UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarter ended March 31, 1998
Commission File Number 0-13030
Trans Financial, Inc.
(Exact name of registrant as specified in its charter)
Kentucky 61-1048868
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 East Main Street, Bowling Green, Kentucky 42101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502)793-7717
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
The number of shares outstanding of the issuer's class of common stock on
May 14, 1998: 11,739,293 shares.
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
Consolidated Balance Sheets
(Unaudited)
In thousands, except share data
<CAPTION>
March 31 December 31 March 31
1998 1997 1997
Assets
<S> <C> <C> <C>
Cash and due from banks .................. $ 84,651 $ 70,774 $ 60,746
Interest-bearing deposits with banks ..... 99 99 98
Mortgage loans held for sale ............. 189,511 118,485 70,836
Securities available for sale (amortized
cost of $260,855 as of March 31, 1998;
$276,554 as of December 31, 1997;
and $256,732 as of March 31, 1997) .... 262,465 278,098 254,718
Loans, net of unearned income ............ 1,556,665 1,537,820 1,448,765
Less allowance for loan losses ........... 22,777 22,017 19,010
----------- ----------- -----------
Net loans ............................. 1,533,888 1,515,803 1,429,755
Premises and equipment, net .............. 38,843 37,429 37,670
Mortgage servicing rights ................ 45,180 46,870 42,845
Other assets ............................. 49,167 47,453 41,274
=========== =========== ===========
Total assets .......................... $ 2,203,804 $ 2,115,011 $ 1,937,942
=========== =========== ===========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing .................. $ 254,151 $ 235,695 $ 205,414
Interest bearing ...................... 1,370,282 1,338,143 1,311,540
----------- ----------- -----------
Total deposits ........................ 1,624,433 1,573,838 1,516,954
Federal funds purchased and
repurchase agreements ................. 125,391 109,348 58,317
Other short-term borrowings .............. 70,000 70,000 55,000
Long-term debt ........................... 195,125 185,293 140,796
Other liabilities ........................ 28,521 25,755 32,517
----------- ----------- -----------
Total liabilities ..................... 2,043,470 1,964,234 1,803,584
Shareholders' equity:
Common stock, no par value. Authorized
50,000,000 shares; issued and
outstanding 11,717,356; 11,471,689;
and 11,417,749 shares, respectively 21,970 21,510 21,408
Additional paid-in capital ............ 50,723 46,284 45,294
Retained earnings ..................... 88,422 83,947 71,401
Accumulated other comprehensive income ... 898 882 (1,395)
Employee Stock Ownership Plan shares
purchased with debt ................ (1,679) (1,846) (2,350)
----------- ----------- -----------
Total shareholders' equity ............ 160,334 150,777 134,358
----------- ----------- -----------
Total liabilities
and shareholders' equity ............ $ 2,203,804 $ 2,115,011 $ 1,937,942
=========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Income
(Unaudited)
In thousands, except per share data
For the three months ended March 31
1998 1997
Interest income
Loans, including fees .............. $35,786 $33,608
Securities available for sale ...... 3,817 3,820
Mortgage loans held for sale ....... 2,468 1,229
Interest-bearing deposits with banks 7 2
------- -------
Total interest income .............. 42,078 38,659
Interest expense
Deposits ........................... 16,466 15,505
Federal funds purchased
and repurchase agreements ........ 1,075 591
Long-term debt and other
borrowings ....................... 4,207 3,263
------ -------
Total interest expense ............. 21,748 19,359
------- -------
Net interest income .................. 20,330 19,300
Provision for loan losses .......... 2,220 1,950
------- -------
Net interest income after
provision for loan losses .......... 18,110 17,350
Non-interest income
Service charges on deposit accounts 2,471 2,495
Mortgage banking income ............ 4,610 2,757
Gains on sales of securities
available for sale, net .......... 150 221
Trust services ..................... 617 561
Brokerage income ................... 802 710
Other .............................. 1,615 1,175
------ -------
Total non-interest income .......... 10,265 7,919
Non-interest expenses
Compensation and benefits .......... 9,384 8,608
Net occupancy expense .............. 1,160 1,150
Furniture and equipment expense .... 1,809 1,566
Deposit insurance .................. 102 103
Professional fees .................. 642 666
Postage, printing & supplies ....... 1,064 980
Processing fees .................... 591 495
Communications ..................... 748 658
Other .............................. 2,995 2,813
------ -------
Total non-interest expenses ........ 18,495 17,039
------ -------
Income before income taxes ........... 9,880 8,230
Income tax expense ................... 3,306 2,682
-------- -------
Net income ........................... $ 6,574 $ 5,548
====== =======
Diluted earnings per share ........... $ 0.55 $ 0.48
====== =======
Basic earnings per share ............. $ 0.57 $ 0.49
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
Consolidated Statements of Comprehensive Income
(Unaudited)
In thousands
For the three months ended March 31
1998 1997
Net income ............................................ $ 6,574 5,548
Other comprehensive income, net of tax:
Unrealized holding gains (losses) during the period
on securities available for sale ............... 182 (1,096)
Reclassification adjustments for (gains)losses
on securities included in net income ........... (166) (207)
------- -------
Total other comprehensive income ...................... 16 (1,303)
======= =======
Comprehensive income .................................. $ 6,590 $ 4,245
======== ========
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
In thousands
1998 1997
Balance January 1 ....................... $ 150,777 $ 131,316
Net income ............................ 6,574 5,548
Other comprehensive income ............ 16 (1,303)
Issuance of common stock .............. 4,900 633
Cash dividends declared on common stock (2,100) (1,937)
ESOP debt reduction ................... 167 101
========= =========
Balance at end of period ................ $ 160,334 $ 134,358
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(Unaudited)
In thousands
For the three months ended March 31
<CAPTION>
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net income ....................................................... $ 6,574 $ 5,548
Adjustments to reconcile net income to cash
provided by operating activities:
Provision for loan losses .................................... 2,220 1,950
Deferred tax expense ......................................... (609) (472)
Gain on sale of securities available for sale ................ (150) (221)
Gain on sale of mortgage loans held for sale ................. (2,288) (980)
Gain on sale of premises and equipment ....................... -- (6)
Gain on sale of Mt. Pleasant, Tennessee office ............... (430) --
Depreciation and amortization of fixed assets ................ 1,665 1,215
Amortization of intangible assets ............................ 396 323
Amortization of premium on securities and loans, net ......... 130 199
Amortization of mortgage servicing rights .................... 1,803 1,460
Decrease in accrued interest receivable .......................... 1,110 1,984
Decrease in other assets ......................................... 1,528 20,345
Increase(decrease) in accrued interest payable ................... (2,863) 1,585
Increase in other liabilities .................................... 5,661 5,897
Sale of mortgage loans held for sale ............................. 378,844 187,861
Originations of mortgage loans held for sale ..................... (447,582) (189,097)
--------- ---------
Net cash provided by (used in) operating activities ............ (53,991) 37,591
Cash flows from investing activities:
Proceeds from sale of securities available for sale .............. -- 2,154
Proceeds from prepayment and call of securities available for sale 9,798 2,295
Proceeds from maturities of securities available for sale ........ 30,754 24,335
Purchase of securities available for sale ........................ (24,864) (231)
Net decrease(increase) in loans .................................. (20,562) 838
Net cash outflow from sale of Mt. Pleasant, Tennessee office ..... (8,826) --
Proceeds from sale of mortgage servicing rights .................. 1,489 --
Purchase and origination of mortgage servicing rights ............ (5,830) (3,060)
Proceeds from sale of foreclosed assets .......................... 329 407
Purchases of premises and equipment .............................. (3,158) (1,713)
Proceeds from disposal of premises and equipment ................. 38 211
--------- ---------
Net cash provided by (used in) investing activities ............ (20,832) 25,236
Cash flows from financing activities:
Net increase (decrease) in deposits .............................. 59,858 (62,263)
Net increase (decrease) in federal funds purchased
and repurchase agreements ...................................... 16,043 (13,562)
Proceeds from issuance of long-term debt ......................... 10,000 --
Repayment of long-term debt ...................................... -- (6)
Proceeds from issuance of common stock ........................... 4,899 633
Dividends paid ................................................... (2,100) (1,937)
--------- ---------
Net cash provided by (used in) financing activities ............ 88,700 (77,135)
--------- ---------
Net increase (decrease) in cash and cash equivalents ............. 13,877 (14,308)
Cash and cash equivalents at beginning of year ................... 70,774 75,054
--------- ---------
Cash and cash equivalents at end of period ....................... $ 84,651 $ 60,746
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Trans Financial, Inc. and its
subsidiaries (the "company") conform to generally accepted accounting principles
and general practices within the banking industry. The consolidated financial
statements include the accounts of Trans Financial, Inc. and its wholly-owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation. A description of other significant accounting
policies is presented in the 1997 annual report on Form 10-K.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
reflected in the accompanying unaudited financial statements. Results of interim
periods are not necessarily indicative of results to be expected for the full
year.
(2) Allowance for Loan Losses
An analysis of the changes in the allowance for loan losses follows:
In thousands
For the periods ended March 31
1998 1997
Balance beginning of period ............... $ 22,017 $ 21,016
Provision for loan losses ............... 2,220 2,650
Loans charged off ....................... (2,023) (2,098)
Recoveries of loans previously charged off 563 271
--------- ---------
Net charge-offs ......................... (1,460) (1,827
--------- ---------
Balance at end of period .................. $ 22,777 $ 21,839
(3) Impaired Loans
The company's recorded investment in loans considered impaired in
accordance with Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for Impairment of a Loan ("SFAS 114"), was $14,514,000 at March 31,
1998. Of that amount, $12,423,000 represents loans for which an allowance for
loan losses, in the amount of $3,068,000 has been established under SFAS 114.
Impaired loans totaled $4,258,000 at March 31, 1997, including $1,715,000 of
loans for which an allowance was established totaling $590,000.
The average recorded investment of impaired loans was $15,829,000 and
$4,436,000 for the three months ended March 31, 1998 and 1997, respectively.
