PAGE> 77
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The amortized cost and fair value of securities available for sale and
gross unrealized gains and losses at December 31, 1994 and 1993 are as follows:
<CAPTION>
1994
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury and federal agencies... $ 83,924 $ -- $ (3,268) $ 80,656
Obligations of states and political
subdivisions........................ 937 55 -- 992
Corporate and other securities........ 19,915 6 (337) 19,584
--------- --- ---------- --------
$104,776 $ 61 $ (3,605) $101,232
========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
1993
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury and federal agencies... $ 83,166 $208 $ (158) $ 83,216
Obligations of states and political
subdivisions........................ 2,285 148 -- 2,433
Corporate and other securities........ 19,112 303 (19) 19,396
--------- ---------- ---------- --------
$104,563 $659 $ (177) $105,045
========= ========= ========= ========
</TABLE>
<TABLE>
The amortized cost and fair value of securities held to maturity and gross
unrealized gains and losses at December 31, 1994 are as follows:
<CAPTION>
1994
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies..... $ 38,699 $1,090 $ (1,398) $38,391
Obligations of states and political
subdivisions......................... 4,936 14 (16) 4,934
--------- ---------- ---------- -------
$ 43,635 $1,104 $ (1,414) $43,325
========= ========= ========= =======
</TABLE>
(continued)
73
<PAGE> 78
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of debt securities as of December 31, 1994, based on contractual
maturities is presented in the table below. Expected maturities may differ from
contractual maturities because the issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<CAPTION>
SECURITIES AVAILABLE SECURITIES HELD
FOR SALE TO MATURITY
-------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due within one year...................... $ 2,571 $ 2,580 $ 1,030 $ 1,030
Due after one year through five years.... 95,708 92,121 30,591 30,357
Due after five years through ten years... 190 192 7,012 7,045
Due after ten years...................... 203 235 5,002 4,893
--------- ------- --------- -------
$ 98,672 $95,128 $43,635 $43,325
========= ======= ========= =======
</TABLE>
Included in other securities at December 31, 1994 and 1993 are marketable
equity securities with an original cost, which approximates fair value, of
$6,104,000 and $4,449,000, respectively.
Securities with a par value, which approximates carrying value, of
approximately $89,418,000 and $59,561,000 at December 31, 1994 and 1993,
respectively, were pledged to secure public funds, trust funds and for other
purposes.
Gross gains of approximately $479,000, $1,279,000, and $1,167,000 and gross
losses of $0, $2,000, and $9,000, were realized on sales of securities for 1994,
1993 and 1992, respectively.
(5) LOANS
The composition of loans at December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commercial.................................................... $ 52,331 $ 48,664
Real estate -- construction................................... 30,315 15,656
Real estate -- mortgage....................................... 270,531 204,417
Agricultural.................................................. 22,310 20,722
Consumer...................................................... 34,004 26,696
-------- --------
$409,491 $316,155
======== ========
</TABLE>
The principal balance of nonaccrual and renegotiated loans at December 31,
1994, 1993 and 1992 was approximately $1,734,000, $879,000 and $2,153,000,
respectively. The interest that would have been recorded if all such loans were
on a current status in accordance with their original terms was approximately
$162,000 in 1994, $86,000 in 1993 and $255,000 in 1992. The amount of interest
income that was recorded for such loans was approximately $61,000 in 1994,
$30,000 in 1993 and $181,000 in 1992.
Loans outstanding and related unfunded commitments are primarily
concentrated within the Banks' markets which encompass Central and South Central
Kentucky. The Banks' credit exposure is diversified, with secured and unsecured
loans to consumers, small businesses and corporations. Although the Banks have
diversified loan portfolios, a customer's ability to honor contracts is reliant
upon the economic stability of the geographic region and/or industry in which
they do business. No specific industry concentration exceeded 10% of loans.
(continued)
74
<PAGE> 79
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
An analysis of the changes in the allowance for loan losses for the years
ended December 31, 1994, 1993 and 1992 follows:
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1...................................... $4,175 $4,703 $4,161
Provision for loan losses................................. 30 215 2,071
Balance of allowance for loan losses of acquired
subsidiaries at acquisition date........................ 639 -- --
------ ------ ------
4,844 4,918 6,232
------ ------ ------
Loans charged-off......................................... 1,160 1,100 2,267
Recoveries................................................ 566 357 738
------ ------ ------
Net loans charged-off........................... 594 743 1,529
------ ------ ------
Balance at December 31.................................... $4,250 $4,175 $4,703
====== ====== ======
</TABLE>
<TABLE>
(6) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1994 and 1993 follows:
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................ $ 2,806 $ 2,110
Buildings and improvements...................................... 18,520 16,018
Furniture and equipment......................................... 13,391 8,459
------- -------
34,717 26,587
Less accumulated depreciation and amortization.................. 14,314 12,254
------- -------
$20,403 $14,333
======= =======
</TABLE>
<TABLE>
(7) INTEREST BEARING DEPOSITS
The composition of interest bearing deposits at December 31, 1994 and 1993
follows:
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Demand........................................................ $132,494 $123,327
Savings....................................................... 39,162 32,980
Time deposits $100,000 and over............................... 65,342 39,864
Other time deposits........................................... 198,386 158,649
-------- --------
$435,384 $354,820
======== ========
</TABLE>
(8) INCOME TAXES
As discussed in note 1, the Corporation adopted SFAS No. 109, effective
January 1, 1993. The cumulative effect of the adoption of SFAS No. 109 was a
$70,000 tax benefit and was reported in the consolidated statement of income for
the year ended December 31, 1993.
(continued)
75
<PAGE> 80
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Total income tax expense (benefit) for the years ended December 31, 1994,
1993 and 1992 was as follows:
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current................................................... $ 487 $2,032 $1,586
Deferred.................................................. 1,507 403 (60)
------ ------ ------
Total income tax expense from operations.................. 1,994 2,435 1,526
Income tax benefit from adoption of SFAS 109.............. -- (70) --
------ ------ ------
$1,994 $2,365 $1,526
====== ====== ======
</TABLE>
In addition to the amounts in the above table, the Corporation provided
taxes relating to the adoption of SFAS No. 115. In accordance with SFAS No. 115,
there were $2,339,000 of unrealized losses and $319,000 of unrealized gains
recorded directly to stockholders' equity in 1994 and 1993, respectively. The
tax effect applicable to the unrealized losses and gains was $1,205,000 and
$163,000 in 1994 and 1993, respectively.
<TABLE>
An analysis of the differences between the effective tax rate and the
statutory income tax rate is as follows:
<CAPTION>
1994 1993 1992
---- ----- -----
<S> <C> <C> <C>
Statutory income tax rate..................................... 34.0% 34.0% 34.0%
Changes from statutory income tax rate:
Tax exempt interest income.................................... (1.8) (1.9) (4.9)
Non-deductible expenses....................................... .2 .2 .2
Amortization of goodwill...................................... 1.1 .9 1.3
Effect of alternative minimum tax (AMT)....................... 2.5 - (3.1)
Other......................................................... (2.7) (1.3) 1.1
---- ----- -----
33.3% 31.9% 28.6%
==== ===== =====
</TABLE>
(continued)
76
<PAGE> 81
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1993, are presented below:
<CAPTION>
1994 1993
------ -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses........................................ $ 238 $ 489
Accounting differences for investment securities................. 901 --
Alternative minimum tax credit................................... 51 --
Other............................................................ 2 9
------ -----
Total gross deferred tax asset................................ 1,192 498
------ -----
Deferred tax liabilities:
Depreciation..................................................... 123 103
FHLB stock....................................................... 154 78
Accounting differences for investment securities................. -- 405
Pension accounting differences................................... 98 47
Other............................................................ -- 13
------ -----
Total gross deferred tax liabilities.......................... 375 646
------ -----
Net deferred tax asset (liability)....................... $ 817 $(148)
====== =====
</TABLE>
The Corporation has no valuation allowance for deferred tax assets as of
December 31, 1994 and 1993. Based upon the level of historical taxable income
and projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not the
Corporation will realize the benefits of these deductible differences.
The principal sources of timing differences in 1992, which result in
deferred tax expense (benefit) are summarized as follows (in thousands):
<TABLE>
<S> <C>
Loan loss deduction for tax purposes less than provision for loan losses... $(168)
Excess tax depreciation.................................................... 20
Pension deduction in excess of expense..................................... 46
Other...................................................................... 42
-----
$ (60)
=====
</TABLE>
(continued)
77
<PAGE> 82
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(9) NOTES PAYABLE
Notes payable and capital lease obligations consist of the following at
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------- ------
(IN THOUSANDS)
<S> <C> <C>
Secured note payable to bank; due September 30, 1999; interest at
the prime interest rate, (8.50% and 6.00% at December 31, 1994
and 1993, respectively) payable quarterly...................... $ 9,250 $4,750
Secured note payable to bank; due September 30, 1999; interest at
the prime interest rate, payable quarterly..................... 4,000 2,030
Unsecured revolving credit notes; due September 30, 1995 and
1994, respectively; interest at the prime interest rate,
payable quarterly.............................................. 675 325
Other short-term notes payable................................... 249 518
Obligations under capital leases (note 14)....................... 92 196
------- ------
$14,266 $7,819
======= ======
</TABLE>
In September 1994, the Corporation entered in to a $12,500,000 renewed and
amended secured promissory note with a bank. Advances outstanding as of December
31, 1994 amount to $9,250,000. The note matures September 30, 1999 and is
secured by all of the issued and outstanding common stock of Corbin, Danville,
London, Manchester and Nicholasville. The total amount of credit available under
the note reduces annually by $1,250,000, and any amounts outstanding in excess
of this reducing amount are due and payable on September 30, 1999. Based upon
the current balance of the note and the above terms, United Bancorp will be
required to reduce the principal of this note $500,000 in 1997, $1,250,000 in
1998 and $7,500,000 in 1999. The related loan agreement contains a number of
restrictive covenants, including maintaining minimum levels of tangible net
worth on a consolidated basis and a combined bank basis, minimum capital to
asset ratios at each bank, minimum allowance for loan loss ratios at each bank,
and a minimum percentage of net income to average assets for the combined banks.
The secured note payable to bank of $4,000,000 is collateralized by all of
the issued and outstanding stock of Richmond. The amount of credit available
reduces annually on September 30 by $400,000, and any amounts outstanding in
excess of this reducing amount are payable on September 30 of each year. A final
payment is due for any unpaid balance on September 30, 1999. Based upon the
balance of the note and the above terms, United Bancorp will be required to
reduce the principal $400,000 annually for the years 1995 through 1998 and
$2,400,000 in 1999.
At December 31, 1994 and 1993, United Bancorp and its non-bank subsidiaries
have unsecured lines of credit available from a commercial bank aggregating
$1,000,000, with $675,000 and $325,000 outstanding, respectively.
(10) ADVANCES FROM THE FEDERAL HOME LOAN BANK
The Banks are members of the Federal Home Loan Bank of Cincinnati (FHLB)
and, accordingly, are eligible to borrow from the FHLB. Advances from the FHLB
are secured by the Bank's stock in the FHLB and certain first mortgage loans
pledged to the FHLB. The aggregate value of the collateral must equal 150% of
the
(continued)
78
<PAGE> 83
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
outstanding advances. Certain information with respect to outstanding advances
from the FHLB at December 31, 1994 and 1993 is as follows:
<CAPTION>
1994 1993
-------------------- -------------------
(IN THOUSANDS) WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
YEAR OF MATURITY AMOUNT RATE % AMOUNT RATE %
---------------- ------- -------- ------ --------
<S> <C> <C> <C> <C>
1994 $ -- --% $3,500 3.60%
1995 11,934 6.88 90 6.26
1996 1,671 6.70 717 4.55
1997 2,054 6.93 54 5.95
1998 387 5.40 394 5.40
1999 5,173 6.89 25 5.60
2000 thru 2004 7,210 6.12 2,930 5.30
2005 thru 2009 840 7.27 504 6.42
2010 thru 2014 366 7.32 453 6.79
2015 thru 2024 240 7.13 -- --
------- -------- ------ --------
$29,875 6.69% $8,667 4.71%
======= ======== ======= ========
</TABLE>
Scheduled principal repayments of advances from the FHLB are $14,499,000,
$3,228,000, $4,058,000, $2,045,000 and $2,299,000 for the years 1995 through
1999, respectively, and $3,746,000 thereafter.