Interest income recognized on impaired loans totaled $94,000 for the three
months ended March 31, 1998. For the comparable period in 1997, interest income
on impaired loans totaled $22,000.
(4) New Accounting and Disclosure Standard
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130, which became effective in the first quarter of 1998, requires a
presentation of comprehensive income in a full set of general-purpose financial
statements. In addition to net income, comprehensive income includes all other
changes in shareholders' equity during the reporting period except those
resulting from investments by shareholders and distributions to shareholders. To
comply with SFAS 130, the company is presenting in this report a new
Consolidated Statement of Comprehensive Income.
(5) Subsequent Event
On April 9, 1998, the company entered into an agreement and Plan of Merger
with Star Banc Corporation, based in Cincinnati, Ohio ("Star Banc"). In
accordance with the terms of the merger agreement, each share of the company's
common stock will be converted into 0.9003 share of Star Banc common stock. The
merger is subject to various conditions, including approval by shareholders of
the company and by the appropriate bank regulatory authorities.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Trans Financial, Inc. ("the company") is a bank holding company registered
under the Bank Holding Company Act of 1956. The company has two commercial bank
subsidiaries--Trans Financial Bank, National Association ("TFB-KY"), consisting
of all of the company's banking activities in Kentucky, and Trans Financial Bank
Tennessee, National Association ("TFB-TN"), consisting of all
of the company's Tennessee banking activity. (On July 26, 1997, the company's
former thrift subsidiary--Trans Financial Bank, F.S.B.--was merged into TFB-KY,
and its Tennessee operations were sold to TFB-TN. These transactions
consolidated the company's banking operations into its current two national bank
charters.)
In addition, the company operates as subsidiaries of TFB-KY a full-service
securities broker/dealer--Trans Financial Investment Services, Inc.--and a
mortgage banking company--Trans Financial Mortgage Company ("TFMC").
During April 1997, the company sold substantially all of the deposits,
premises and equipment, and certain other assets of its Lebanon and Sparta,
Tennessee offices. These two offices represented $17 million of the company's
total deposits as of March 31, 1997. The company's Mt. Pleasant, Tennessee
office, consisting of $10 million of deposits, was sold on March 4, 1998.
On August 29, 1997, the Trans Adviser family of mutual funds ("the Funds")
was transferred to the Countrywide Family of Funds. TFB-KY had acted as
investment adviser to the Funds, which had total assets of $159 million as of
June 30, 1997. However, as a result of this transfer, TFB-KY no longer serves in
that capacity. The transfer did not have a significant impact on the company's
financial condition or results of operations.
On April 9, 1998, the company entered into an agreement and Plan of Merger
with Star Banc Corporation, based in Cincinnati, Ohio ("Star Banc"). In
accordance with the terms of the merger agreement, each share of the company's
common stock will be converted into 0.9003 share of Star Banc common stock. The
merger is subject to various conditions, including approval by shareholders of
the company and by the appropriate bank regulatory authorities.
The discussion that follows is intended to provide additional insight into
the company's financial condition and results of operations. This discussion
should be read in conjunction with the consolidated financial statements and
accompanying notes presented in Item 1 of Part I of this report.
Results of Operations
Overview
For the three months ended March 31, 1998, the company earned $6.6 million,
or $0.55 per diluted share, compared to $5.5 million, or $0.48 per diluted
share, for the first quarter of 1997. Results for the first quarter of 1998
produced an annualized return on average assets of 1.25% and a return on average
shareholders' equity of 17.10%, compared with 1.16% and 16.75%, respectively,
for the first quarter of 1997.
Net Interest Income
Net interest income on a tax-equivalent basis totaled $20.6 million in the
first quarter of 1998, compared with $19.7 million in the comparable 1997
period--a 5% increase. For the first quarter of 1998, the net interest margin
(net interest income as a percentage of average interest-earning assets) on a
tax-equivalent basis decreased 15 basis points, from 4.44% to 4.29%, compared to
the same period in 1997.
Approximately $770 million of the company's loans reprice immediatlely with
changes in the prime rate, and another $65 million of loans reprice within three
months of a change in prime. The prime rate increased to 8.50% in late first
quarter 1997, and has remained constant since then. Since late 1997, a
significantly larger proportion of interest earning asset growth has come from
lower earning mortgage loans held for sale. Also during this time, the company's
funding costs continued to rise, as greater reliance has been placed on
wholesale funding sources, such as brokered deposits and other borrowed funds.
As a result, the company's net interest-rate spread (the difference between the
average yield on interest-earning assets and the average rate paid on
interest-bearing liabilities) decreased twenty basis points compared to the
first quarter 1997, negatively impacting the net interest margin. This negative
impact was partially offset during 1998 by increased interest income due to
growth in loans and in mortgage loans held for sale.
The following tables show, for the three-month periods ended March 31, 1998
and 1997, the relationship between interest income and expense and the levels of
average interest-earning assets and average interest-bearing liabilities. The
tables reflect increased volumes of commercial loans, mortgage loans held for
sale, brokered certificates of deposit and borrowed funds.
<PAGE>
<TABLE>
Average Consolidated Balance Sheets and Net Interest Analysis
For the three months ended March 31
Dollars in thousands
<CAPTION>
1998 1997
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Assets:
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans, net of unearned income .... $1,543,321 $ 35,859* 9.42% $1,453,965 $33,690* 9.40%
Securities ....................... 264,957 4,067* 6.23% 271,685 4,103* 6.12%
Mortgage loans held for sale ..... 145,873 2,468 6.86% 69,409 1,229 7.18%
Federal funds sold
and other interest income ...... 432 7 6.57% 98 2 8.28%
--------- ---------- ---------- -------
Total interest-earning assets /
interest income .................. 1,954,583 42,401 8.80% 1,795,157 39,024 8.82%
------- ------
Non-interest-earning assets:
Cash and due from banks .......... 64,846 49,593
Premises and equipment ........... 38,143 37,608
Other assets ..................... 70,335 65,569
---------- ----------
Total assets ....................... $2,127,907 $1,947,927
========== ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand (NOW) .. $ 66,485 $ 562 3.43% $ 33,883 $ 255 3.05%
Savings deposits ............... 95,296 587 2.50% 104,144 687 2.68%
Money market accounts .......... 259,834 2,167 3.38% 270,391 2,140 3.21%
Certificates of deposit ........ 717,231 9,800 5.54% 723,120 9,578 5.37%
Brokered certificates of deposit 144,860 2,261 6.33% 110,323 1,715 6.30%
Individual Retirement Accounts . 78,936 1,089 5.60% 83,404 1,130 5.49%
--------- ---------- ---------- -------
Total interest-bearing deposits 1,362,642 16,466 4.90% 1,325,265 15,505 4.74%
Federal funds purchased
and repurchase agreements ........ 83,145 1,075 5.24% 47,932 591 5.00%
Other short-term borrowings ........ 80,367 1,159 5.85% 72,833 983 5.47%
Long-term debt ..................... 193,515 3,048 6.39% 140,895 2,280 6.56%
--------- ---------- ---------- -------
Total borrowed funds ............. 357,027 5,282 6.00% 261,660 3,854 5.97%
--------- ---------- ---------- -------
Total interest-bearing liabilities /
interest expense ................. 1,719,669 21,748 5.13% 1,586,925 19,359 4.95%
------- -------
Non-interest-bearing liabilities:
Non-interest-bearing deposits .... 226,740 201,759
Other liabilities ................ 25,593 24,921
--------- --------
Total liabilities ................ 1,972,002 1,813,605
Shareholders' equity ............... 155,905 134,322
--------- ---------
Total liabilities
and shareholders' equity ......... $2,127,907 $1,947,927
========== =========
Net interest-rate spread ........... 3.67% 3.87%
Impact of non-interest bearing
sources and other changes in
balance sheet composition ........ 0.62% 0.57%
------- -----
Net interest income /
margin on interest-earning assets $ 20,653 4.29% $19,665 4.44%
======= ======== ======= ====
*Includes tax-equivalent adjustment
Net interest margin is net interest income divided by average interest-earning
assets. For computational purposes, non-accrual loans are included in
interest-earning assets. Net interest rate spread is the difference between the
average rate of interest earned on interest-earning assets and the average rate
of interest expensed on interest-bearing liabilities. Average balances are based
on daily balances and average rates are based on a 365-day year.
</TABLE>
<PAGE>
Analysis of Changes in Net Interest Income
Shown in the following tables are changes in interest income and interest
expense resulting from changes in volumes (average balances) and changes in
interest rates for the three-month period ended March 31, 1998, as compared to
the same period in 1997.
First Quarter 1998 vs. 1997
Increase (decrease)
in interest income and expense
due to changes in:
In thousands
Volume Rate Total
Interest-earning assets:
Loans ............................ $ 2,076 $ 93 $ 2,169
Securities ....................... (103) 67 (36)
Mortgage loans held for sale ..... 1,296 (57) 1,239
Federal funds sold
and other interest income ...... 5 -- 5
------- ----- -------
Total interest-earning assets .... 3,274 103 3,377
Interest-bearing liabilities:
Interest-bearing demand (NOW) .... 272 35 307
Savings deposits ................. (56) (44) (100)
Money market accounts ............ (85) 112 27
Certificates of deposit .......... (79) 301 222
Brokered certificates of deposit . 539 7 546
Other time deposits .............. (61) 20 (41)
------- ----- -------
Total interest-bearing deposits 530 431 961
Federal funds purchased
and repurchase agreements ...... 454 30 484
Other short-term borrowings ...... 106 70 176
Long-term debt ................... 830 (62) 768
------- ----- -------
Total borrowed funds ........... 1,390 38 1,428
------- ----- -------
Total interest-bearing liabilities 1,920 469 2,389
------- ----- -------
Increase (decrease)
in net interest income ......... $ 1,354 $(366) $ 988
======= ===== =======
The change in interest due to both rate and volume has been allocated to
changes in average volume and changes in average rates in proportion to the
absolute dollar amounts of the change in each.
Provision for Loan Losses
The provision for loan losses was $2.2 million (0.58% of average loans on
an annualized basis, excluding mortgage loans held for sale) for the first
quarter of 1998, compared with $2.0 million (0.54% of average loans) for the
comparable period of 1997. Net loan charge-offs were $1.5 million (0.38% of
average loans) for the first quarter of 1998, compared with $1.0 million (0.28%
of average loans) for the first quarter of 1997.
The provision for loan losses and the level of the allowance for loan
losses reflect management's evaluation of the risk in the loan portfolio. The
increased provision in 1998 as compared to 1997 reflects overall growth in the
loan portfolio as well as a higher level of non-performing loans. Further
discussion on loan quality and the allowance for loan losses is included in the
Asset Quality discussion later in this report.
Non-Interest Income
Non-interest income for the first quarter of 1998 increased $2.3 million,
or 30%, over the first quarter of 1997. Mortgage banking income, which increased
56% from the year-ago quarter, accounted for $1.7 million of the total increase
in non-interest income. The Surety Mortgage (Cape Coral, Florida) acquisition
and the new mortgage office in Little Rock, Arkansas, represent $501 thousand of
the increase in mortgage banking income. In addition, the company recognized a
net pre-tax gain of $430 thousand on the sale of the Mt. Pleasant, Tennessee,
sales center. This gain is included in other non-interest income.
During the first quarter of 1998, the company sold $459 million from the
mortgage servicing portfolio to reduce the risk of future impairment in the
carrying value of the mortgage servicing asset. No net gain or loss was
recognized on the sale.
Non-Interest Expenses
Non-interest expenses increased $1.5 million, or 9%, in the first quarter
of 1998, compared to the first quarter of 1997. The increased expenses in 1998
include $410 thousand in operating expenses associated with the new mortgage
offices in Florida and Arkansas. Technology initiatives for investments in
branch automation, expanding the convenience-store ATM network and additional
enhancements to customer-oriented decision-support systems resulted in a $243
thousand increase in non-interest expense. Performance-based compensation
initiatives resulted in an additional $295 thousand in incentive compensation,
and annual employee merit increases added another $288 thousand in compensation
expense. The efficiency ratio (a measure of operating expenses per dollar of
income) decreased to 61.3% in the first quarter of 1998 (excluding the branch
sale gain and securities gains and losses)--an improvement over the 63.1%
efficiency ratio in the first quarter of 1997.
Income Taxes
Income tax expense totaled $3.3 million for the first quarter of 1998,
compared with $2.7 million in the comparable 1997 period. These represent
effective tax rates of 33.5% and 32.6%, respectively.
Balance Sheet Review
Overview
Assets at March 31, 1998 totaled $2.20 billion, compared with $2.12 billion
at December 31, 1997, and $1.94 billion a year ago. Average total assets for the
first quarter increased $180 million (9%) over the past year to $2.13 billion.
Average interest-earning assets increased $159 million to $1.95 billion.
Loans
The company experienced annualized loan growth of 5% from December 31,
1997, to March 31, 1998. At March 31, 1998, loans net of unearned income
(excluding mortgage loans held for sale) totaled $1.56 billion, compared with
$1.54 billion at December 31, 1997, and $1.45 billion a year ago.
Total loans, net of unearned income, averaged $1.54 billion in the first
quarter of 1998, excluding mortgage loans held for sale of $146 million. For the
comparable period in 1997, loans averaged $1.45 billion, excluding the $69
million of mortgage loans held for sale.
As of March 31, 1998, the company's 47 largest credit relationships
consisted of loans and loan commitments ranging from $5 million to $19 million,
one of which was classified as a non-accrual loan (see the Asset Quality
discussion below). The aggregate amount of these credit relationships was $501
million. These large credit relationships have been underwritten and structured
to minimize the company's exposure to loss. However, a significant deterioration
in the financial condition of one or more of these borrowers could result in an
increase in the company's loan charge-offs. In addition, the prepayment of one
or more of these credits or their refinancing at another financial institution
may have a negative impact on the company's future net income and loan growth.
Asset Quality
Non-performing loans, which include non-accrual loans, accruing loans past
due 90 days or more and restructured loans, totaled $24.6 million as of March
31, 1998, essentially flat as compared to December 31, 1997, and up $15.1
million from the end of the first quarter of 1997. The increase from a year ago
is primarily attributable to $11.8 million of loans to a coal mining operation.
The company is closely monitoring its $26.5 million exposure to the coal
industry, which is down from $33.5 million at December 31, 1997. At March 31,
1998, the company's exposure consisted of the non-accrual loan mentioned above
as well as an additional 107 relationships, with the next largest single credit
exposure totaling $2.5 million.
The ratio of non-performing loans to total loans (net of unearned income)
was 1.58% at March 31, 1998, compared with 1.59% at the end of 1997 and 0.66% a
year ago. Non-performing assets, which include non-performing loans, foreclosed
real estate and other foreclosed property, totaled $25.6 million as of March 31,
1998, as compared to $11.1 million at March 31, 1997. The ratio of
non-performing assets to total assets increased to 1.16% at March 31, 1998, from
0.57% a year ago.
The following table presents information concerning non-performing assets,
including non-accrual and restructured loans.
<PAGE>
<TABLE>
Non-performing Assets
Dollars in thousands
<CAPTION>
March 31 December 31 March 31
1998 1997 1997
<S> <C> <C> <C>
Non-accrual loans ................................... $20,593 $21,803 $ 5,528
Accruing loans which are contractually
past due 90 days or more .......................... 3,403 1,991 3,388
Restructured loans .................................. 622 687 633
-------- -------- ------
Total non-performing and restructured loans ....... 24,618 24,481 9,549
Foreclosed real estate .............................. 727 845 1,328
Other foreclosed property ........................... 258 217 175
-------- -------- ------
Total non-performing and restructured loans and
foreclosed property ............................. $25,603 $25,543 $11,052
Non-performing and restructured loans
as a percentage of loans, net of unearned income .. 1.58% 1.59% 0.66%
Total non-performing and restructured loans and
foreclosed property as a percentage of total assets 1.16% 1.21% 0.57%
</TABLE>
Management classifies commercial and commercial real estate loans as
non-accrual when principal or interest is past due 90 days or more and the loan
is not adequately collateralized and in the process of collection, or when, in
the opinion of management, principal or interest is not likely to be paid in
accordance with the terms of the obligation. Consumer loans are charged off
after 120 days of delinquency unless adequately secured and in the process of
collection. Non-accrual loans are not reclassified as accruing until principal
and interest payments are brought current and future payments appear reasonably
certain. Loans are categorized as restructured if the original interest rate,
repayment terms, or both were modified due to a deterioration in the financial
condition of the borrower.
Six commercial credit relationships account for $16.3 million, or 79%, of
the company's non-accrual loans at March 31, 1998. The largest of these credits
is the $11.8 million relationship with the coal mining operation mentioned
above. The other five credits consist of $1.7 million to a grocery chain, $1.0
million to a tobacco processing company, $0.5 million to a trucking company,
$0.8 million to a real estate developer and $0.5 million to a truck stop
operation. Of the $3.1 million allowance for loan losses established in
accordance with Statement of Financial Accounting Standards No. 114, Accounting
by Creditors for the Impairment of a Loan, these six credits account for $2.8
million. The remaining non-accrual loan balance consists of various commercial
and consumer loans, with no single borrower representing more than $310,000.
Foreclosed real estate at March 31, 1998, consists of several properties,
with no single property exceeding $135,000.
As of March 31, 1998, the company had $4.8 million of loans which were
not included in the past due, non-accrual or restructured categories, but for
which known information about possible credit problems caused management to
have serious doubts as to the ability of the borrowers to comply with the
present loan repayment terms. Based on management's evaluation, including
current market conditions, cash flow generated and recent appraisals, no
significant losses are anticipated at this time in connection
with these loans. These loans are subject to continuing management attention and
are considered in determining the level of the allowance for loan losses.
The allowance represents an amount which, in management's judgment, will be
adequate to absorb probable losses on existing loans. The adequacy of the
allowance for loan losses is determined on an ongoing basis through analysis of
the overall size and quality of the loan portfolio, historical loan loss
experience, loan delinquency trends and current and projected economic
conditions. Additional allocations of the allowance are based on specifically
identified potential loss situations. The potential loss situations are
identified by account officers' evaluations of their own portfolios as well as
by an independent loan review function.
The allowance for loan losses is established through a provision for loan
losses charged to expense. At March 31, 1998, the allowance was $22.8 million,
up from $22.0 million at December 31, 1997, and $19.0 million at March 31, 1997.
The ratio of the allowance for loan losses to total loans (excluding mortgage
loans held for sale) at March 31, 1998, was 1.46%, compared with 1.43% at
December 31, 1997, and 1.31% at March 31, 1997. The increase from March 31, 1997
reflects in part management's review of the growth in the loan portfolio, the
continuing concentrations of credit among the company's largest credit
relationships, and anticipated general economic conditions in the company's
markets.
The allowance as a percentage of non-performing loans was 93% at March 31,
1998, as compared to 90% at year-end 1997 and 199% at March 31, 1997, due to the
previously-mentioned $11.8 million of coal mining loans which were classified as
non-accrual at December 31, 1997 and March 31, 1998.
Management believes that the allowance for loan losses at March 31, 1998,
is adequate to absorb losses inherent in the loan portfolio as of that date.
That determination is based on the best information available to management, but
necessarily involves uncertainties and matters of judgment and, therefore,
cannot be determined with precision and could be susceptible to significant
change in the future. In addition, bank regulatory authorities, as a part of
their periodic examinations of the company's banks, may reach different
conclusions regarding the quality of the loan portfolio and the level of the
allowance, which could result in additional provisions being made in future
periods. Further discussion of the allowance for loan losses is included later
in this review in the Year 2000 Risks section.
Securities Available for Sale
Securities (all classified as available for sale) decreased from $278
million at December 31, 1997 to $262 million at March 31, 1998. A year ago,
securities totaled $255 million. Funds provided by the reduction in securities
in the first quarter of 1998 were utilized to fund growth in the loan portfolio.