(11) STOCKHOLDERS' EQUITY
Common Stock Series A (i) has 100 votes per share; (ii) has a par value of
$10.00 per share; (iii) is subject to any preferential rights of each class of
preferred stock and Common Stock Series AA, is entitled to (a) receive out of
funds legally available such dividends as may be declared by the Board of
Directors from time to time, and (b) share ratably in the net assets of the
Corporation upon liquidation with the holders of Common Stock Series AA.
Common Stock Series AA (i) has one vote per share; (ii) has a par value of
$10.00 per share; (iii) is subject to any preferential rights of each class of
preferred stock, is entitled to (a) receive ratably with the holders of Common
Stock Series A out of funds legally available such dividends as may be declared
by the Board of Directors from time to time, and (b) share ratably in the net
assets of the Corporation upon liquidation with the holders of Common Stock
Series A.
(continued)
79
<PAGE> 84
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Corporation's preferred stock at December 31, 1994 and 1993 is
summarized as follows:
<CAPTION>
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Preferred Stock AAA. Authorized and unissued 150,000 shares...... $ -- $ --
Preferred Stock A, 10% cumulative, $100 par value. Authorized
100,000 shares; issued and outstanding 45,039 and 41,319
shares, respectively........................................... 4,504 4,132
Preferred Stock AA, variable rate cumulative, $100 par value.
Authorized 100,000 shares; issued and outstanding 41,092 and
38,842 shares, respectively.................................... 4,109 3,884
Preferred Stock D, 10% cumulative, $10 par value. Authorized
10,000 shares; issued and outstanding 4,800 and 4,900 shares,
respectively................................................... 48 48
------ ------
$8,661 $8,064
====== ======
</TABLE>
Preferred Stock AAA, has no preferences, limitations or rights at December
31, 1994. The Board of Directors may determine, in whole or in part, the
preferences, limitations and relative rights of Preferred Stock AAA before the
issuance of such shares.
Preferred Stock A (i) is redeemable in whole or in part for $100 per share,
plus cumulative dividends, on or after December 31, 1993; (ii) holders are to
receive cumulative cash dividends at an annual rate of 10% per share, or $10 per
share, out of funds that are legally available, when declared by the Board of
Directors, payable quarterly; (iii) ranks on parity with Preferred Stock AA and
has preference over common stock and Preferred Stock D as to payment of
dividends and realization of asset values of United Bancorp upon the voluntary
or involuntary liquidation of United Bancorp; (iv) is not convertible or
redeemable at the option of the holder; and (v) is non-voting.
Preferred Stock AA (i) is redeemable in whole or in part for $100 per
share, plus cumulative dividends, on or after December 31, 1993; (ii) holders
are to receive cumulative cash dividends at a variable interest rate based on
the higher of the Treasury Bill Rate plus .75% or the Ten Year Constant Maturity
Rate plus .75% (each as defined), determined quarterly out of funds that are
legally available, when declared by the Board of Directors, payable quarterly;
(iii) ranks on parity with Preferred Stock A, and has preference over common
stock and Preferred Stock D as to payment of dividends and realization of asset
values of United Bancorp upon voluntary or involuntary liquidation of United
Bancorp; (iv) is not convertible or redeemable at the option of the holder; and
(v) is non-voting.
Preferred Stock D (i) is restricted to members of the Board of Directors of
United Bancorp or any of its subsidiary banks; (ii) holders are to receive
cumulative dividends at an annual rate of 10% per share, out of funds that are
legally available, when declared by the Board of Directors, payable quarterly;
(iii) has preference over common stock as to payment of dividends and
realization of asset values of United Bancorp upon voluntary or involuntary
liquidation of United Bancorp; (iv) holders are not entitled to vote for the
election of directors; (v) is mandatorily redeemable at $10 per share upon
termination of the holder's service as a director of United Bancorp or any of
its subsidiary banks; and (vi) is not convertible or redeemable at the option of
the holder.
(continued)
80
<PAGE> 85
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Dividends per share on Preferred Stock for the years ended December 31,
1994, 1993 and 1992 are summarized as follows:
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Preferred Stock A....................................... $10.00 $10.00 $10.00
Preferred Stock AA...................................... 7.41 6.78 7.88
Preferred Stock D....................................... 1.00 1.00 1.00
====== ====== ======
</TABLE>
(12) REGULATORY MATTERS
United Bancorp's principal source of funds is dividends received from its
subsidiary banks. Under applicable banking laws, bank regulatory authorities
must approve the declaration of dividends in any year, in an amount in excess of
the sum of net income of that year and retained earnings of the preceding two
years. In addition, as described in note 10, there are restrictive loan
covenants that effectively limit dividend payments by the Banks. At December 31,
1994, retained earnings of subsidiary banks were approximately $16,638,000, of
which approximately $2,672,000 was available at January 1, 1995, for the payment
of dividends.
United Bancorp and its bank subsidiaries are required to maintain minimum
amounts of capital to risk-weighted assets and a minimum leverage ratio, as
defined by banking regulators. At December 31, 1994, United Bancorp's Tier 1 and
total risk-based capital ratios, were 8.73% and 9.74%, respectively. The
leverage ratio was 6.02% at December 31, 1994. At December 31, 1994, United
Bancorp and each of its bank subsidiaries exceeded minimum capital requirements.
Bank regulations require depository institutions to maintain cash reserves
relating to customer deposits. At December 31, 1994, the subsidiary banks were
required to, and maintained reserves of approximately $3,272,000.
(13) EMPLOYEE BENEFIT PLANS
United Bancorp has a noncontributory defined benefit pension plan covering
substantially all employees of subsidiaries of United Bancorp who have met
minimum age and service requirements. The plan provides benefits based on the
participants' years of service and compensation. United Bancorp's funding policy
is to contribute the maximum amount that can be deducted for Federal income tax
purposes.
Net pension plan (expense) benefit was approximately $(175,000), $(89,000)
and $80,000 in 1994, 1993 and 1992, respectively.
(continued)
81
<PAGE> 86
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following tables set forth the plan's funded status and the components
of net pension plan benefit.
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,451,000, $4,046,000 and $3,569,000
at December 31, 1994, 1993 and 1992,
respectively..................................... $(4,499) $(4,074) $(3,594)
====== ====== ======
Projected benefit obligation for service rendered to
date................................................ $(5,855) (5,808) (5,059)
Plan assets at fair value............................. 5,311 5,470 5,593
------- ------- -------
Projected benefit obligation (in excess of) under plan
assets.............................................. (544) (338) 534
Unrecognized net loss from past experience different
from that assumed................................... 1,067 757 9
Unrecognized prior service costs...................... (18) (22) (26)
Unrecognized net asset value at January 1, 1987 being
recognized over 15 years............................ (218) (249) (280)
------- ------- -------
Prepaid pension plan expense.......................... $287 $148 $237
====== ====== ======
Net pension plan (expense) benefit includes the
following income (expense) components:
Service cost-benefits earned during the period... $(283) $(239) $(181)
Interest cost on projected benefit obligation.... (407) (389) (334)
Actual return on plan assets..................... (204) 121 179
Net amortization and deferral.................... 719 418 416
------- ------- -------
Net pension plan (expense) benefit.................... $(175) $(89) $80
====== ====== ======
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8.0% and 4.5% in 1994, 7.0% and 5.0% in 1993
and 7.5% and 5.0% in 1992, respectively. The expected long-term rate of return
on assets was 9.0% for 1994, 1993 and 1992.
United Bancorp maintains a profit sharing plan under Section 401(k) of the
Internal Revenue Code. United Bancorp and its subsidiaries provide contributions
to the plan to match contributions made by participating employees, up to a
maximum of 5% of the their salary. Contributions to the plan were $316,000,
$279,000 and $267,000 in 1994, 1993 and 1992, respectively.
(continued)
82
<PAGE> 87
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(14) LEASE COMMITMENTS
Future minimum lease payments on operating leases and capital leases at
December 31, 1994 are as follows:
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1995.......................................................... $ 33 $ 321
1996.......................................................... 33 318
1997.......................................................... 33 313
1998.......................................................... 7 148
1996.......................................................... -- 70
Thereafter.................................................... -- 679
========
-------
Total minimum lease payments................................ 106
Less amount representing interest........................... 14
-------
Present value of net minimum lease payments................. $ 92
======
</TABLE>
Rental expense for operating leases was approximately $334,000, $260,000
and $458,000 during 1994, 1993 and 1992, respectively.
(15) COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Corporation has outstanding
commitments and contingent liabilities. At December 31, 1994, the Corporation
had $41,495,000 of commitments to extend credit, including standby letters of
credit of $3,114,000 which are not reflected in the consolidated financial
statements. The Corporation's exposure to credit loss in the event of
nonperformance by the other party to these commitments is represented by the
contractual amount of those instruments. The same credit and collateral policies
are used in making commitments and conditional guarantees as for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary by the Banks upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Banks
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support private borrowing arrangements.
Also, as of December 31, 1994, there were various pending legal actions and
proceedings in which claims for damages are asserted. Management, after
discussion with legal counsel, believes that the ultimate result of these legal
actions and proceedings will not have a material adverse effect upon the
Corporation's consolidated financial position or results of operations.
(16) RELATED PARTY TRANSACTIONS
The Banks have entered into transactions with directors, executive officers
and their affiliates (related parties). Such transactions are made in the
ordinary course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers, and do not, in the opinion of
management, involve more than normal credit risk or present
(continued)
83
<PAGE> 88
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
other unfavorable features. The aggregate amounts of loans to related parties at
December 31, 1994 and 1993 were $16,237,000 and $17,336,000, respectively.
United Bancorp leases its main office facility from a partnership comprised
of its principal shareholder and an unrelated third party. Total rental expense
paid to the partnership amounted to approximately $221,000, $221,000 and
$219,000 for 1994, 1993 and 1992, respectively.
<TABLE>
(17) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments are as
follows:
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
(IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments................. $ 32,547 $ 32,547 $ 45,766 $ 45,766
Securities...................................... 144,867 144,557 105,045 105,045
Loans........................................... 404,850 406,172 311,455 314,277
Financial liabilities:
Deposits........................................ 513,374 512,777 418,682 420,484
Federal funds purchased and securities sold
under agreements to repurchase............... 16,319 16,319 7,748 7,748
Advances from the Federal Home Loan Bank........ 29,875 29,875 8,667 8,667
Notes payable and capital lease obligations..... 14,266 14,266 7,819 7,819
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH, SHORT-TERM INVESTMENTS, AND SHORT-TERM BORROWINGS
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
SECURITIES
For securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities or dealer quotes.
LOANS
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
DEPOSITS
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by
discounting future cash flows using the rates currently offered for
deposits of similar remaining maturities.
NOTES PAYABLE
Rates currently available to United Bancorp for debt with similar
terms and remaining maturities are used to estimate fair value of existing
debt.
(continued)
84
<PAGE> 89
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
COMMITMENTS TO EXTEND CREDIT AND STAND-BY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. The fair value of letters of credit is based on fees currently
charged for similar agreements or on the estimated cost to terminate them
or otherwise settle the obligations with the counterparties at the
reporting date. At December 31, 1994, no significant fair value difference
exists on commitments to extend credit and standby letters of credit.
LIMITATIONS
The fair value estimates are made at a discrete point in time based on
relevant market information and information about the financial
instruments. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates. The fair value estimates are based upon financial
instruments, without attempting to estimate the value of non-financial
instruments, such as premises and equipment. Accordingly, the aggregate
fair value amounts presented are not intended to represent the underlying
value of the Corporation.
(18) SUBSEQUENT EVENT -- MERGER AGREEMENT
On January 12, 1995, the Corporation signed an agreement to merge with
National City Corporation, a bank holding company based in Cleveland, Ohio, with
banking offices in Ohio, Indiana and Kentucky. The merger is expected to be
completed by the third quarter of 1995, subject to regulatory approval. At that
time, each share of United Bancorp Common Stock Series A and Common Stock Series
AA will be exchanged for 2.35 shares of National City common stock. Within 30
days of closing, each share of United Bancorp Preferred Stock A and Preferred
Stock AA will be exchanged for par value of $100 plus accrued dividends.
(continued)
85
<PAGE> 90
<TABLE>
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(19) UNITED BANCORP OF KENTUCKY, INC. (PARENT COMPANY ONLY)
Condensed financial data for United Bancorp of Kentucky, Inc. (parent
company only) as of December 31, 1994 and 1993 and for the years then ended are
as follows:
<CAPTION>
DECEMBER 31
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED BALANCE SHEETS
ASSETS
Cash................................................................. $ 118 $ 53
Investment in bank subsidiaries...................................... 52,455 44,276
Investment in non-bank subsidiaries.................................. 512 (28)
Securities available for sale........................................ -- 619
Other assets......................................................... 1,044 974
------- -------
$54,129 $45,894
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities............................... $ 12 $ 127
Minority interest.................................................... 1,492 --
Notes payable........................................................ 13,250 6,780
Stockholders' equity................................................. 39,375 38,987
------- -------
$54,129 $45,894
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF INCOME
INCOME:
Dividends from bank subsidiaries........................... $6,650 $3,800 $1,150
Securities gains, net...................................... 450 -- --
Management fees from subsidiaries and other income......... 58 21 694
------ ------ ------
Total income............................................ 7,158 3,821 1,844
------ ------ ------
Expenses:
Interest on notes payable.................................. 657 524 572
Other expenses............................................. 1,664 1,509 1,172
------ ------ ------
Total expenses.......................................... 2,321 2,033 1,744
------ ------ ------
Income before income tax benefit and equity in
undistributed earnings of subsidiaries................ 4,837 1,788 100
Income tax benefit........................................... 576 642 409
------ ------ ------
Income before equity in undistributed earnings of
subsidiaries.......................................... 5,413 2,430 509
Equity in undistributed earnings of subsidiaries............. (1,412) 2,688 3,296
Cumulative effect of change in accounting for income taxes... -- (2) --
------ ------ ------
Net income.............................................. $4,001 $5,116 $3,805
====== ====== ======
</TABLE>
(continued)
86
<PAGE> 91
UNITED BANCORP OF KENTUCKY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income....................................... $ 4,001 $ 5,116 $ 3,805
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 195 199 195
Equity in undistributed earnings of
subsidiaries.................................. 1,412 (2,688) (3,296)
Minority interest in net income of subsidiary.... 29 -- --
Gain on sale of securities available for sale.... (450) -- --
Increase in other assets......................... (149) (206) (28)
(Decrease) increase in accrued expenses and other
liabilities................................... (115) 87 (16)
-------- -------- --------
Net cash provided by operating
activities............................. 4,923 2,508 660
-------- -------- --------
Cash flows from investing activities:
Investment in subsidiaries....................... (12,905) (140) (65)
Minority interest in consolidated bank subsidiary
acquired in business combinations............. 1,463 -- --
Proceeds from sales of securities available for
sale.......................................... 1,069 -- --
Net disbursements of notes receivable from
non-bank subsidiaries......................... -- (25) (70)
-------- -------- --------
Net cash used in investing activities.... (10,373) (165) (135)
-------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable...................... 7,710 200 440
Repayment of notes payable....................... (1,240) (2,180) (575)
Proceeds from issuance of preferred stock........ 626 300 291
Redemption of preferred stock.................... (29) -- (3)
Redemption of common stock....................... (46) -- --
Dividends paid................................... (1,506) (666) (675)
-------- -------- --------
Net cash provided by (used in) financing
activities............................. 5,515 (2,346) (522)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................... 65 (3) 3
Cash and cash equivalents at beginning of year... 53 56 53
-------- -------- --------
Cash and cash equivalents at end of year......... $ 118 $ 53 $ 56
======== ======== ========
</TABLE>
87
<PAGE> 92
UBK
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks........................................... $ 26,486 $ 25,072
Interest bearing deposits with banks.............................. 200 3,200
Federal funds sold and securities purchased under resale
agreements...................................................... 5,825 4,275
Securities available for sale..................................... 102,346 101,232
Securities held to maturity....................................... 42,869 43,635
Loans............................................................. 416,887 409,491
Less:
Allowance for loan losses.................................... (4,144) (4,250)
Unearned income.............................................. (356) (391)
--------- ------------
Net loans.................................................. 412,387 404,850
Premises and equipment............................................ 20,372 20,403
Accrued interest receivable and other assets...................... 15,009 16,173
--------- ------------
$625,494 $618,840
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing.......................................... $ 71,615 $ 77,990
Interest bearing............................................. 443,112 435,384
--------- ------------
Total deposits............................................. 514,727 513,374
Federal funds purchased and securities sold under repurchase
agreements...................................................... 17,003 16,319
Advances from the Federal Home Loan Bank.......................... 32,048 29,875
Notes payable and capital lease obligations....................... 14,586 14,266
Accrued interest payable and other liabilities.................... 4,621 4,139
--------- ------------
Total liabilities................................................. 582,985 577,973
--------- ------------
Minority interest in consolidated subsidiary...................... 1,526 1,492
--------- ------------
Stockholders' equity
Preferred stock................................................. 8,661 8,661
Common Stock, Series A, $10 par value. Authorized 2,000,000
shares; issued and outstanding 517,302 shares in 1995 and
1994......................................................... 5,173 5,173
Common Stock, Series AA, $10 par value. Authorized 2,000,000
shares; issued and outstanding 538,902 shares in 1995 and
1994......................................................... 5,389 5,389
Additional paid in capital...................................... 1,467 1,467
Retained earnings............................................... 21,526 21,024
Net unrealized loss on securities available for sale............ (1,233) (2,339)
--------- ------------
Total stockholders' equity........................................ 40,983 39,375
--------- ------------
Total liabilities and stockholders' equity........................ $625,494 $618,840
========= ============
See accompanying notes to consolidated financial statements.
</TABLE>
88
<PAGE> 93
UBK
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Interest income
Loans, including fees................................................... $ 9,527 $6,556
Federal funds sold and securities purchased under resale agreements..... 60 215
Taxable securities...................................................... 1,976 1,176
Tax exempt securities................................................... 88 54
------- ------
Total interest income..................................................... 11,651 8,001
------- ------
Interest expense
Deposits................................................................ 4,526 2,877
Federal funds purchased and securities sold under repurchase
agreements........................................................... 201 100
Other borrowings........................................................ 464 103
Notes payable and capital lease obligations............................. 313 116
------- ------
Total interest expense.................................................... 5,504 3,196
------- ------
Net interest income....................................................... 6,147 4,805
Provision for loan losses................................................. 90 28
------- ------
Net interest income after provision for loan losses....................... 6,057 4,777
Noninterest income
Service charges on deposit accounts..................................... 547 500
Securities gains........................................................ 458
Other noninterest income................................................ 349 299
------- ------
Total noninterest income.................................................. 896 1,257
------- ------
Noninterest expenses
Salaries and employee benefits.......................................... 2,742 2,333
Net occupancy and equipment expense..................................... 943 759
Other noninterest expenses.............................................. 1,769 1,278
------- ------
Total noninterest expenses................................................ 5,454 4,370
------- ------
Income before income taxes................................................ 1,499 1,664
Income tax expense........................................................ 531 553
------- ------
Net income................................................................ 968 1,111
Dividends on preferred stock.............................................. 202 168
------- ------
Net income applicable to common stock..................................... $ 766 $ 943
======= ======
Net income per common share............................................... $ .73 $ .89
======= ======
See accompanying notes to consolidated financial statements.
</TABLE>
89
<PAGE> 94
UBK
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 968 $ 1,111
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses.......................................... 90 28
Available for sale securities gains, net........................... (454)
Depreciation, amortization and accretion, net...................... 1,020 823
Deferred income taxes.............................................. 112 469
Minority interest in net income (loss) of subsidiaries............. 34 (18)
Gain on sales of premises and equipment............................ 34 6
Decrease (increase) in accrued interest receivable and other
assets............................................................ 642 (1,445)
Increase (decrease) in accrued interest payable and other
liabilities....................................................... 371 (204)
-------- -------
Net cash provided by operating activities..................... 3,271 316
-------- -------
Cash flows from investing activities:
Net decrease (increase) in interest bearing deposits with banks....... 3,000 (3,000)
Net increase in federal funds sold and securities purchased under
resale agreements.................................................. (1,550) (7,900)
Proceeds from sales of available for sale securities.................. 1,069
Proceeds from maturities of securities:
Available for sale................................................. 65 5,251
Held to maturity................................................... 815
Purchase of available for sale securities............................. (84) (4,923)
Net (increase) decrease in loans...................................... (7,627) 5,237
Proceeds from sales of premises and equipment......................... 35 31
Purchases of premises and equipment................................... (575) (367)
-------- -------
Net cash used in investing activities......................... (5,921) (4,602)
-------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits................................... 1,353 (1,675)
Net increase in federal funds purchased and securities sold under
repurchase agreements.............................................. 684 1,205
Proceeds from advances from the Federal Home Loan Bank................ 46,710 6,313
Repayments of advances from the Federal Home Loan Bank................ (44,537) (3,591)
Proceeds from notes payable........................................... 450 800
Repayments of notes payable........................................... (124)
Repayment of capital lease obligations................................ (6) (91)
Dividends paid........................................................ (466) (168)
-------- -------
Net cash provided by financing activities..................... 4,064 2,793
-------- -------
Net increase (decrease) in cash and cash equivalents.................... 1,414 (1,493)
Cash and cash equivalents at beginning of period........................ 25,072 25,066
-------- -------
Cash and cash equivalents at end of period.............................. $ 26,486 $23,573
======== =======
Supplemental disclosure of cash flow information:
Cash paid for income taxes............................................ $ - $ 90
======== =======
Cash paid for interest................................................ $ 5,034 $ 3,395
======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
90
<PAGE> 95
UBK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(1) In the opinion of the management of United Bancorp of Kentucky, Inc.,
the accompanying unaudited consolidated financial statements include
all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation of the financial results.
The financial statements do not include all of the information and
footnotes required for full financial disclosure in accordance with
generally accepted accounting principles. Operating results for any
interim period are not necessarily indicative of results for any other
interim period or for the full year. These statements should be read in
conjunction with the Company's Consolidated Financial Statements for
the year ended December 31, 1994.
(2) During 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan ("SFAS 114"), as amended by Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures
("SFAS 118"). This statement was adopted on a prospective basis on
January 1, 1995. SFAS 114 requires that impaired loans be measured at
the present value of expected future cash flows, discounted at the
loan's effective interest rate, at the loan's observable market price,
or at the fair value of the collateral if the loan is collateral
dependent. The Company accrues daily interest income on impaired loans
which are classified as accruing. Cash receipts on impaired loans are
applied to the recorded investment in the loan, including accrued
interest receivable. The adoption of SFAS 114 did not have a material
effect on the Company's consolidated financial statements.