Deposits and Borrowed Funds
Total deposits averaged $1.59 billion in the first quarter of 1998, an
increase of $62.4 million, or 4%, from the comparable 1997 period. Average
interest-bearing accounts increased $37.4 million in the first quarter of 1998,
compared to the same period in 1997, while average non-interest-bearing accounts
increased $25.0 million. The increase in interest-bearing accounts primarily
represents brokered certificates of deposit issued to fund loan growth. As of
March 31, 1998 and 1997, brokered certificates of deposit comprised $145 million
and $105 million, respectively, of the company's deposits. These brokered
deposits have various maturities ranging from three months to three years.
Long-term debt totaled $195 million at March 31, 1998 and $141 million at
March 31, 1997. In order to support growth in the loan portfolio, TFB-KY has
outstanding $50 million of notes (included in the long-term debt totals), under
a $250 million senior bank note program. These bank notes bear interest at fixed
rates of 6.48% and 7.13%. Other long-term borrowings principally represent
Federal Home Loan Bank ("FHLB") advances to TFB-KY and TFB-TN (with varying
maturity dates), which are funding residential mortgage and commercial loans.
Long-term debt also includes financing from an unaffiliated commercial bank
for the company's leveraged ESOP. Total ESOP debt was $1.7 million at March 31,
1998, and $2.4 million at March 31, 1997.
Certain of the above brokered certificates of deposit, bank notes and FHLB
advances have been effectively converted to floating rate instruments through
the use of interest rate swap transactions. Under these swap agreements, TFB-KY
pays interest at the prime rate, and receives fixed rates from 8.60% to 8.81%.
Other swap agreements are utilized to hedge the commercial lending exposure of
the company. TFB-KY pays interest at the prime rate, and receives fixed rates
from 8.50 % to 9.52% under these swap agreements. Further discussion of interest
rate swaps is included later in this review in the Asset/Liability Management
and Market Risks Section.
Capital Resources and Liquidity
The company's capital ratios at March 31, 1998, December 31, 1997, and
March 31, 1997 (calculated in accordance with regulatory guidelines) were as
follows:
March 31, December 31, March 31,
1998 1997 1997
Tier 1 risk based ........... 8.66% 8.48% 8.08%
Regulatory minimum ..... 4.00 4.00 4.00
Well-capitalized minimum 6.00 6.00 6.00
Total risk based ............ 11.80 11.71 11.41
Regulatory minimum ..... 8.00 8.00 8.00
Well-capitalized minimum 10.00 10.00 10.00
Leverage .................... 7.10 6.81 6.52
Regulatory minimum ..... 3.00 3.00 3.00
Well-capitalized minimum 5.00 5.00 5.00
The increase in these capital ratios in 1998 is due to the company's
increased earnings. Capital ratios of all of the company's subsidiaries are in
excess of applicable minimum regulatory capital ratio requirements at March 31,
1998.
To maintain a desired level of liquidity, the company has several sources
of funds available. The company primarily relies upon net inflows of cash from
financing activities, supplemented by net inflows of cash from operating
activities, to provide cash used in these investing activities. As is typical of
most banking companies, significant financing activities include issuance of
common stock and long-term debt, deposit gathering, and the use of short-term
borrowing facilities, such as federal funds purchased, repurchase agreements,
FHLB advances and lines of credit. The company's primary investing activities
include purchases of securities and loan originations, offset by maturities,
prepayments and sales of securities, and loan payments.
Asset/Liability Management and Market Risks
Managing interest rate risk is fundamental to the financial services
industry. The company's policies are designed to manage the inherently different
maturity and repricing characteristics of the lending and deposit-acquisition
lines of business to achieve a desired interest-sensitivity position and to
limit exposure to interest rate risk. The maturity and repricing characteristics
of the company's lending and deposit activities create a naturally
asset-sensitive structure. By using a combination of on- and off-balance-sheet
financial instruments, the company manages interest rate sensitivity while
optimizing net interest income within the constraints of prudent capital
adequacy, liquidity needs, the interest rate and economic outlook, market
opportunities and customer requirements.
The company uses an earnings simulation model to monitor and evaluate the
impact of changing interest rates on earnings. The simulation model used by the
company is designed to reflect the dynamics of all interest-earning assets,
interest-bearing liabilities and off-balance-sheet financial instruments,
combining the various factors affecting rate sensitivity into a two-year
earnings outlook. Among the factors the model utilizes are 1) rate-of-change
differentials, such as federal funds rates versus savings account rates; 2)
maturity effects, such as calls on securities; 3) rate barrier effects, such as
caps or floors on loans; 4) changes in balance sheet levels; 5) floating-rate
financial instruments that may be tied or related to prime, Treasury Notes, CD
rates or other rate indices, which do not necessarily move identically as rates
change; 6) leads and lags that occur as rates move away from current levels; and
7) the effects of prepayments on various assets, such as residential mortgages,
mortgage-backed securities and consumer loans.
The model is updated bi-monthly (or more frequently, if necessary) for
multiple interest rate scenarios, projected changes in balance sheet categories
and other relevant assumptions. In developing multiple rate scenarios, an
econometric model is employed to forecast key rates, based on the cyclical
nature and historic volatility of those rates. A stochastic view of net interest
income is derived once probabilities have been assigned to those key rates. By
forecasting a most likely rate environment, the effects on net interest income
of adjusting those rates up or down can reveal the company's approximate
interest rate risk exposure level. Several rate index and yield curve
assumptions are used in the model. As an example, the company's most likely rate
environment as of March 31, 1998, assumed the 3-month Treasury rate at 5.20%
through September 30, 1998, then falling to 4.69% in March of 1999.
A second interest rate sensitivity tool utilized by the company is the
quantification of market value changes for all assets and liabilities, given an
increase or decrease in interest rates. This approach provides a longer-term
view of interest rate risk, capturing all expected future cash flows. Assets and
liabilities with option characteristics are measured based on numerous interest
rate path valuations using statistical rate simulation techniques.
As of March 31, 1998, management believes the company's balance sheet was
in an asset-sensitive position, as the repricing characteristics of the balance
sheet were such that an increase in interest rates would have a positive effect
on earnings and a decrease in interest rates would have a negative effect on
earnings.
The following illustrates the effects of an immediate 100- or
200-basis-point shift in market interest rates on 1) fair values of assets and
liabilities as compared to March 31, 1998 fair values, and 2) net interest
income for one year as compared to the most likely rate assumptions used in the
company's model:
<PAGE>
<TABLE>
Market Risk Analysis
<CAPTION>
Increase (Decrease) in Fair Value
---------------------------- ---------------------------
Decrease in Rates Increase in Rates
---------------------------- ---------------------------
Carrying Fair 200 100 100 200
March 31, 1998 - In thousands Value Value b.p. b.p. b.p. b.p.
Market Risk-Sensitive Assets
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale ............. $ 262,465 $ 262,465 $ 12,558 $ 6,076 $ (5,702) $ (11,064)
Mortgage loans held for sale .............. 189,511 189,811 311 154 (154) (307)
Loans, net .................................. 1,556,665 1,665,504 49,150 23,191 (20,995) (39,665)
Mortgage servicing rights
and interest rate floor contracts ...... 45,180 50,243 (9,805) (6,965) 3,421 4,853
Interest rate swaps ......................... -- (298) 6,980 3,558 (3,546) (7,098)
--------- ----------- ------- ------- -------- ----------
Total market risk-sensitive assets .... $2,053,821 $ 2,167,725 59,194 $ 26,014 $(26,976) $(53,281)
% change in fair value of assets .. 2.73% 1.20% -1.24% -2.46%
Market Risk-Sensitive Liabilities
Transaction deposit accounts .............. $ 578,958 $ 577,971 $ (678) $ (339) $ 333 $ 669
Savings accounts .......................... 96,805 88,428 (3,457) (1,408) 1,318 2,557
Certificates of deposit ................... 948,669 958,611 (13,225) (6,612) 6,368 12,653
Short-term borrowings ..................... 195,391 195,751 (457) (227) 226 451
Long-term debt ............................ 195,125 202,673 (7,786) (3,835) 3,732 7,352
--------- ----------- ------- ------- -------- ----------
Total market risk-sensitive liabilities ... $2,014,948 $ 2,023,434 $(25,603) $(12,421) $ 11,977 $ 23,682
% change in fair value of liabilities .. -1.27% -0.61% 0.59% 1.17%
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease)
in Interest Income and Expense
----------------------------------------------------
Decrease in Rates Increase in Rates
Most
Likely ----------------- -------------------
Rate 200 100 100 200
Dollars in thousands Scenario b.p. b.p. b.p. b.p.
Projected Interest Income (Annualized)
<S> <C> <C> <C> <C> <C>
Securities available for sale ............................ $ 15,259 $ (1,469) $ (735) $ 734 $ 1,468
Mortgage loans held for sale ............................. 9,767 (2,476) (1,238) 1,239 2,478
Loans, net ............................................... 145,647 (16,276) (7,743) 7,775 16,091
Interest rate swaps ...................................... 761 3,829 1,756 (1,829) (3,844)
---------- ----------- --------- ------- ---------
Total interest income ............. $ 171,434 $ (16,392) $ (7,960) $ 7,919 $ 16,193
% change in interest income ............. -9.56% -4.64% 4.62% 9.45%
Projected Interest Expense (Annualized)
NOW and money market deposit accounts .................... $ 11,250 $ (2,486) $ (1,191) $ 308 $ 608
Savings accounts ......................................... 1,922 (510) (457) 327 651
Certificates of deposit .................................. 51,501 (8,635) (4,217) 4,236 8,609
Short-term borrowings .................................... 10,001 (3,500) (1,748) 1,710 3,400
Long-term debt ........................................... 12,653 (295) (146) 147 295
---------- ----------- --------- ------- ---------
Total interest expense ........... . $ 87,327 $ (15,426) $ (7,759) $ 6,728 $ 13,563
---------- ----------- --------- ------- ---------
% change in net interest expense .............. -17.66% -8.88% 7.70% 15.53%
Net interest income .............. $ 84,107 $ (966) $ (201) $ 1,191 2,630
% change in net interest income .............. -1.15% -0.24% 1.42% 3.13%
</TABLE>
<PAGE>
It should be noted that some of the assumptions made in the use of the
simulation model will inevitably not materialize and unanticipated events and
circumstances will occur; in addition, the simulation model does not take into
account any future actions which could be undertaken to reduce an adverse impact
if there were a change in interest rate expectations or in the actual level of
interest rates.