91
<PAGE> 96
APPENDIX A
AGREEMENT AND PLAN OF MERGER
by and among
NATIONAL CITY CORPORATION,
UNITED BANCORP OF KENTUCKY, INC.
and
JAMES L. ROSE
dated as of January 12, 1995
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<S> <C> <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 Redemption of Preferred Shares................................................. 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-4
(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 Information in Disclosure Documents, Registration Statement, etc............... A-5
3.5 Consents and Approvals; No Violation........................................... A-5
3.6 Reports and Financial Statements............................................... A-5
3.7 Absence of Certain Changes or Events........................................... A-6
3.8 Agreements with Bank Regulators, etc........................................... A-6
3.9 NCC's Book Value per Common Share.............................................. A-6
4.1 Corporate Organization......................................................... A-6
4.2 Authority...................................................................... A-7
4.3 Capitalization................................................................. A-7
4.4 Subsidiaries................................................................... A-7
4.5 Information in Disclosure Documents, Registration Statement, etc............... A-8
4.6 Consent and Approvals; No Violation............................................ A-8
4.7 Reports and Financial Statements............................................... A-8
4.8 Taxes.......................................................................... A-8
4.9 Employee Plans................................................................. A-9
4.10 Material Contracts............................................................. A-9
4.11 Absence of Certain Changes or Events........................................... A-10
4.12 Litigation..................................................................... A-10
4.13 Compliance with Laws and Orders................................................ A-10
4.14 Agreements with Bank Regulators, etc........................................... A-10
</TABLE>
<PAGE> 98
<TABLE>
<S> <C> <C> <C>
4.15 Fees........................................................................... A-10
4.16 Company Action................................................................. A-10
4.17 Vote Required.................................................................. A-11
4.18 Material Interests of Certain Persons.......................................... A-11
4.19 Principal Shareholder's Shares................................................. A-11
4.20 Environmental Matters.......................................................... A-11
5.1 Acquisition Proposals.......................................................... A-12
5.2 Principal Shareholder's Voting Authority....................................... A-12
5.3 Interim Operations of Company.................................................. A-12
(a) Conduct of Business............................................................ A-12
(b) Articles and By-laws........................................................... A-12
(c) Capital Stock.................................................................. A-12
(d) Dividends...................................................................... A-13
(e) Employee Plans, Compensation, etc.............................................. A-13
(f) Certain Policies............................................................... A-13
5.4 Employee Matters............................................................... A-13
5.5 Access and Information......................................................... A-13
5.6 Certain Filings, Consents and Arrangements..................................... A-14
5.7 Indemnification and Insurance.................................................. A-14
5.8 Publicity...................................................................... A-14
5.9 Proxy.......................................................................... A-14
5.10 Shareholders' Meeting.......................................................... A-14
5.11 Tax-Free Reorganization Treatment.............................................. A-14
5.12 Provisions of Shares........................................................... A-15
6.1 The Closing.................................................................... A-15
6.2 Documents and Certificates..................................................... A-15
7.1 Conditions to Each Party's Obligations to Effect the Merger.................... A-15
7.2 Conditions to Obligation of Company to Effect the Merger....................... A-16
7.3 Conditions to Obligation of NCC to Effect the Merger........................... A-16
8.1 Termination.................................................................... A-17
8.2 Non-Survival of Representations, Warranties and Agreements..................... A-17
8.3 Waiver and Amendment........................................................... A-17
8.4 Entire Agreement............................................................... A-17
8.5 Applicable Law; Consent to Jurisdiction........................................ A-17
8.6 Certain Definitions; Headlines................................................. A-17
8.7 Notices........................................................................ A-18
8.8 Counterparts................................................................... A-19
8.9 Parties in Interest; Assignment................................................ A-19
8.10 Expenses....................................................................... A-19
8.11 Enforcement of the Agreement................................................... A-19
8.12 Severability................................................................... A-19
</TABLE>
<PAGE> 99
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of January 12, 1995
("Agreement"), is made by and among National City Corporation, a Delaware
corporation ("NCC"), United Bancorp of Kentucky, Inc., a Kentucky corporation
("Company"), and James L. Rose ("Principal Shareholder").
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 Board of Directors of the Company has approved this Agreement
and the consummation of the transactions contemplated hereby and approved the
execution and delivery of this Agreement;
WHEREAS, the Executive Committee of the Board of Directors of NCC has
approved this Agreement and the consummation of the transaction 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 tax free reorganization under the provisions of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Principal Shareholder joins in this Agreement for the limited
purpose of making the representations and warranties contained in Article IV and
the covenants contained in Article V;
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 the Kentucky
Business Corporation Act ("KBCA") and the Delaware General Corporation Law
("DGCL").
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 ("Certificate of Merger") to
be filed with the Secretary of State of the State of Delaware and the articles
of merger complying with the requirements of KBCA with the Secretary of State of
the Commonwealth of Kentucky ("Articles of Merger"). 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, (b)
the filing of Articles of Merger with the Secretary of State of the Commonwealth
of Kentucky, or (c) 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 KBCA
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
A-1
<PAGE> 100
removal in accordance with the terms of the Surviving Corporation's Certificate
of Incorporation and By-laws and the DGCL.
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, 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 Common Shares. Subject to Section 2.3, at the Effective
Time,
(a) each then-outstanding share of common stock series A and common
stock series AA of Company (collectively, "Company Common Stock") other
than (i) 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), (ii) shares of Company Common Stock held in the
treasury of the Company, or (iii) as to which the holder has commenced as
of the Effective Time all procedures necessary through the Effective Time
to assert dissenters' rights in accordance with the KBCA ("Dissenters
Shares"), will be canceled, retired and converted into a right to receive
2.35 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;
(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; and
(e) holders of Dissenting Shares shall, upon the effectiveness of the
Merger with respect to such Dissenting Shares, have only such rights, if
any, as they may have pursuant to the KBCA, and any amounts required by the
KBCA to be paid to any holder of Dissenting Shares with respect to such
Dissenting Shares shall be paid by the Surviving Corporation.
2.2 Redemption of Preferred Shares. At or within 30 days after the
Effective Time,
(a) each then outstanding share of preferred stock A, preferred stock
AA, preferred stock AAA, and preferred stock D of Company (collectively,
"Company Preferred Stock") other than shares owned by NCC or any directly
or indirectly wholly-owned subsidiary of NCC (except for shares that are
Trust Account Shares and DPC Shares), and other than those shares of
Company Preferred Stock held in the Treasury of the Company, will be
redeemed at par plus accrued interest in accordance with the terms of each
series of Company Preferred Stock;
A-2
<PAGE> 101
(b) each then outstanding share of Company Preferred Stock owned by
NCC or any directly or indirectly wholly-owned subsidiary of NCC (except
for shares that are Trust Account Shares or DPC Shares) will be canceled
and retired; and
(c) each share of Company Preferred Stock issued and held in Company's
treasury will be canceled and retired.
2.3 Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, NCC shall designate
National City Bank, located in Cleveland, Ohio, to act as exchange agent
(the "Exchange Agent") for the Company Common Stock 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 for shares
that are 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.
(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 shall have paid any transfer and other taxes
required by reason of such delivery 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. 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, except such rights, if any, as such holder may have with
respect to Dissenting Shares. 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
A-3
<PAGE> 102
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
record date on or after the Effective Time 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, whereupon such
dividend or other distribution will be paid without interest and less any
taxes which may have been imposed thereon. 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 not be entitled to vote after the
Effective Time at any meeting of NCC stockholders.
(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)(iv).
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 Closing Date as hereinafter defined in Section 6.1. 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 paid 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 properly and equitably 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
A-4
<PAGE> 103
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.
3.2 Authority. Subject to receiving all applicable regulatory approvals,
NCC has the requisite corporate power and authority to execute and deliver this
Agreement. 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.
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 January 11, 1994 (i)
147,075,252 shares of NCC Common Stock were validly issued and outstanding,
fully paid and nonassessable, and (ii) 750,160 shares of eight percent (8%)
Cumulative Convertible Preferred Stock (issued as 3,750,800 Depository Shares)
no par of NCC ("NCC Preferred Stock") were validly issued and outstanding, fully
paid and nonassessable.
3.4 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 proxy or information statement of the Company to be
mailed to its shareholders with respect to this Agreement and the transactions
contemplated by this Agreement ("Company Proxy") at the time of mailing the
Company Proxy, 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 (as hereinafter defined in
Section 5.9) 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.
3.5 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) filings of the Certificates of Merger, (ii)
filings required under the securities or blue sky laws of the various states,
(iii) filings with, and approval by, the Federal Reserve Board (the "FRB"), (iv)
filings with, and approvals by, the Office of Thrift Supervision (the "OTS"), or
(v) 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.
3.6 Reports and Financial Statements. Since January 1, 1991, 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 Securities Exchange Commission under Section 12(b), 12(g), 13(a) or
14(a) of the
A-5
<PAGE> 104
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
Company with true and complete copies of each of NCC's annual reports on Form
10-K for the years 1991 through 1993 and NCC's quarterly report on Form 10-Q for
the quarters ending March 31, June 30, and September 30, 1994 and will provide
Company with its 1994 annual report on Form 10-K promptly after filing such
report with the Securities Exchange Commission. As of their respective dates,
the NCC Reports complied with the requirements of the Securities Exchange
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.
3.7 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
Securities Exchange 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.
3.8 Agreements with Bank Regulators, etc. 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 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.
3.9 NCC's Book Value per Common Share. NCC's book value per common share as
of December 31, 1994 is $16.36. At closing NCC's Closing Book Value Per Common
Share shall be at least $16.20. NCC's "Closing Book Value Per Common Share"
shall be calculated by taking NCC's book value per common share as of the end of
the most recent calendar quarter and adding any losses recognized in the
investment portfolios held for sale of NCC and its subsidiaries since December
31, 1994 which resulted from Interest Rate Risk, as hereinafter defined in
Sub-paragraph 8.6(a)(ii).
IV. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND PRINCIPAL SHAREHOLDER
Company and Principal Shareholder (to the best of his knowledge) jointly
and severally represent and warrant to NCC that:
4.1 Corporate Organization. Company is a corporation duly organized and
validly existing under the laws of the Commonwealth of Kentucky 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 bank holding company under the BHCA and 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
A-6
<PAGE> 105
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 5.9. 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 2,000,000 shares of common stock series A and
2,000,000 shares of common stock series AA, 100,000 shares of preferred stock A,
100,000 shares of preferred stock AA, 150,000 shares of preferred stock AAA and
10,000 shares of preferred stock D. As of the close of business on January 11,
1995, 517,302 shares of common stock series A, 538,902 shares of common stock
series AA, 45,039 shares of preferred stock A, 41,092 shares of preferred stock
AA, no shares of preferred stock AAA and 4,800 shares of preferred stock D were
validly issued and outstanding, fully paid and nonassessable. 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 and which may be updated prior to the day before the end of the 21 day
period set forth in paragraph 8.1(e) ("Company Disclosure Letter"), there are no
other 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 nationally chartered bank,
a state chartered bank, or a federal savings bank duly organized, validly
existing and in good standing under the laws of their respective jurisdictions,
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 for American Fidelity Bank & Trust Company, Corbin, Kentucky (of which
Company owns approximately 82% of the outstanding common stock) and as set forth
in the Company Disclosure Letter, all outstanding shares of capital stock of
each Company Subsidiary are 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, 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.
A-7
<PAGE> 106
4.5 Information in Disclosure Documents, Registration Statement, etc. None
of the information with respect to Company or any Company Subsidiary included in
the Company Proxy to be sent to Company's shareholders regarding this
transaction or provided by Company for inclusion in the Registration Statement,
as hereinafter defined in Section 7.1, will, in the case of the Proxy Statement
or any amendments or supplements thereto at the time of the mailing of the
Company Proxy and any amendments or supplements thereto, and at the time of the
Company Meeting (as defined in Section 5.9) 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.
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) filing the Certificate of Merger and the Articles of Merger, (ii)
filings required under the securities or blue sky laws of the various states,
(iii) filings with, and approval by, the FRB, (iv) filings with, and approvals
by, the OTS, or (v) 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. Company has previously furnished NCC
with true and complete copies of each of Company's audited consolidated
financial statements for fiscal years ending 1991 through 1993 and their
unaudited interim financial statements for the quarters ending March 31, June 30
and September 30, 1994 ("Company Reports") and will provide NCC with its 1994
audited consolidated financial statement promptly after it is completed. As of
their respective dates, Company Reports 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 delivered to
NCC 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 of 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 the
Company Reports, was adequate, within the meaning of generally accepted
accounting principles and safe and sound banking practices.
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
A-8
<PAGE> 107
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 the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the
Internal Revenue Code of 1986, as amended ("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.
4.10 Material Contracts. Except as set forth in the Company Disclosure
Letter, neither Company nor any Company Subsidiary is a party to, or is bound or
affected by, or receives benefits under (a) any employment agreements providing
for aggregate payments to any person in any calendar year in excess of $120,000,
(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 Securities Exchange Commission as of the date of this Agreement if
Company was subject to the Securities Exchange Act of 1934, as amended
(collectively, the "Company Contracts").
A-9
<PAGE> 108
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, 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 forth in the Company Disclosure Letter or
disclosed in Company Reports, 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 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. 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. Neither the 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
A-10
<PAGE> 109
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 this Agreement and the transactions contemplated by the
Agreement.
4.18 Material Interests of Certain Persons. Except 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 Principal Shareholder's Shares. The Principal Shareholder owns and has
sole authority to vote at any and all shareholders' meetings shares which
represent more than 53.5% of the total votes of shares outstanding.
4.20 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.
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.
A-11
<PAGE> 110
V. COVENANTS
5.1 Acquisition Proposals. The Principal Shareholder, the Company or
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 of directors of Company 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 that, in the written
opinion of counsel to the Board of Directors of the Company, is required under
applicable law. Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties 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 Principal Shareholder's Voting Authority. During the period from the
date of this Agreement to the day after the Company Meeting, as hereinafter
defined in Section 5.9, the Principal Shareholder shall neither sell, gift, or
in any other manner dispose of any shares of Company Common Stock, nor shall he
grant, sell or otherwise dispose of all or any portion of his voting authority
he is in possession of with respect to Company Common Stock. The Principal
Shareholder shall at any meeting of shareholders vote his shares in favor of the
Merger and in favor of any actions presented to the shareholders intended to
further the purposes and intents of this Agreement or the Merger, except to the
extent that he is required, in a written opinion of his counsel, in the exercise
of his fiduciary duty, if any, in accordance with applicable law, not to vote
his shares in favor of the Merger.
5.3 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 past practice and 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 party 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. 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. 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
A-12
<PAGE> 111
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.
(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
$0.25 per share of Company Common Stock, (b) a one-time special dividend of
$0.50 per share if the Effective Date is after the record date established
by NCC for the payment of its 1995 second quarter dividend of NCC Common
Stock (on or about April 13, 1995), (c) regular cash dividends on Company
Preferred Stock in accordance with the terms of the Company Preferred
Stock, and (d) 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 ensure that, during any quarter, there shall not be a
duplication of or omission of payment of dividends to shareholders of
Company.
(e) Employee Plans, Compensation, etc. 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 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. After the FRB has approved the Merger, 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'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.
5.4 Employee Matters. 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.
5.5 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. Company
shall permit officers, attorneys, accountants and other agents or
representatives of NCC to make such investigation of the financial, legal and
operational aspects of the Company NCC deems necessary or advisable in
connection with NCC's due diligence in connection with the transactions
contemplated by this Agreement. All information furnished by one party to any of
the others in connection with this Agreement or the transactions contemplated
hereby shall be kept strictly confidential by such other party (and shall be
used by it only in connection with this
A-13
<PAGE> 112
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 Securities Exchange 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
continue to keep such information strictly confidential and 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.
5.6 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.
5.7 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 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 or any Company's
Subsidiaries' 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 National City Bank, Kentucky following the Closing. This
Section 5.6 will be construed as an agreement, as to which the Indemnitees are
intended to be third-party beneficiaries.
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 Proxy. Company and NCC shall cooperate in the preparation of the
Company Proxy and Company shall promptly thereafter mail the Company Proxy to
all holders of shares of Company Common Stock. NCC and Company shall cooperate
with each other in the preparation of the Company Proxy.
5.10 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 this Agreement and the transactions contemplated hereby. The Board of
Directors of Company shall recommend that the holders of the Company Common
Stock vote in favor and approve the Merger and this Agreement at the Company
Meeting, except to the extent that the Board of Directors of Company is
required, in a written opinion of counsel to the Board, in the exercise of its
fiduciary duties in accordance with applicable law, to give a modified
recommendation or no recommendation.
5.11 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.
A-14
<PAGE> 113
5.12 Provisions of Shares. NCC shall provide to the Exchange Agent for the
benefit of the holders of a Certificate or Certificates the Merger Consideration
deliverable upon the conversion of the Company Common Stock pursuant to this
Agreement and the Plan of Merger.
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 National City Bank, Kentucky's main office in Louisville,
Kentucky 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) This Agreement and the transactions contemplated hereby 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 to be filed with the Securities and
Exchange Commission by NCC on Form S-4 ("Registration Statement") under the
Securities Act of 1933, as amended ("Securities Act") for purposes of
registering the shares of NCC Common Stock to be issued in the Merger shall
have become effective in accordance with 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) Brown, Todd & Heyburn PLLC, Counsel to Company, shall have
delivered to NCC and the Company 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
A-15
<PAGE> 114
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 Company Common Stock for shares of NCC Common Stock pursuant to
the Merger (except with respect to cash received in lieu of fractional
share interests in NCC Common Stock), (iii) the tax basis of the shares of
NCC Common received by shareholders who exchange all of their shares of
Company Common Stock for shares of NCC Common Stock pursuant to the Merger
will be the same 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). 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 and 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.
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 Closing Date 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) The Principal Shareholder shall have furnished NCC a certificate
dated the date of closing signed by him that, to the best of his knowledge
and belief, the representations and warranties set forth in Article 4 are
true in all material respects as of the Closing Date except for the
representations and warranties relating to a time or times other than the
Closing Date which were or will be true in all material respects at such
time or times.
(e) NCC and its directors and officers who sign the Registration
Statement shall have received from KPMG Peat Marwick, Company's independent
certified public accountants, "comfort" letters, dated 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.
A-16
<PAGE> 115
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:
(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 for any reason on or before June 29, 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; or
(e) by NCC at any time prior to the 21st day following the date of the
Agreement by written notice from NCC to Company if any information obtained
or received in the course of the investigation of the financial, legal and
operational aspects of the Company, whether or not referred to in the
Company's Disclosure Letter, in the good faith opinion of NCC, has a
Material Adverse Effect on the Company or any of the Company Subsidiaries.
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, Article II Sections 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 5.5 and all of Sections 8.10 and 8.11
hereof will in all events survive any termination of this Agreement.
8.3 Waiver and Amendment. Subject to applicable provisions of the DGCL,
KBCA 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 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 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, KBCA or federal law applies.
8.6 Certain Definitions; Headlines. (a) For purposes of this Agreement, the
term:
(i) "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;
(ii) "Interest Rate Risk" shall mean the net gains or losses resulting
solely from the change in market interest rates. Gains or losses resulting
from the credit risk or change in market valuation occurring from changes
in the quality of a security is not interest rate risk.
(iii) "Market Price" means the average of the per share closing prices
on the New York Stock Exchange of NCC Common Stock for the 10 consecutive
trading days ending on the Date of the Company Meeting.
(iv) "Material Adverse Effect" means an event, change or occurrence
which has a material negative impact on the financial condition, results of
operations, business or prospects of the Company or NCC. The
A-17
<PAGE> 116
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. No loss of value in the
securities portfolio of UBK of any of its subsidiaries resulting from
Interest Rate Risk after the 21 day period set forth in Paragraph 8.1(f)
hereof shall be deemed to be a Material Adverse Effect.
(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 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:
United Bancorp of Kentucky, Inc.
250 West Main Street
Suite 3100
Lexington, Kentucky 40507
attn: President
Fax No. (606) 259-4112
With copy to:
James F. Rose
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Fax No. (606) 231-0011
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.
A-18
<PAGE> 117
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 Article II hereof (which is
intended to benefit the Company shareholders) and Section 5.6 hereof (which is
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) If the Company shareholders fail to approve the Merger pursuant to
Section 5.10 due to the fact that the Board of Directors fails to recommend
that the shareholders vote in favor of the Merger in reliance upon a
written opinion of counsel to the Company that to do so would be a breach
of their fiduciary duty, or if the Principal Shareholder fails to vote in
favor of the Merger in reliance upon an opinion of his counsel that to do
so would be a breach of his fiduciary duties, then Company shall pay to NCC
an amount equal to $4,500,000 (which amount is intended to cover all of
NCC's fees and expenses in connection with this Agreement). Any payment
required to be made pursuant to this Section 8.10 shall be made within
three business days after such action occurs and shall be made by wire
transfer of immediately available funds to an account designated in writing
by NCC.
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.
UNITED BANCORP OF KENTUCKY, INC.
("Company")
By /s/ James L. Rose, President
-----------------------------------
NATIONAL CITY CORPORATION
("NCC")
By /s/ Morton Boyd, Executive Vice President
-----------------------------------------
/s/ James L. Rose
---------------------------
James L. Rose
("Principal Shareholder")
A-19
<PAGE> 118
APPENDIX B
[BROWN,TODD & HEYBURN PLLC CORPORATION LOGO]
2700 Lexington Financial Center
Lexington, KY 40507-1749
(606) 231-0000
Facsimile (606) 231-0011
March 19, 1995
United Bancorp of Kentucky, Inc.
250 West Main Street, Suite 3100
Lexington, Kentucky 40507
National City Corporation
1900 East Ninth Street
Cleveland, Ohio 44114-3484
Re: Certain Federal Income Tax Matters
----------------------------------
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the merger (the "Merger") of United Bancorp of Kentucky, Inc.
("UBK"), a Kentucky corporation, into National City Corporation ("NCC"), a
Delaware corporation.
DESCRIPTION OF THE MERGER
UBK is a bank holding company under the Bank Holding Company Act of 1956,
as amended, and is a corporation under the laws of the Commonwealth of Kentucky.
UBK conducts a complete range of commercial and personal banking activities
through its subsidiaries.
The authorized capital stock of UBK consists of (i) 2,000,000 shares of
common stock Series A, of which 517,302 shares are issued and outstanding, (ii)
2,000,000 shares of common stock Series AA, of which 538,902 shares are issued
and outstanding, (iii) 100,000 shares of preferred stock A, of which 45,039
shares are issued and outstanding, (iv) 100,000 shares of preferred stock AA, of
which 41,092 shares are issued and outstanding, (v) 150,000 shares of preferred
stock AAA, of which no shares are issued and outstanding, and (vi) 10,000 shares
of preferred stock D, of which 4,800 shares are issued and outstanding.
The authorized capital stock of NCC consists of (i) 350,000,000 shares of
common stock, of which sufficient shares are unissued and available for issuance
in the Merger, and (ii) 5,000,000 shares of preferred stock.
In the Merger, pursuant to the Agreement and Plan of Merger dated as of
January 12, 1995 (the "Merger Agreement") by and among NCC, UBK and James L.
Rose, each share of UBK common stock Series A and Series AA (collectively, "UBK
Common Stock"), other than shares of UBK Common Stock with respect to which the
holder has properly exercised dissenters' rights under Subtitle 13, Chapter 271B
of the Kentucky Revised Statutes, will be converted into 2.35 shares of NCC
common stock. At or within 30 days after the Effective Time (as defined below)
of the Merger, each outstanding share of UBK preferred stock A, preferred stock
AA, preferred stock AAA, and preferred stock D (collectively, "UBK Preferred
Stock") will be redeemed at par plus accrued interest in accordance with the
terms of each series of UBK's Preferred Stock.
No fractional shares of NCC common stock will be issued in the Merger. In
lieu of issuing fractional shares of NCC common stock, NCC will pay each holder
of shares of UBK Common Stock entitled to receive a
B-1
<PAGE> 119
fractional share of NCC common stock an amount in cash equal to the fraction
multiplied by the Market Price as defined in the Merger Agreement.
In accordance with Kentucky and Delaware law on the date Articles of Merger
are delivered to the Kentucky and Delaware Secretaries of State for filing (the
"Effective Time"), UBK will merge into NCC pursuant to the Merger Agreement. NCC
will be the surviving corporation of the Merger. NCC will acquire all of the
assets of UBK and will assume, or take those assets subject to, all of UBK's
liabilities.
BUSINESS REASONS FOR THE MERGER
In view of the dramatic changes in the financial services industry, the
Merger offers UBK and NCC important competitive advantages. The combination of
their resources should enhance future growth and profitability, since the
combined enterprise should be able to generate cost savings, draw upon a larger
business base and thereby cause UBK's bank subsidiaries to make larger loans and
develop new and innovative services. NCC desires to take advantage of the
acquisition opportunity to expand into new markets and diversify its financial
operations.
REPRESENTATIONS
The parties to the Merger have made the following representations to us
upon which we have relied in rendering the opinions contained in this letter.
1. The description of the Merger set forth above is true and correct.
2. The Merger shall be consummated in compliance with the material terms of
the Merger Agreement and none of the material terms and conditions contained in
the Merger Agreement have been waived or modified and neither UBK nor NCC has
any plan or intention to waive or modify further any such material condition.