Derivative financial instruments can be a cost- and capital-efficient
method of modifying the repricing or maturity characteristics of
on-balance-sheet assets and liabilities--a necessary component of the company's
strategy for managing its overall interest rate risk. Off-balance-sheet
derivative transactions used for interest rate sensitivity management could
include interest rate swaps, forwards, floors, futures and options with indices
that directly relate to the pricing of specific assets and liabilities of the
company.
Off-balance-sheet derivatives do not expose the company to credit risk
equal to the notional amount, although the company is exposed to credit risk
equal to the aggregate of the positive fair values of the swaps, plus any
accrued interest receivable due from all counterparties. Fair values are
determined by discounting to present value the future cash flows which would
result from the difference between current market rates and the actual swap
rates.
To assist in achieving a desired level of interest rate sensitivity, the
company has entered into off-balance-sheet interest rate swap transactions which
partially neutralize the asset sensitive position which is inherent in the
balance sheet. The company pays a variable interest rate on each swap and
receives a fixed rate. In a higher interest-rate environment, the increased
contribution to net interest income from on-balance-sheet assets will
substantially offset any negative impact on net interest income from interest
rate swap transactions. Conversely, if interest rates decline, the swaps will
mitigate the company's exposure to reduced net interest income. Interest rate
swap transactions as of March 31, 1998, are as follows:
<TABLE>
Interest Rate Swaps
As of March 31, 1998
Dollars in thousands
<CAPTION>
Notional Fixed Rate Floating
Rate
Amount (Receiving) (Paying) Maturity
<S> <C> <C> <C> <C>
$ 70,000 8.50% 8.50% (Prime) June, 1998
30,000 8.60% 8.50% (Prime) October, 1998
25,000 8.78% 8.50% (Prime) November, 1999
25,000 8.74% 8.50% (Prime) December, 1999
40,000 8.81% 8.50% (Prime) December, 1999
50,000 9.52% 8.50% (Prime) April, 2000
50,000 8.87% 8.50% (Prime) August, 2000
40,000 8.80% 8.50% (Prime) November, 2000
40,000 8.61% 8.50% (Prime) February, 2001
---------------
Total / weighted average $370,000 8.81% 8.50% December, 1999
</TABLE>
As shown in the table, $100 million of these interest rate swaps will
mature within twelve months. As these interest rate swaps mature, management
is evaluating whether new interest rate swap transactions are appropriate, given
the company's interest rate sensitivity position at that time. The company
requires all off-balance-sheet transactions be employed solely with respect to
asset/liability management or for hedging specific transactions or positions,
rather than for speculative trading activity.
To mitigate its prepayment risk related to MSR's, the company purchased in
1997 and 1996 two interest rate "floor" contracts that provide for the company
to receive interest on the notional amount of the contract to the extent that
the interest rate on the ten-year CMT's falls below the contract rate. The cost
of these contracts is included in with the MSR asset in the consolidated balance
sheet. Fair values can be expected to vary inversely with market expectations
for intermediate-term interest rates.
The company minimizes the credit risk in all off-balance-sheet derivative
instruments by dealing only with high quality counterparties (i.e., those which
have credit ratings of investment grade or better from one of the major rating
agencies) and each transaction is specifically approved for applicable credit
exposure. Further, the company's policy is to require all transactions be
governed by an International Swap Dealers Association Master Agreement and be
subject to bilateral collateral arrangements.
The company requires all off-balance-sheet transactions be employed solely
with respect to asset/liability management or for hedging specific transactions
or positions, rather than for speculative trading activity. Management believes
there is minimal risk that the derivatives used for rate sensitivity management
will have any significant unintended effect on the company's financial condition
or results of operations.
Year 2000 Compliance
The company is exposed to potential future losses, including litigation,
due to business interruption or errors, which could result if any of its
computer systems are not modified to ensure that dates beginning in January,
2000 are not misinterpreted by the system as January, 1900. This eventuality is
commonly referred to as the Year 2000 Problem ("Y2K"). A number of computer
systems which are affected by Y2K are utilized by the company to operate its
day-to-day business. Most of these systems use software developed by and
licensed from third party software vendors. Some of these software applications
have been customized by the company, while others have been developed
internally.
Management has established a task force to identify all instances where the
company is not currently Y2K compliant, and to take actions designed to bring
those systems into compliance before the end of 1999. The assessment phase of
this project has been completed, whereby the company has identified systems that
need modification, and the correction phase of the project has begun. The
correction phase is expected to be completed by the end of 1998, with all of
1999 dedicated to the testing phase. Total cost to the company of the correction
and testing phases is projected to be approximately $500 thousand.
The company is actively managing all of its third party software vendors to
obtain software corrections and warranty commitments. Management believes that
those software vendors which have been identified by the task force as essential
to the company's operations are currently on schedule to meet the company's Y2K
timetable. The company is acting upon the belief and understanding that all
federal agencies are actively managing the Y2K problems which are inherent in
the global banking and payments systems.
The company's credit customers are also subject to potential losses as a
result of Y2K exposure in their own computer systems as well as the computer
systems of their suppliers and customers. The company is working with those
customers that the company believes may be significantly affected to assess each
customer's Y2K exposure and the extent to which the customer has addressed the
problem. Any exposure which, in the opinion of management, is not adequately
addressed will be taken into account in assessing the loss potential, if any,
associated with that credit relationship.
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although
the company believes that the forward-looking statements are based upon
reasonable assumptions, there can be no assurance that the forward-looking
statements will prove to be accurate. Factors that could cause actual results
to differ from the results anticipated in the forward-looking statements
include, but are not limited to: economic conditions (both generally and more
specifically in the markets in which the company and its banks operate);
competition for the company's customers from other providers of financial
services; government legislation and regulation (which changes from time to time
and over which the company has no control); changes in interest rates (both
generally and more specifically mortgage interest rates); material unforeseen
changes in the liquidity, results of operations, or financial condition of th
company's customers; material unforeseen complications related to addressing
the Year 2000 Problem experienced by the company, its suppliers, customers and
governmental agencies; and other risks detailed in the company's filings with
the Securities and Exchange Commission, all of which are difficult to predict
and many of which are beyond the control of the company. The company
undertakes no obligation to republish forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information for this item is incorporated by reference to the
Asset/Liability Management and Market Risks section of Item 2., Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
In the ordinary course of operations, the company and the banks are
defendants in various legal proceedings. In the opinion of management, there is
no proceeding pending or, to the knowledge of management, threatened, in which
an adverse decision could result in a material adverse change in the
consolidated financial condition or results of operations of the company.
On August 12, 1996, Douglas M. Lester, the company's former chairman,
president and chief executive officer, filed suit individually and purportedly
on behalf of the shareholders of the company in Warren Circuit Court, Bowling
Green, Kentucky, against the company and four of its directors. Mr. Lester
claimed that the company wrongfully terminated him on June 4, 1996, that the
four named directors breached their fiduciary duties to the company, and also
alleged fraud, breach of contract, interference with contractual relations and
invasion of privacy. Mr. Lester sought, among other things, $1 million in
compensatory damages, the value of certain stock options, and punitive damages.
This matter was settled by agreement among the parties and the Warren Circuit
Court issued an order dismissing this litigation on April 1,1998.
Item 4. Submission of Matters to a Vote of Security Holders
The registrant's 1998 Annual Meeting of Shareholders was held April 20,
1998. Proxies were solicited by the registrant's board of directors pursuant to
Regulation 14 under the Securities Exchange Act of 1934. There was no
solicitation in opposition to the board's nominees as listed in the proxy
statement, and all of the nominees were elected by vote of the shareholders.
Voting results for each nominee were as follows:
Votes For Votes Withheld
Mary D. Cohron 8,923,791 42,048
David B. Garvin 8,947,444 18,395
James D. Scott 8,938,123 27,716
A proposal to approve the Trans Financial, Inc. Stock Incentive Plan was
approved by a majority of the outstanding shares of the registrant's common
stock. A total of 8,521,018 shares were voted in favor of the proposal; 299,882
shares were voted against; and 144,939 shares abstained (including broker
non-votes). The total number of shares of common stock outstanding as of
February 18,1998, the record date of the Annual Meeting of Shareholders, was
11,641,651.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index on page 19 of this Form 10-Q are
filed as a part of this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period covered by this
report.
On April 15, 1998, the company filed a Form 8-K reporting that on April
9, 1998, the company entered into an Agreement and Plan of Merger with
Star Banc pursuant to which the company will merge with and into Star
Banc, subject to shareholder and regulatory approvals, and certain other
conditions.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Trans Financial, Inc.
(Registrant)
Principal Executive Officer:
Date: May 15, 1998 /s/ Vince A. Berta
Vince A. Berta
Chairman, President and
Chief Executive Officer
Principal Financial Officer:
Date: May 15, 1998 /s/ Edward R. Matthews
Edward R. Matthews
Executive Vice President and
Chief Financial Officer
<PAGE>
Exhibits
Sequentially
Numbered Pages
2.1 Agreement and Plan of Merger with Star Banc Corporation
dated April 9, 1998............................................20-51
2.2 Stock Option Agreement with Star Banc Corporation
dated April 9, 1998............................................52-63
10 Trans Financial, Inc. 1998 Stock Incentive Plan*...............64-73
11 Statement Regarding Computation of Per Share Earnings.............74
27 Financial Data Schedule (for SEC use only)
* Denotes a management contract or compensatory plan or arrangement of the
registrant required to be filed as an exhibit pursuant to Item
601(10)(iii) of Regulation S-K.
Exhibit 2.1.