3. The representations and warranties of UBK and NCC set forth in the
Merger Agreement are true and correct.
4. The Merger is a statutory merger under the applicable corporate and
banking laws of the Commonwealth of Kentucky and the State of Delaware.
5. The ratio for the exchange of shares of NCC common stock for shares of
UBK Common Stock was negotiated through arm's length bargaining. Accordingly,
the fair market value of the NCC common stock to be received by UBK shareholders
in the Merger will be approximately equal to the fair market value of the UBK
Common Stock surrendered by such shareholders in exchange therefor.
6. The cash received by UBK shareholders who receive cash in lieu of
fractional shares in the Merger or pursuant to the exercise of dissenters'
rights will be approximately equal to the fair market value of the UBK Common
Stock surrendered therefor.
7. Except for shares with an aggregate value not exceeding two percent of
the aggregate value of the shares of UBK Common Stock and UBK Preferred Stock at
the time of the Merger, UBK's management knows of no plan or intention by any
UBK shareholder to sell, exchange, transfer by gift or otherwise dispose of any
shares of NCC common stock to be received by them in the Merger. In addition,
UBK's management is not aware of any transfers of UBK Common Stock by any
holders thereof prior to the Effective Date which were made in contemplation of
the Merger.
8. UBK will transfer to NCC at least 90% of the fair market value of the
net assets and at least 70% of the fair market value of the gross assets held by
UBK prior to the Merger. For purposes of this representation, assets held by UBK
to pay its reorganization expenses and to pay dissenters, if any, and all
redemptions and distributions (except for regular, normal distributions) made by
UBK immediately preceding the Merger and which are a part of the plan of Merger
will be considered as assets held by UBK immediately prior to the Merger. UBK
has not redeemed any of shares of UBK Common Stock or UBK Preferred Stock, made
any distribution
B-2
<PAGE> 120
with respect to any shares of UBK Common Stock or UBK Preferred Stock, or
disposed of any of its assets in anticipation of or as a part of a plan for the
acquisition of UBK by NCC.
9. The assumption by NCC of the liabilities of UBK pursuant to the Merger
is for a bona fide business purpose and the principal purpose of such assumption
is not the avoidance of federal income tax on the transfer of assets of UBK to
NCC pursuant to the Merger.
10. The liabilities of UBK assumed by NCC and the liabilities to which the
transferred assets of UBK are subject were incurred by UBK in the ordinary
course of business. No liabilities of any person other than UBK will be assumed
by NCC in the Merger, and none of the shares of UBK Common Stock to be
surrendered in exchange for NCC common stock in the Merger will be subject to
any liabilities.
11. The business previously carried on by UBK and its subsidiaries
immediately before the Merger will continue to be carried on by NCC and its
subsidiaries after the Merger in a substantially unchanged manner with
substantially all of UBK's and its subsidiaries' assets. No assets of UBK
received in the Merger will be sold by NCC other than in the ordinary course of
business.
12. At the time of the Merger, the total adjusted basis and fair market
value of the property of UBK to be transferred to NCC will equal or exceed the
sum of the liabilities to be assumed by NCC plus the amount of liabilities to
which the transferred property is subject.
13. NCC and UBK will pay their own expenses incurred in connection with the
Merger. None of UBK or NCC will pay any of the expenses of UBK's shareholders
incurred in connection with the Merger.
14. There is no intercorporate indebtedness existing between UBK and NCC
which was issued, acquired or which will be settled at a discount.
15. The payment by NCC of cash to the UBK shareholders in lieu of
fractional shares of NCC common stock is solely for the purpose of avoiding the
expense and inconvenience to NCC of issuing fractional shares of NCC common
stock and does not represent separately bargained for consideration. The total
cash consideration that will be paid to the UBK shareholders in lieu of issuing
fractional shares of NCC common stock will not exceed 1% of the total
consideration that will be received by the UBK shareholders in exchange for
their shares of UBK Common Stock.
16. NCC has no plan, intention, or understanding with UBK, or with any UBK
shareholder, to redeem or otherwise reacquire any shares of NCC common stock
that will be issued to the UBK shareholders in the Merger.
17. None of the compensation to be received by any UBK
shareholder-employees will be part of the consideration for their UBK Common
Stock. Any consideration to be paid to any UBK shareholder-employees will be for
services actually rendered and will be commensurate in each instance with
amounts paid to third parties bargaining at arm's length for similar services.
18. None of the parties to the Merger is an investment company with the
meaning of IRC sec.sec. 368(a)(2)(f)(iii) and (iv).
19. UBK is not under the jurisdiction of a court under Title 11 of the
United States Code, nor is it involved, other than as a creditor, in a
receivership, foreclosure, or similar proceeding in a federal or state court.
20. Including (i) cash paid to redeem shares of UBK Preferred Stock, (ii)
cash paid for fractional shares, and (iii) cash paid to UBK shareholders who
dissent from the Merger, the aggregate cash paid to UBK shareholders in the
Merger shall not exceed 20 percent of the aggregate value of the shares of UBK
Common Stock and UBK Preferred Stock at the time of the Merger.
B-3
<PAGE> 121
FEDERAL INCOME TAX CONSEQUENCES
On the basis of the foregoing facts and representations, and the
qualifications set forth below, and assuming the Merger is carried out as
described in this letter and the Merger Agreement, we are of the opinion that:
1. The Merger will be treated for federal income tax purposes as a
reorganization within the meaning of IRC sec. 368(a);
2. No gain or loss will be recognized by NCC or UBK in the Merger;
3. No gain or loss will be recognized by the UBK shareholders upon the
exchange of UBK Common Stock for NCC common stock (except with respect to cash
received in lieu of fractional shares);
4. The tax basis of the shares of NCC common stock to be received by the
UBK shareholders in the Merger will be the same as the tax basis of the shares
of UBK Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share for which cash is received).
Our opinions are based upon existing law applied to the facts and
representations in this letter. Any change in the law or in the accuracy of the
facts and representations upon which we have relied could result in the
invalidation of one or more of our opinions expressed in this letter. Our
opinions with respect to the federal income tax consequences of the Merger or
other matters described in the Merger Agreement are limited to those set forth
above. We express no opinion with respect to the federal income tax consequences
of the redemption of UBK Preferred Stock. We consent to the inclusion of this
letter as an exhibit to the S-4 Registration Statement in the form we have
approved and to the references in UBK proxy materials, but do not consent to its
use for any other purposes.
Sincerely,
BROWN, TODD & HEYBURN PLLC
By /s/ WARREN J. HOFFMANN
-------------------------------------
Warren J. Hoffmann,
Member of the Firm
B-4
<PAGE> 122
APPENDIX C
PROVISIONS OF THE KENTUCKY BUSINESS CORPORATION ACT
RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS
271B.13-010. DEFINITIONS.
As used in this subtitle:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under KRS 271B.13-020 and who exercises that right when and in
the manner required by KRS 271B.13-200 to 271B.13-280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable. In
any transaction subject to the requirements of KRS 271B.12-210 or exempted by
KRS 271B.12-220(2), "fair value" shall be at least an amount required to be paid
under KRS 271B.12-220(2) in order to be exempt from the requirements of KRS
271B.12-210.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
271B.13-020. RIGHT TO DISSENT.
(1) A shareholder shall be entitled to dissent from, and obtain payment of
the fair value of his shares in the event of, any of the following corporate
actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If shareholder approval is required for the merger by KRS
271B.11-030 or the articles of incorporation and the shareholder is
entitled to vote on the merger; or
2. If the corporation is a subsidiary that is merged with its parent under
KRS 271B.11-040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
1. Alters or abolishes a preferential right of the shares to a
distribution or in dissolution;
C-1
<PAGE> 123
2. Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
3. Excludes or limits the right of the shares to vote on any matter
other than a limitation by dilution through issuance of shares or other
securities with similar voting rights; or
4. Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under KRS 271B.6-040;
(e) Any transaction subject to the requirements of KRS 271B.12-210 or
exempted by KRS 271B.12-220(2); or
(f) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his shares
under this chapter shall not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
271B.13-030. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he shall dissent with respect to all
shares beneficially owned by any one (1) person and notify the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection
shall be determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(a) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(b) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
271B.13-200. NOTICE OF DISSENTERS' RIGHTS.
(1) If proposed corporate action creating dissenters' rights under KRS
271B.13-020 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this subtitle and the corporation shall undertake to provide a copy
of this subtitle to any shareholder entitled to vote at the shareholders'
meeting upon request of that shareholder.
(2) If corporate action creating dissenters' rights under KRS 271B.13-020
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in KRS 271B.13-220.
271B.13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If proposed corporate action creating dissenters' rights under KRS
271B.13-020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(a) Shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Shall not vote his shares in favor of the proposed action.
C-2
<PAGE> 124
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section shall not be entitled to payment for his shares under this
chapter.
271B.13-220. DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under KRS
271B.13-020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenter's notice to all shareholders who satisfied the
requirements of KRS 271B.13-210.
(2) The dissenters' notice shall be sent no later than ten (10) days after
the date the proposed corporate action was authorized by the shareholders, or,
if no shareholder authorization was obtained, by the board of directors, and
shall:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30), nor more than sixty
(60) days after the date the notice provided in subsection (1) of this
section is delivered; and
(e) Be accompanied by a copy of this subtitle.
271B.13-230. DUTY TO DEMAND PAYMENT.
(1) A shareholder who is sent a dissenters' notice described in KRS
271B.13-220 shall demand payment, certify whether he acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to subsection (2)(c) of KRS 271B.13-220, and deposit
his certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his share certificates
under subsection (1) of this section shall retain all other rights of a
shareholder until these rights are cancelled or modified by the taking of the
proposed corporate action.
(3) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
shall not be entitled to payment for his shares under this subtitle.
271B.13-240. SHARE RESTRICTIONS.
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under KRS 271B.13-260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares shall retain all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
271B.13-250. PAYMENT.
(1) Except as provided in KRS 271B.13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with KRS 271B.13-230 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(2) The payment shall be accompanied by:
C-3
<PAGE> 125
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated; and
(d) A statement of the dissenter's right to demand payment under KRS
271B.13-280.
271B.13-260. FAILURE TO TAKE ACTION.
(1) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under KRS 271B.13-220 and repeat the payment demand
procedure.
271B.13-270. AFTER-ACQUIRED SHARES.
(1) A corporation may elect to withhold payment required by KRS 271B.13-250
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under KRS
271B.13-280.
271B.13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate (less any payment under KRS 271B.13-250), or reject the
corporation's offer under KRS 271B.13-270 and demand payment of the fair value
of his shares and interest due, if:
(a) The dissenter believes that the amount paid under KRS 271B.13-250
or offered under KRS 271B.13-270 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under KRS 271B.13-250 within
sixty (60) days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set
for demanding payment.
(2) A dissenter waives his right to demand payment under this section
unless he shall notify the corporation of his demand in writing under subsection
(1) of this section within thirty (30) days after the corporation made or
offered payment for his shares.
JUDICIAL APPRAISAL OF SHARES
271B.13-300. COURT ACTION.
(1) If a demand for payment under KRS 271B.13-280 remains unsettled, the
corporation shall commence a proceeding within sixty (60) day after receiving
the payment demand and petition the court to determine the fair
C-4
<PAGE> 126
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty (60) day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit court of
the county where a corporation's principal office (or, if none in this state,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section shall be plenary and exclusive. The court
may appoint one (1) or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters shall be entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding shall be entitled to
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under KRS
271B.13-270.
271B.13-310. COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under KRS 271B.13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under KRS 271B.13-280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters, if
the court finds the corporation did not substantially comply with the
requirements of KRS 271B.13-200 to 271B.13-280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this subtitle.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
C-5
<PAGE> 127
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 UBK 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 UBK or any of its
subsidiaries or was serving at the request of UBK as a director, officer of any
domestic or foreign corporation joint venture, trust, employee benefit plan or
other enterprise arising out of UBK's Articles or UBK'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 UBK or any of its
subsidiaries.
II-1
<PAGE> 128
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
An index of exhibits appears at page II-5.
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.
II-2
<PAGE> 129
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 MAY 19, 1995.