AGREEMENT AND PLAN OF MERGER
between
STAR BANC CORPORATION
as Buyer,
and
TRANS FINANCIAL, INC.
as Seller
Dated April 9, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1 The Merger
1.2 Closing
1.3 Effective Time
1.4 Additional Actions
1.5 Articles of Incorporation and Regulations
1.6 Boards of Directors and Officers
1.7 Conversion of Securities
1.8 Exchange Procedures
1.9 Dissenting Shares
1.10 No Fractional Shares
1.11 Anti-Dilution Adjustments
1.12 Reservation of Right to Revise Transaction
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
2.1 Organization and Authority
2.2 Subsidiaries
2.3 Capitalization
2.4 Authorization
2.5 Seller Financial Statements
2.6 Seller Reports
2.7 Properties and Leases
2.8 Taxes
2.9 Material Adverse Change
2.10 Commitments and Contracts
2.11 Litigation and Other Proceedings
2.12 Insurance
2.13 Compliance with Laws
2.14 Labor
2.15 Material Interests of Certain Persons
2.16 Allowance for Loan and Lease Losses; Nonperforming Assets
2.17 Employee Benefit Plans
2.18 Conduct of Seller to Date
2.19 Proxy Statement, etc
2.20 Registration Obligations
2.21 State Takeover Statutes; Seller's Articles of Incorporation;
Seller Rights Agreement
2.22 Accounting Tax and Regulatory Matters
2.23 Brokers and Finders
2.24 Other Activities
2.25 Interest Rate Risk Management Instruments
2.26 Accuracy of Information
2.27 Year 2000 Compliant
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
3.1 Organization and Authority
3.2 Capitalization of Buyer
3.3 Authorization
3.4 Buyer Financial Statements
3.5 Buyer Reports
3.6 Material Adverse Change
3.7 Compliance with Laws
3.8 Registration Statement
3.9 Brokers and Finders
3.10 Litigation and Other
3.11 Taxes
3.12 Accounting, Tax and Regulatory Matters
3.13 Accuracy of Information
3.14 Year 2000 Compliant
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Businesses Prior to the Effective Time
4.2 Forbearances
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access and Information
5.2 Registration Statement; Regulatory Matters
5.3 Stockholder Approval
5.4 Current Information
5.5 Agreements of Affiliates
5.6 Expenses
5.7 Securities Act and Exchange Act Filings
5.8 Miscellaneous Agreements and Consents
5.9 Employee Benefits
5.10 Seller Stock Options
5.11 Seller Employee Stock Ownership Plan
5.12 D&O Indemnification
5.13 Press Releases
5.14 State Takeover Statutes; Seller's Articles of Incorporation;
Seller Rights Agreement
5.15 Best Efforts
5.16 Insurance
5.17 Conforming Entries
5.18 Charitable Foundation
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation To Effect the Merger
6.2 Conditions to Obligations of Seller To Effect the Merger
6.3 Conditions to Obligations of Buyer To Effect the Merger
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination
7.2 Effect of Termination
7.3 Amendment
7.4 Severability 7.5 Waiver
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements
8.2 Notices
8.3 Miscellaneous
<PAGE>
EXHIBITS
Exhibit A.........Form of Stock Option Agreement
Exhibit B.........Form of Affiliate Letter
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into on April 9, 1998 by and between Star Banc Corporation, an Ohio
corporation ("Buyer"), and Trans Financial, Inc., a Kentucky corporation
("Seller").
W I T N E S S E T H:
WHEREAS, Buyer is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"); and
WHEREAS, Seller is a registered bank holding company under
the Holding Company Act; and
WHEREAS, the Board of Directors of Seller and the Executive
Committee of the Board of Directors of Buyer have approved the merger (the
"Merger") of Seller with and into Buyer pursuant to the terms and subject to the
conditions of this Agreement; and
WHEREAS, the parties intend the transactions contemplated
hereby to qualify as a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and
as a "pooling of interests" for accounting and financial reporting purposes; and
WHEREAS, as a condition to, and immediately prior to execution
of this Agreement, Buyer and Seller will enter into a stock option agreement
(the "Stock Option Agreement") in the form attached hereto as Exhibit A; and
WHEREAS, the parties desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, Seller
shall be merged with and into Buyer in accordance with the Kentucky Business
Corporation Act (the "KBCA") and the Ohio General Corporation Law (the "OGCL")
and the separate corporate existence of Seller shall cease. Buyer shall be the
surviving corporation of the Merger (sometimes referred to herein as the
"Surviving Corporation") and shall continue its existence under the name "Star
Banc Corporation" and to be governed by the laws of the State of Ohio.
1.2 Closing. The closing (the "Closing") of the Merger shall take place at
10:00 a.m., local time, on the date that the Effective Time (as defined in
Section 1.3) occurs, or at such other time, and at such place, as Buyer and
Seller shall agree (the "Closing Date").
1.3 Effective Time. The Merger shall
become effective on the date and at the time (the "Effective Time") on which
appropriate documents in respect of the Merger are filed with the Secretaries of
State of the State of Ohio and the Commonwealth of Kentucky in such form as
required by, and in accordance with, the relevant provisions of the KBCA and
OGCL. Subject to the terms and conditions of this Agreement, the Effective Time
shall occur on any such date on or after July 1, 1998 as Buyer shall notify
Seller in writing (such notice to be at least five business days in advance of
the Effective Time) but (i) not earlier than the satisfaction of all conditions
set forth in Section 6.1(a) and 6.1(b) (the "Approval Date") and (ii) subject to
clause (i), not later than the first business day of the first full calendar
month commencing at least five business days after the Approval Date. As soon as
practicable following the Effective Time, Buyer and Seller shall cause a
certificate/articles or plan of merger reflecting the terms of this Agreement to
be delivered for filing and recordation with other appropriate state or local
officials in the State of Ohio and the Commonwealth of Kentucky in accordance
with the OGCL and the KBCA, respectively.
1.4 Additional Actions. If, at any
time after the Effective Time, Buyer or the Surviving Corporation shall consider
or be advised that any further deeds, assignments or assurances or any other
acts are necessary or desirable to (a) vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of Seller or Buyer or (b)
otherwise carry out the purposes of this Agreement, Seller and Buyer and each of
their respective officers and directors, shall be deemed to have granted to the
Surviving Corporation an irrevocable power of attorney to execute and deliver
all such deeds, assignments or assurances and to do all acts necessary or
desirable to vest, perfect or confirm title and possession to such rights,
properties or assets in the Surviving Corporation and otherwise to carry out the
purposes of this Agreement, and the officers and directors of the Surviving
Corporation are authorized in the name of Seller or otherwise to take any and
all such action.
1.5 Articles of Incorporation and Regulations. The Articles of
Incorporation and Regulations of Buyer in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Regulations of the
Surviving Corporation following the Merger until otherwise amended or repealed.
1.6 Boards of Directors and Officers. At the Effective Time, the directors and
officers of Buyer immediately prior to the Effective Time shall be directors and
officers, respectively, of the Surviving Corporation following the Merger; such
directors and officers shall hold office in accordance with the Surviving
Corporation's Articles of Incorporation and Regulations and applicable law.
Promptly following the Effective Time, one member of Seller's current Board of
Directors, to be mutually agreed upon by the parties prior to the Effective
Time, shall be invited to serve as an additional member of the Buyer's Board of
Directors.
1.7 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Buyer, Seller or the holder of
any of the following securities: Each share of the common stock, par value $5.00
per share, of Buyer ("Buyer Common Stock") that is issued and outstanding
immediately prior to the Effective Time shall remain outstanding and shall be
unchanged after the Merger and thereafter shall together with shares of Buyer
Common Stock issued in the Merger constitute all of the issued and outstanding
capital stock of the Surviving Corporation; and Each share of the common stock,
no par value per share, of Seller ("Seller Common Stock") issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and, other
than any Dissenting Shares (as defined in Section 1.9) and any shares of Seller
Common Stock held by Seller, Buyer or any of their respective Subsidiaries, in
each case other than in a fiduciary capacity or as a result of debts previously
contracted, shall be converted into and become the right to receive 0.9003 (the
"Exchange Ratio") shares of Buyer Common Stock (the "Per Share Consideration").
1.8 Exchange Procedures. (a) At or prior to the Effective Time, Buyer shall
deposit with Star Bank, N.A., as exchange agent (the "Exchange Agent"), for the
benefit of holders of certificates the Merger Consideration (as defined below)
(the Merger Consideration so deposited with the Exchange Agent being the
"Exchange Fund"). Seller shall deliver to Buyer, in a form reasonably acceptable
to Buyer, a complete list of Seller's shareholders (including their respective
names, addresses and TINs to the extent reflected in the records maintained by
Seller or its transfer agent) as of the record date for the shareholder meeting
to be called by Seller pursuant to Section 5.3 hereof and as of the Effective
Time, in each case which delivery shall be made as soon as practicable after the
respective date. Holders of record of certificates formerly representing shares
of Seller Common Stock (the "Certificates") shall be instructed to tender such
Certificates to Buyer pursuant to a letter of transmittal that Buyer shall
deliver or cause to be delivered to such holders. Such letters of transmittal
shall specify that risk of loss and title to Certificates shall pass only upon
delivery of such Certificates to Buyer. Subject to Section 1.10, after the
Effective Time, each previous holder of a Certificate that surrenders such
Certificate with a duly executed letter of transmittal to the Exchange Agent
will be entitled to a certificate or certificates representing the number of
full shares of Buyer Common Stock into which the Certificate so surrendered
shall have been converted pursuant to this Agreement and any distribution
theretofore declared and not yet paid with respect to such shares of Buyer
Common Stock, without interest. Buyer or the Exchange Agent shall accept
Certificates upon compliance with such reasonable terms and conditions as Buyer
or the Exchange Agent may impose to effect an orderly exchange thereof in
accordance with customary exchange practices. Certificates shall be
appropriately endorsed or accompanied by such instruments of transfer as Buyer
or the Exchange Agent may require. Each outstanding Certificate shall until duly
surrendered to Buyer or the Exchange Agent be deemed to evidence ownership of
the consideration into which the stock previously represented by such
Certificate shall have been converted pursuant to this Agreement. Any portion of
the Exchange Fund, including any earnings thereon, which remains undistributed
to the holders of Certificates for six months after the Effective Time shall be
delivered to Buyer, upon demand, and any holders of Certificates who have not
theretofore complied with this Section 1.8 shall thereafter look only to Buyer
for payment of their claim for the Merger Consideration. After the Effective
Time, holders of Certificates shall cease to have rights with respect to the
stock previously represented by such Certificates, and their sole rights shall
be to exchange such Certificates for the consideration provided for in this
Agreement. After the Effective Time, there shall be no further transfer on the
records of Seller of Certificates, and if such Certificates are presented to
Seller for transfer, they shall be cancelled against delivery of the
consideration provided therefor in this Agreement. Buyer shall not be obligated
to deliver the consideration to which any former holder of Seller Common Stock
is entitled as a result of the Merger until such holder surrenders the
Certificates as provided herein. No dividends declared will be remitted to any
person entitled to receive Buyer Common Stock under this Agreement until such
person surrenders the Certificate representing the right to receive such Buyer
Common Stock, at which time such dividends shall be remitted to such person,
without interest and less any taxes that may have been imposed thereon.