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 May 19, 1995
Edward B. Brandon Officer, Director
DAVID A. DABERKO* May 19, 1995
David A. Daberko President and COO, Director
WILLIAM R. ROBERTSON* May 19, 1995
William R. Robertson Deputy Chairman, Director
ROBERT G. SIEFERS Executive Vice President and Chief May 19, 1995
Robert G. Siefers Financial Officer
THOMAS A. RICHLOVSKY May 19, 1995
Thomas A. Richlovsky Senior Vice President and Treasurer
SANDRA H. AUSTIN* May 19, 1995
Sandra H. Austin Director
JAMES M. BIGGAR* May 19, 1995
James M. Biggar Director
CHARLES H. BOWMAN* May 19, 1995
Charles H. Bowman Director
JOHN G. BREEN* May 19, 1995
John G. Breen Director
Duane Collins Director
RICHARD E. DISBROW* May 19, 1995
Richard E. Disbrow Director
DANIEL E. EVANS* May 19, 1995
Daniel E. Evans Director
OTTO N. FRENZEL III* May 19, 1995
Otto N. Frenzel III Director
</TABLE>
II-3
<PAGE> 130
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
Joseph H. Lemieux Director
A. STEVENS MILES* May 19, 1995
A. Stevens Miles Director
STEPHEN A. STITLE* May 19, 1995
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: May 19, 1995
/s/ CARLTON E. LANGER
Carlton E. Langer,
Attorney-in-Fact
II-4
<PAGE> 131
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 January 12, 1995 by and
between NCC and UBK (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) (filed as Exhibit 3.2
to Registrant's Form S-4 Registration Statement No. 33-56539 dated
November 18, 1994 and incorporated herein by reference.)
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 Carlton E. Langer as to the legality of the NCC Common
being registered. (Filed as Exhibit 5.1)
8.1 Opinion of Brown, Todd & Heyburn PLLC as to certain tax consequences
of the Merger (incorporated herein by reference to Appendix B to the
Prospectus and Proxy Statement filed as a part of this Registration
Statement).
10.1 National City Corporation Short Term Incentive Compensation Plan for
Senior Officers As Amended and Restated Effective January 1, 1995.
(filed as Exhibit 10.21 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated herein
by reference).
10.2 National City Corporation Long Term Incentive Compensation Plan for
Senior Officers as Amended and Restated Effective January 1, 1995.
(filed as Exhibit 10.2 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated herein
by reference).
10.3 National City Corporation Annual Corporate Performance Incentive
Plan Effective January 1, 1995. (filed as Exhibit 10.21 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10.4 National City Savings and Investment Plan, As Amended and Restated
Effective July 1, 1992. (filed as Exhibit 10.24 to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and incorporated herein by reference).
10.5 The National City Savings and Investment Plan No. 2, As Amended and
Restated Effective January 1, 1992 (filed as Exhibit 10.25 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
</TABLE>
II-5
<PAGE> 132
<TABLE>
EXHIBIT INDEX -- CONTINUED
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
---------- ------------------------------------- --------------
<S> <C> <C>
10.6 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.
10.7 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).
10.8 National City Corporation's 1993 Stock Option Plan (filed as Exhibit
10.5 to Registration Statement No. 33-49823 and incorporated herein
by reference).
10.9 National City Corporation 150th Anniversary Stock Option Plan.
(Filed as Exhibit 10.9)
10.10 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).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
</TABLE>
II-6
<PAGE> 133
<TABLE>
EXHIBIT INDEX -- CONTINUED
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
---------- ------------------------------------- --------------
<S> <C> <C>
10.19 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).
10.20 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).
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25 Central Indiana Bancorp Option Plan effective March 15, 1991 (filed
as Exhibit 10.26 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference).
10.26 Central Indiana Bancorp 1993 Option Plan effective October 12, 1993
(filed as Exhibit 10.27 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated herein
by reference).
</TABLE>
II-7
<PAGE> 134
EXHIBIT INDEX -- CONTINUED
<TABLE>
<CAPTION>
PAGE NUMBER IN
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED COPY
---------- ------------------------------------------------------------------------------------
<S><C> <C> <C>
10.27 Forms of contracts with Edward B. Brandon, David A. Daberko, William
R. Robertson, William E. MacDonald III, Charles W. Hall, Jon L.
Gorney, Harold B. Todd, Jr., Robert G. Siefers, Robert J. Ondercik,
Jeffrey D. Kelly, David L. Zoeller, Thomas A. Richlovsky, Thomas W.
Owen, Gary A. Glaser, Vincent A. DiGirolamo and Morton Boyd (filed
as Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by
reference).
10.28 Split Dollar Insurance Agreement effective January 1, 1994 between
National City Corporation and those individuals listed in Exhibit
10.27 and other key employees. (filed as exhibit 10.28 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and 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, 1994 and note number 10 to
the Financial Statements in NCC's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995).
13.1 NCC's Annual Report on Form 10-K for the year ended December 31,
1994 (Incorporated herein by reference).
13.2 NCC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995. (Incorporated herein by reference).
22.1 Subsidiaries. (Filed as Exhibit 22.1)
23.1 Consent of Ernst & Young LLP, Independent Accountants for NCC.
(Filed as Exhibit 23.1)
23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors for UBK.
(Filed as Exhibit 23.2)
23.3 Consent of Brown, Todd & Heyburn PLLC. (included in the opinion as
filed as Exhibit 8.1 to this Registration Statement and incorporated
herein by reference).
23.4 Consent of Carlton E. Langer (included in his opinion as filed as
Exhibit 5.1 to this Registration Statement and incorporated herein
by reference).
24.1 Powers of attorney. (Filed as Exhibit 24.1)
99.1 Form of Proxy to be used in soliciting holders of UBK Common for its
Special Meeting.
</TABLE>
II-8
<PAGE> 1
EXHIBIT 5.1
-----------
May 19,1995
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 Registered in connection with the Merger of
United Bancorp of Kentucky, Inc. with and into National City
Corporation
Gentlemen:
As counsel for National City Corporation ("NCC") I am delivering this
opinion in connection with the Merger (the "Merger") of United Bancorp of
Kentucky, Inc. ("UBK") with and into NCC in accordance with the Agreement and
Plan of Merger, dated as of January 12, 1995 (the "Merger Agreement"), by and
between UBK and NCC, pursuant to which NCC may issue and deliver up to
2,482,079 shares of its common stock, par value $4.00 per share (the "Shares").
I have examined such documents, records and matters of law as I have
deemed necessary for purposes of this opinion, and based thereon I am of the
opinion that the shares of common stock which may be exchanged will be, when
exchanged or transferred, validly issued, fully paid and non-assessable so long
as the consideration received or to be received by NCC is at least equal to the
par value of such shares.
I hereby consent to the filing of this opinion as 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 me under the caption "LEGAL OPINIONS" in the prospectus comprising
a part of such Registration Statement.
Very truly yours,
/s/Carlton E. Langer
Carlton E. Langer
Assistant Secretary
<PAGE> 1
cel50021.mis
Exhibit 10.9
NATIONAL CITY CORPORATION
150TH ANNIVERSARY STOCK OPTION PLAN
1. PURPOSES. The purposes of this 150th Anniversary Stock
Option Plan are to provide employment incentives and to encourage capital
accumulation and stock ownership by employees of National City Corporation (the
"Corporation") and its Subsidiaries.
2. DEFINITIONS. As used in this Plan,
(a) The term "Board of Directors" means the Board of
Directors of National City Corporation.
(b) The term "Common Stock" means common stock, par value $4
per share, of the Corporation together with any security which
may augment or be substituted for the common stock of the
Corporation by reason of any transaction or event of the type
described in Paragraph 13 of this Plan.
(c) The term "Employee" means a person who is a full-time or
part-time employee of the Corporation or any Subsidiary on May
17, 1995 and who is granted an Option Certificate. Executive
officers of the Corporation as last designated by the Board of
Directors prior to May 17, 1995 for purposes of Section 16 of
the Securities Exchange Act of 1934 are, however, specifically
excluded from the definition of Employee.
(d) The term "Market Value per Share" means, at any date, the
per share closing price of Common Stock, on the New York Stock
Exchange on that date as reported by The Wall Street Journal
(Midwest Edition) or, if the Common Stock shall be primarily
traded in another market, as determined in a manner specified
by the Corporation using quotations in such other market.
(e) The term "Normal Retirement Date" shall mean the earliest
date at which an individual would be entitled to receive
normal retirement benefits if he were a participant in the
National City Corporation Non-Contributory Retirement Plan.
(f) The term "Option Certificate" shall mean the 150 year
anniversary commemorative certificate approved by the Board of
Directors. The Option Certificate shall have the provisions
of this Plan set forth on its reverse side.
(g) The term "Option Right" means the right to purchase a
share of Common Stock upon exercise of an Outstanding Option.
<PAGE> 2
(h) The term "Outstanding Option" means, at any time, an
option to purchase shares of Common Stock granted by the
Corporation or any of its Subsidiaries pursuant to this Plan.
(i) The term "Subsidiary" shall mean any corporation in which
the Corporation owns or controls, directly or indirectly, not
less than 90% of the total combined voting power represented
by all classes of stock issued by such corporation. Any
corporation that is a Subsidiary on May 17, 1995 shall cease
to be a Subsidiary for purposes hereof on that date when the
Corporation's ownership of the total combined voting power
represented by all classes of stock in such corporation
becomes less than 90%.
3. SHARES AVAILABLE UNDER PLAN.
(a) The shares of Common Stock which shall be the subject of
Option Rights pursuant to this Plan may be treasury shares or
shares of original issue or a combination of the foregoing.
(b) Subject to adjustments in accordance with Paragraph 13 of
this Plan, no more than 3,500,000 shares of Common Stock may
be sold upon the exercise of Option Rights granted pursuant to
this Plan.
4. GRANTS OF OPTION RIGHTS. On May 17, 1995 each Employee shall
be granted Option Rights to purchase 150 shares of Common Stock, at a per share
exercise price equal to the Market Value per Share as of May 17, 1995.
5. EXERCISE. The Option Rights (unless terminated as herein
provided) shall be exercisable only to the extent of 50 Option Rights after the
Employee shall have been in continuous employ of the Corporation or any
Subsidiary through May 17, 1998, an additional 50 Option Rights after the
Employee shall have been in continuous employ of the Corporation or any
Subsidiary through May 17, 1999 and all of the Option Rights after the Employee
shall have been in the continuous employ of the Corporation or any Subsidiary
through May 17, 2000; provided, however, that the Option Rights (unless
terminated as herein provided) shall become immediately fully exercisable upon
the Employee ceasing to be an employee of the Corporation or a Subsidiary by
reason of Employee's voluntary termination of employment at or after the Normal
Retirement Date. The Option Rights of any Employee shall not, however, become
exercisable until such exercise and the issuance and delivery of Common Stock
to the Employee conform to all applicable laws and regulations of the country
wherein the Employee resides; provided, however, that the Corporation shall not
be required to incur any direct or indirect expense to conform with such
applicable laws or regulations to cause the Employee's Option Rights to become
exercisable.
6. TERMINATION. An Employee's Option Rights shall terminate on
the earliest of the following dates:
2
<PAGE> 3
(a) Three years after the death of the Employee;
(b) Immediately upon the termination of employment of the
Employee with the Corporation or any Subsidiary if such
termination arises from any reason other than (1) the death of
the Employee or (2) the Employee's voluntary termination of
employment at or after the Normal Retirement Date or at an
earlier date with the consent of the Corporation;
(c) Immediately upon the termination of the Corporation's or
any Subsidiary's control of the business enterprise in which
the Employee is engaged,
(d) May 17, 2005; or
(e) In the event the Employee shall intentionally commit an
act that is materially inimical to the interest of the
Corporation or any Subsidiary, and the Corporation shall so
find, the Employee's Option Rights shall terminate at the time
of such act, notwithstanding any other provision of this Plan.
(f) In the event the Corporation shall determine in its sole
discretion that the Option Rights or the exercise thereof or
the issuance of Common Stock do not conform with the laws or
regulations of the Employee's country of residence and it is
not foreseeable in the Corporation's sole judgment that such
Option Rights, the exercise thereof or the issuance of Common
Stock will conform with such laws and regulations in the
future.