Certificates surrendered for exchange by any person constituting an "affiliate"
of Seller for purposes of Rule 145 of the Securities Act of 1933, as amended
(together with the rules and regulations thereunder, the "Securities Act"),
shall not be exchanged for certificates representing Buyer Common Stock until
Buyer has received a written agreement from such person in the form attached as
Exhibit B. Neither the Exchange Agent nor any party to this Agreement nor any
affiliate thereof shall be liable to any holder of stock represented by any
Certificate for any consideration paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. Buyer and the Exchange
Agent shall be entitled to rely upon the stock transfer books of Seller to
establish the identity of those persons entitled to receive consideration
specified in this Agreement, which books shall be conclusive with respect
thereto. In the event of a dispute with respect to ownership of stock
represented by any Certificate, Buyer and the Exchange Agent shall be entitled
to deposit any consideration represented thereby in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
1.9 Dissenting Shares. (a) "Dissenting Shares" means any shares of Seller
Common Stock held by any holder who becomes entitled to payment of the fair
value of such shares under the KBCA. Any holders of Dissenting Shares shall be
entitled to payment for such shares only to the extent permitted by and in
accordance with the provisions of the KBCA; provided, however, that if, in
accordance with the KBCA, any holder of Dissenting Shares shall forfeit such
right to payment of the fair value of such shares, such shares shall thereupon
be deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the consideration provided in this
Article I. Seller shall give Buyer (i) prompt notice of any written objections
to the Merger and any written demands for the payment of the fair value of any
shares, withdrawals of such demands, and any other instruments served pursuant
to the KBCA received by Seller and (ii) the opportunity to direct all
negotiations and proceedings with respect to such demands under the KBCA. Seller
shall not voluntarily make any payment with respect to any demands for payment
of fair value and shall not, except with the prior written consent of Buyer,
settle or offer to settle any such demands.
1.10 No Fractional Shares.
Notwithstanding any other provision of this Agreement, neither certificates nor
scrip for fractional shares of Buyer Common Stock shall be issued in the Merger.
Each holder who otherwise would have been entitled to a fraction of a share of
Buyer Common Stock shall receive in lieu thereof cash (without interest) in an
amount determined by multiplying the fractional share interest to which such
holder would otherwise be entitled by the closing price of a share of Buyer
Common Stock on the New York Stock Exchange, Inc. ("NYSE") composite tape on the
last full trading day prior to the Effective Time. No such holder shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
1.11 Anti-Dilution Adjustments. If prior to the Effective
Time Buyer shall declare a stock dividend or make distributions upon or
subdivide, split up, reclassify or combine or make similar changes to Buyer
Common Stock or exchange Buyer Common Stock for a different number or kind of
shares or securities or declare a dividend or make a distribution on Buyer
Common Stock or on any security convertible into Buyer Common Stock, or is
involved in any transaction resulting in any of the foregoing (including any
exchange of Buyer Common Stock for a different number or kind of shares or
securities), appropriate adjustment or adjustments will be made to the Exchange
Ratio.
1.12 Reservation of Right to Revise Transaction. Buyer may with Seller's
consent (which will not be unreasonably withheld) at any time change the method
of effecting the acquisition of Seller or Seller's Subsidiaries by Buyer and
Seller shall cooperate in such efforts (including without limitation (a)
modifying the provisions of this Article I and (b) causing the merger of Trans
Financial Bank, National Association and/or Trans Financial Bank Tennessee,
National Association, each a national association and a wholly owned subsidiary
of Seller (the "Seller Banks") with any depository institution which is a
Subsidiary of Buyer (any such merger or other method of effecting the
acquisition, together with the Merger, being referred to herein as the
"Transactions")) if and to the extent Buyer deems such change to be desirable,
including without limitation to provide for a merger of Seller into a
wholly-owned subsidiary of Buyer in which such subsidiary of Buyer is the
surviving corporation; provided, however, that no such change shall (A) alter or
change the amount or kind of consideration to be issued to holders of Seller
Common Stock as provided for in this Agreement (the "Merger Consideration"), (B)
adversely affect the tax treatment to Seller's stockholders as a result of
receiving the Merger Consideration, or (C) materially impede or delay the
consummation of the transactions contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to and covenants with Buyer as follows:
2.1 Organization and Authority. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Kentucky, is
duly qualified to do business and is in good standing in all jurisdictions where
its ownership or leasing of property or the conduct of its business requires it
to be so qualified and has corporate power and authority to own its properties
and assets and to carry on its business as it is now being conducted. Seller is
registered as a bank holding company with the Board of Governors of the Federal
Reserve System (the "Board") under the Holding Company Act. True and complete
copies of the Articles of Incorporation and the Bylaws of Seller and, to the
extent requested in writing by Buyer, of the articles of incorporation and
bylaws of the Seller Subsidiaries (as defined in Section 2.2), each as in effect
on the date of this Agreement, have been provided to Buyer.
2.2 Subsidiaries.
Schedule 2.2 sets forth, among other things, a complete and correct list of all
of Seller's Subsidiaries (each a "Seller Subsidiary" and collectively the
"Seller Subsidiaries"), all outstanding Equity Securities of each of which are
owned directly or indirectly by Seller. "Equity Securities" of an issuer means
capital stock or other equity securities of such issuer, options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, shares of any capital
stock or other Equity Securities of such issuer, or contracts, commitments,
understandings or arrangements by which such issuer is or may become bound to
issue additional shares of its capital stock or other Equity Securities of such
issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe
to, calls on or commitments for any shares of its capital stock or other Equity
Securities. All of the outstanding shares of capital stock of the Seller
Subsidiaries are validly issued, fully paid and nonassessable, and those shares
owned by Seller are owned free and clear of any lien, claim, charge, option,
encumbrance, agreement, mortgage, pledge, security interest or restriction (a
"Lien") with respect thereto. Each of the Seller Subsidiaries is a corporation
or association duly incorporated or organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation or organization,
and has corporate power and authority to own or lease its properties and assets
and to carry on its business as it is now being conducted. Each of the Seller
Subsidiaries is duly qualified to do business in each jurisdiction where its
ownership or leasing of property or the conduct of its business requires it so
to be qualified, except where the failure to so qualify would not have a
material adverse effect on the financial condition, results of operations or
business (collectively, the "Condition") of Seller and its Subsidiaries, taken
as a whole. Except for the Equity Securities of the Seller Banks of which Seller
owns 100%, Seller does not own beneficially, directly or indirectly, more than
5% of any class of Equity Securities or similar interests of any corporation,
bank, business trust, association or similar organization. The Seller Banks are
chartered by the Office of the Comptroller of the Currency. The deposits of
Seller Bank are insured by the Federal Deposit Insurance Corporation ("FDIC").
Neither Seller nor any Seller Subsidiary holds any interest in a partnership or
joint venture of any kind.
2.3 Capitalization. The authorized capital stock
of Seller consists of (i) 50,000,000 shares of Seller Common Stock, of which, as
of April 8, 1998, 11,718,405 shares were issued and outstanding, (ii) 50,000
shares of Class A Preferred Stock, no par value ("Seller Class A Preferred
Stock"), of which, as of April 8, 1998, no shares were issued or outstanding,
and (iii) 5,000,000 shares of Class B Preferred Stock, no par value ("Seller
Class B Preferred Stock" and, together with the Seller Class A Preferred Stock,
the "Seller Preferred Stock"), of which, as of April 8, 1998, no shares were
issued and outstanding. Seller has reserved the shares of Seller Class B
Preferred Stock for issuance upon exercise of Preferred Stock Purchase Rights
under a Rights Agreement, dated January 20, 1992 (the "Seller Rights
Agreement"), between Seller and Manufacturers Hanover, as Rights Agent. Pursuant
to the Seller Rights Agreement, each certificate representing one share of
Seller Common Stock also represents one Right (as defined in the Seller Rights
Agreement). As of April 8, 1998, Seller had reserved 173,118 shares of Seller
Common Stock for issuance under Seller's stock option and incentive plans, a
list of which is set forth on Schedule 2.3 (the "Seller Stock Plans"), pursuant
to which options ("Seller Stock Options") covering 839,980 shares of Seller
Common Stock were outstanding as of April 8, 1998. Since April 1, 1998, no
Equity Securities of Seller have been issued other than shares of Seller Common
Stock which may have been issued upon the exercise of Seller Stock Options.
Except as set forth above and except pursuant to the Seller Rights Agreement,
there are no other Equity Securities of Seller outstanding. All of the issued
and outstanding shares of Seller Common Stock are validly issued, fully paid,
and nonassessable, and have not been issued in violation of any preemptive right
of any stockholder of Seller. Seller maintains a dividend reinvestment plan or
similar plan.
2.4 Authorization. (a) Seller has the corporate power and
authority to enter into this Agreement and, subject to the approval of this
Agreement by the stockholders of Seller, to carry out its obligations hereunder.