7. EMPLOYMENT. Nothing contained in this Plan shall limit
whatever right the Corporation or any Subsidiary might otherwise have to
terminate the employment of the Employee.
8. TAX WITHHOLDING. To the extent that the Corporation is
required to withhold federal, state, local or foreign taxes in connection with
any payment made or benefit realized by an Employee under this Plan, and the
amounts available to the Corporation for the withholding are insufficient, it
shall be a condition to the receipt of any such payment or the realization of
any such benefit that the Employee make arrangements satisfactory to the
Corporation for payment of the balance of any taxes to be withheld. Where
allowed by law and applicable registration and qualification requirements or
exemptions and at the sole discretion of the Corporation, arrangements to pay
all or a portion of the withholding taxes may include relinquishment or
assignment of all or a portion of the Employee's Option Rights, any payment due
to the Employee pursuant to this Plan or the surrender of outstanding Common
Stock. The Corporation and any Employee may also make similar arrangements
with respect to the payment of any taxes with respect to which withholding is
not required.
9. PAYMENT OF OPTION PRICE. The Option Price shall be payable to
the Corporation at its principal office in the United States:
3
<PAGE> 4
(a) In United States currency or by check payable in United
States currency that is acceptable to the Corporation;
(b) By exchanging previously acquired shares of Common Stock
of equivalent market value on the date of exercise with the
total Option Price for the portion of the Option Rights
exercised; or
(c) By a combination of (a) and (b).
10. EMPLOYMENT. For purposes of this Plan, the continuous
employment of the Employee with the Corporation or any Subsidiary shall not be
deemed interrupted, and the Employee shall not be deemed to have ceased to be
an employee of the Corporation or any Subsidiary by reason of a transfer as an
employee among the Corporation and the Subsidiaries. Also a leave of absence
approved by the Corporation for illness, military or government service or
other cause shall not be considered as a break in employment.
11. REGISTRATION, QUALIFICATION. Any contrary provision of the
Plan notwithstanding, an Option Right shall not be exercisable by, and the
Corporation shall not be obligated to sell or deliver any Common Stock subject
thereto, to a resident of any country unless and until such Common Stock and
the sale thereof pursuant to this Option Plan have been listed, registered or
otherwise qualified under all applicable laws or regulations or confirmation of
exemption from the applicable listing, registration or qualification laws or
regulations shall have been obtained or verified with respect to the Employee
exercising his Option Rights and such listing, registration or qualification or
exemption therefrom shall continue to be effective, all as the Corporation
shall, in its sole discretion, determine to be necessary or advisable. The
Corporation shall use its best efforts to maintain registration and applicable
qualification of such Common Stock and the sale thereof with the United States
Securities and Exchange Commission and applicable state and local regulatory
agencies in the United States. The Corporation shall not be required, however,
to incur any direct or indirect expenses to list, register or qualify or to
maintain the listing, registration or qualification of the sale of Common Stock
pursuant to this Option Plan in any or all of the applicable countries. The
Corporation may require that the Employee make such representations and
agreements and furnish such information as the Corporation may request to
assure compliance with or exception from the foregoing or any other applicable
legal requirements and may cause the Certificate or Certificates issued upon
the exercise of Option Rights to bear a legend indicating the existence of any
restriction resulting from such representations and agreements.
12. TRANSFERABILITY. No Option Right shall be transferable by an
Employee other than by will or the laws of descent and distribution. Option
Rights shall be exercisable during the Employee's lifetime only by the Employee
or by the Employee's guardian or legal representative.
13. ADJUSTMENTS. The Board of Directors may make or provide for
such adjustments in the maximum numbers of shares of Common Stock specified in
Subparagraph 3(b) of this Plan, in the numbers of shares of Common Stock
covered by Option Rights granted hereunder,
4
<PAGE> 5
and in the prices per share applicable under such Option Rights, as the Board
of Directors in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of
Employees that otherwise would result from any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital
structure of the Corporation, merger, consolidation, spin-off, reorganization,
partial or complete liquidation, issuance of rights or warrants to purchase
securities, or any other corporate transaction or event having an effect
similar to any of the foregoing.
14. FRACTIONAL SHARES. The Corporation shall not be required to
issue any fractional share of Common Stock pursuant to this Plan. The
Corporation may provide for the elimination of fractions or for the settlement
of fractions in cash.
15. ADMINISTRATION OF THE PLAN.
(a) This Plan shall be administered by the Corporation's
Corporate Human Resources Department or such other
department(s) which the Corporation's Chairman of the Board
may designate from time to time ("Administering Department").
(b) The Corporation's Chairman of the Board is hereby
authorized to determine the employees who will be granted
Option Rights under this Plan.
(c) The interpretation and construction by the Administering
Department of any provisions of this Plan and any
determination by the Administering Department pursuant to any
provision of this Plan shall be final and conclusive. Neither
the Corporation or any individual acting on behalf of the
Corporation shall be liable for any such action or
determination made in good faith.
(d) The records of the Corporation maintained at its
principal office in the United States shall be final and
conclusive as to who was granted an Option Certificate and the
number of Option Rights which each Employee holds from time to
time under this Plan.
16. TRANSLATIONS.
This Plan may be translated from English into one or more
other languages. The English version of this Plan shall, however, be the
controlling version with respect to the interpretation and administration of
the Plan.
17. LAWS GOVERNING PLAN.
The Option Rights and the Plan shall be construed under and
governed by the laws of the United States and the State of Delaware.
5
<PAGE> 1
Exhibit 22.1
dpl5OO54.cht
<TABLE>
<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 Corp....................... 100% Ohio
National City Capital Corporation.......... 100% Delaware
NC Acquisition, Inc. (Inactive)............ 100% Delaware
National City Credit Corporation........... 100% Ohio
NatCity Investments, Inc................... 100% Indiana
National City Venture Corporation.......... 100% Ohio
National City Holding Company (Inactive)... 100% Delaware
National City Community Development
Corporation............................ 100% Ohio
Cortland Bancorp........................... 7.15% 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 Asset Management Corporation...... 100% Kentucky
National City Processing Company........... 100% Arizona
Second Premises Corporation................ 100% Kentucky
National City Bank, Indiana................ 100% United States
Circle Equity Leasing Corporation
of Michigan............................. 100% Michigan
The 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
</TABLE>
<PAGE> 2
dpl5OO54.cht
<TABLE>
<CAPTION>
STATE OR
% OF JURISDICTION
VOTING UNDER THE LAW
SECURITIES OF WHICH
OWNED ORGANIZED
----------- --------------
<S> <C> <C>
Subsidiaries of National City Bank:
-----------------------------------
Capstone Realty, Inc..................... 100% Indiana
MNB Trustee Company (UK), Ltd............ 50% United Kingdom
National City Investments Corporation.... 100% Kentucky
Subsidiaries of National City Bank, Columbus:
---------------------------------------------
Scott Street Properties, Inc............. 100% Ohio
Subsidiaries of National City Bank, Northeast:
----------------------------------------------
AKREO Service Corp....................... 100% Ohio
Subsidiaries of Gem America Realty and Investment Corp.:
--------------------------------------------------------
Gem Financial Insurance Agency, Inc...... 100% Ohio
Subsidiaries of National City Bank, Kentucky:
---------------------------------------------
NCBK Holdings, Inc....................... 100% Kentucky
Churchhill Insurance Agency, Inc......... 100% Kentucky
National City Leasing Corporation........ 100% Kentucky
First National Broadway Corp............. 100% Kentucky
First Premises Corporation............... 100% Kentucky
FNB Service Corporation.................. 100% Kentucky
National Capital Properties, Inc......... 100% Kentucky
Subsidiaries of National City Processing Company:
------------------------------------------------
NPC Internacional, S.A. de C.V........... 99.6% Mexico
B & L Consultants, Inc................... 100% Massachusetts
NPC Check Services, Inc.................. 100% Delaware
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
Subsidiaries of Circle Equity Leasing Corporation of Michigan:
--------------------------------------------------------------
Circle Acceptance Leasing Corporation.... 100% Ohio
Subsidiaries of The Madison Bank and Trust Company:
---------------------------------------------------
National City Insurance Agency, Inc...... 100% Indiana
Subsidiaries of Ash Realty Company, Inc.:
-----------------------------------------
Sterling Equities Corp................... 100% Indiana
Subsidiaries of MNB Financial Corp.:
------------------------------------
Indiana Plaza Leasing, Inc............... 100% New York
______________________
*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 United Bancorp of Kentucky, Inc.), of our report dated January 20,
1995, 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, 1994, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cleveland, Ohio
May 16, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
National City Corporation
We consent to the use of our report included herein and to the reference to our
firm under the heading "EXPERTS" in the registration statement (Form S-4 and
related prospectus of National City Corporation for the proposed merger of
United Bancorp of Kentucky, Inc.). Our report refers to changes in accounting
for investment securities and income taxes in 1993.
KPMG PEAT MARWICK LLP
Lexington, Kentucky
May 18, 1995
<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. Roberton, 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 January 12, 1995, by and among Registrant, United Bancorp
of Kentucky, Inc. and James L. Rose, and any and all amemdments 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 such substitute.
Executed this 27th day of February, 1995.
/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 Board and
--------------------------------- Chief Executive Officer
Edward B. Brandon (Principal executive Officer)
/s/ John G. Breen Director
---------------------------------
John G. Breen
<PAGE> 2
/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
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
Thomas A. Richlovsky (Principal Accounting Officer)
-2-
<PAGE> 1
THIS PROXY FORM IS SUBMITTED BY THE BOARD OF DIRECTORS
UNITED BANCORP OF KENTUCKY, INC.
250 West Main Street, Suite 3100
Lexington, Kentucky 40507
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
-----------------------------------------
(Please Mark, Sign, Date and Return Immediately)
KNOW ALL MEN BY THESE PRESENTS, the undersigned shareholder of United
Bancorp of Kentucky, Inc. ("UBK"), hereby appoints ____________ and __________
or any one of them (with full power to act alone), my true and lawful
attorney(s) with full power of substitution, for me and in my name, place and
stead to vote all of the UBK common stock series A and UBK common stock series
AA held of record in my name at the close of business on ________ 1995, at the
Special Meeting of UBK shareholders to be held at the main-office of UBK at 250
West Main Street, Suite 3100, Lexington, Kentucky, on _________, 1995, at _____
a.m. and at any adjournments of that meeting with all the powers the
undersigned would possess if personal, as follows:
1. MERGER. To approve the Agreement and Plan of Merger
between UBK and National City Corporation ("NCC")
dated January 12, 1995, providing for the merger of
UBK with and into NCC, as described in the
accompanying Notice and Prospectus and Proxy Statement
and to authorize such further action by the Board of
Directors and any of the executive or other proper
officers of UBK as may be necessary or appropriate
to carry out the objects, intents and purposes of
the Agreement and Plan of Merger.
FOR ______ AGAINST _______ ABSTAIN _______
2. OTHER. To transact such other business related to
the foregoing as may properly be brought before the
Special Meeting or any adjournment thereof. (The
Board of Directors does not know of any such other
business.)
Information regarding the matters to be acted upon at the Special
Meeting is contained in the Prospectus and Proxy Statement accompanying this
Proxy Form.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1.
(continued, and TO BE SIGNED, on the reverse side)
<PAGE> 2
This Proxy Form is submitted by the Board of Directors and will be
voted as specified and in accordance with the accompanying Prospectus and Proxy
Statement. If no instruction is indicated, then the above-named proxies or
either of them will vote the shares represented FOR approval of the Agreement
and Plan of Merger and authorization of such further action as may be necessary
or appropriate to carry out the objects, intents and purposes of the Plan of
Merger, and IN ACCORDANCE WITH THEIR DISCRETION on any other business that may
properly come before the meeting.
IN WITNESS WHEREOF, I have hereunto set my hand this _________ day of
_______________, 1995.
____________________________________
Signature of shareholder
____________________________________
Additional signature, if necessary
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title. If there is
more than one trustee, all should sign.
All joint owners should sign.
Please mark, sign, date, and return this proxy
promptly in the enclosed pre-addressed, stamped envelope.
2