The only stockholder vote required for Seller to approve this Agreement is the
affirmative vote of the holders of at least a majority of the shares of Seller
Common Stock entitled to vote at a meeting called for such purpose. The
execution, delivery and performance of this Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Seller. Subject to approval by the
stockholders of Seller, this Agreement is a valid and binding obligation of
Seller enforceable against Seller in accordance with its terms. Except as set
forth on Schedule 2.4B, neither the execution nor delivery nor performance by
Seller of this Agreement, nor the consummation by Seller of the transactions
contemplated hereby, nor compliance by Seller with any of the provisions hereof,
will (i) violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of, any material Lien upon any of the
material properties or assets of Seller or any Seller Subsidiary under any of
the terms, conditions or provisions of (x) its articles or certificate of
incorporation or bylaws or (y) any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Seller or any Seller Subsidiary is a party or by which it may be bound, or
to which Seller or any Seller Subsidiary or any of the material properties or
assets of Seller or any Seller Subsidiary may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in paragraph (c) of
this Section 2.4, to the best knowledge of Seller, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
Seller or any Seller Subsidiary or any of their respective material properties
or assets. Other than as set forth on Schedule 2.4C or in connection or
compliance with the provisions of the KBCA, the OGCL, the Securities Act, the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the Holding Company Act, and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), or any required approvals or filings
pursuant to any state statutes or regulations applicable to the Seller Banks
with respect to the transactions contemplated by this Agreement, no notice to,
filing with, exemption or review by, or authorization, consent or approval of,
any public body or authority is necessary for the consummation by Seller of the
transactions contemplated by this Agreement.
2.5 Seller Financial Statements.
The consolidated balance sheets of Seller and its Subsidiaries as of December
31, 1997, 1996 and 1995 and related consolidated statements of income, cash
flows and changes in stockholders' equity for each of the three years in the
three-year period ended December 31, 1997, together with the notes thereto,
audited by KPMG Peat Marwick LLP and included in an annual report on Form 10-K
as filed with the Securities and Exchange Commission (the "SEC") (collectively,
the "Seller Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis ("GAAP"),
present fairly the consolidated financial position of Seller and its
Subsidiaries at the dates and the consolidated results of operations, cash flows
and changes in stockholders' equity of Seller and its Subsidiaries for the
periods stated therein and are derived from the books and records of Seller and
its Subsidiaries, which are complete and accurate in all material respects and
have been maintained in all material respects in accordance with applicable laws
and regulations. Neither Seller nor any of its Subsidiaries has any material
contingent liabilities that are not described in the financial statements
described above.
2.6 Seller Reports. Except as set forth in Schedule 2.6, since January 1, 1995
each of Seller and the Seller Subsidiaries has filed all material reports,
registrations and statements, together with any required material amendments
thereto, that it was required to file with (i) the SEC, including, but not
limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the
Board, (iii) the FDIC, and (iv) any other federal, state, municipal, local or
foreign government, securities, banking, savings and loan, insurance and other
governmental or regulatory authority and the agencies and staffs thereof (the
entities in the foregoing clauses (i) through (iv) being referred to herein
collectively as the "Regulatory Authorities" and individually as a "Regulatory
Authority"). All such reports and statements filed with any such Regulatory
Authority are collectively referred to herein as the "Seller Reports." As of its
respective date, each Seller Report complied in all material respects with all
the rules and regulations promulgated by the applicable Regulatory Authority and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2.7 Properties and Leases. Except as may be reflected in the
Seller Financial Statements, except for any Lien for current taxes not yet
delinquent and except with respect to assets classified as real estate owned,
Seller and its Subsidiaries have good title free and clear of any material Lien
to all the real and personal property reflected in Seller's consolidated balance
sheet as of December 31, 1997 included in the most recent Seller Form 10-K and,
in each case, all real and personal property acquired since such date, except
such real and personal property as has been disposed of in the ordinary course
of business. All leases material to Seller or any Seller Subsidiary pursuant to
which Seller or any Seller Subsidiary, as lessee, leases real or personal
property, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any material existing default by Seller
or any Seller Subsidiary or any event which, with notice or lapse of time or
both, would constitute such a material default. All of Seller's and Seller
Subsidiaries' buildings, structures and equipment in regular use have been well
maintained and are in good and serviceable condition, normal wear and tear
excepted.
2.8 Taxes. Seller and each Seller Subsidiary have timely filed or
will timely (including extensions) file all material tax returns required to be
filed at or prior to the Closing Date ("Seller Returns"). Each of Seller and its
Subsidiaries has paid, or set up adequate reserves on the Seller Financial
Statements for the payment of, all taxes required to be paid in respect of the
periods covered by such returns and has set up adequate reserves on the most
recent financial statements Seller has filed under the Exchange Act for the
payment of all taxes anticipated to be payable in respect of all periods up to
and including the latest period covered by such financial statements. Neither
Seller nor any Seller Subsidiary will have any material liability for any such
taxes in excess of the amounts so paid or reserves so established and no
material deficiencies for any tax, assessment or governmental charge have been
proposed, asserted or assessed (tentatively or definitely) against any of Seller
or any Seller Subsidiary which would not be covered by existing reserves.
Neither Seller nor any Seller Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge, nor, except as previously
disclosed, has it requested any extension of time within which to file any tax
returns in respect of any fiscal year which have not since been filed and no
requests for waivers of the time to assess any tax are pending. The federal and
state income tax returns of Seller and the Seller Subsidiaries have been audited
and finally settled by the Internal Revenue Service (the "IRS") or appropriate
state tax authorities or the relevant statute of limitations has expired for all
periods ended through December 31, 1993. There is no deficiency or refund
litigation or matter in controversy with respect to Seller Returns. Neither
Seller nor any Seller Subsidiary has extended or waived any statute of
limitations on the assessment of any tax due that is currently in effect.
2.9 Material Adverse Change. Since December 31, 1997, there has been no
material adverse change in the Condition of Seller and its Subsidiaries, taken
as a whole, except as may have resulted or may result from changes to laws and
regulations or changes in economic conditions applicable to banking institutions
generally or in general levels of interest rates affecting banking institutions
generally.
2.10 Commitments and Contracts. (a) Except as set forth on Schedule
2.10A, neither Seller nor any Seller Subsidiary is a party or subject to any of
the following (whether written or oral, express or implied): any material
agreement, arrangement or commitment (A) not made in the ordinary course of
business or (B) pursuant to which Seller or any of its Subsidiaries is or may
become obligated to invest in or contribute capital to any Seller Subsidiary;
any agreement, indenture or other instrument not disclosed in the Seller
Financial Statements relating to the borrowing of money by Seller or any Seller
Subsidiary or the guarantee by Seller or any Seller Subsidiary of any such
obligation (other than trade payables or instruments related to transactions
entered into in the ordinary course of business by any Seller Subsidiary, such
as deposits and Fed Funds or similar borrowings); any contract, agreement or
understanding with any labor union or collective bargaining organization; any
contract containing covenants which limit the ability of Seller or any Seller
Subsidiary to compete in any line of business or with any person or which
involve any restriction of the geographical area in which, or method by which,
Seller or any Seller Subsidiary may carry on its business (other than as may be
required by law or any applicable Regulatory Authority); any other contract or
agreement which is a "material contract" within the meaning of Item 601(b)(10)
of Regulation S-K promulgated by the SEC and which is not listed in the Seller
Reports filed with the SEC; or any lease with annual rental payments aggregating
$500,000 or more. Neither Seller nor any Seller Subsidiary is in violation of
its charter documents or bylaws or in default under any material agreement,
commitment, arrangement, lease, insurance policy, or other instrument, whether
entered into in the ordinary course of business or otherwise and whether written
or oral, and there has not occurred any event that, with the lapse of time or
giving of notice or both, would constitute such a default, except, in all cases,
where such default would not have a material adverse effect on the Condition of
Seller and its Subsidiaries, taken as a whole.
2.11 Litigation and Other Proceedings. Except as set forth on Schedule 2.11,
neither Seller nor any Seller Subsidiary is a party to any pending or, to the
best knowledge of Seller, threatened claim, action, suit, investigation or
proceeding, or is subject to any order, judgment or decree, except for matters
which, in the aggregate, will not have, or reasonably could not be expected to
have, a material adverse effect on the Condition of Seller and its Subsidiaries,
taken as a whole, or which purports or seeks to enjoin or restrain the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, there are no actions, suits, or proceedings pending or, to the
best knowledge of Seller, threatened against Seller or any Seller Subsidiary or
any of their respective officers or directors by any stockholder of Seller or
any Seller Subsidiary (or any former stockholder of Seller or any Seller
Subsidiary) or involving claims under the Securities Act, the Exchange Act, the
Community Reinvestment Act of 1977, as amended, or the fair lending laws.
2.12 Insurance. Each of Seller and its Subsidiaries has taken all requisite
action (including without limitation the making of claims and the giving of
notices) pursuant to its directors' and officers' liability insurance policy or
policies in order to preserve all rights thereunder with respect to all matters
(other than matters arising in connection with this Agreement and the
transactions contemplated hereby) occurring prior to the Effective Time that are
known to Seller, except for such matters which, individually or in the
aggregate, will not have and reasonably could not be expected to have a material
adverse effect on the Condition of Seller and its Subsidiaries, taken as a
whole.
2.13 Compliance with Laws. (a) Seller and each of its Subsidiaries have
all permits, licenses, authorizations, orders and approvals of, and have made
all filings, applications and registrations with, all Regulatory Authorities
that are required in order to permit them to own or lease their properties and
assets and to carry on their business as presently conducted and that are
material to the business of Seller and its Subsidiaries; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best knowledge of Seller, no suspension or cancellation of
any of them is threatened; and all such filings, applications and registrations
are current. Except for failures to comply or defaults which individually or in
the aggregate would not have a material adverse effect on the Condition of
Seller and its Subsidiaries, taken as a whole, (i) each of Seller and its
Subsidiaries has complied with all laws, regulations and orders (including
without limitation zoning ordinances, building codes, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and safety laws and
regulations and including without limitation in the case of any Seller
Subsidiary that is a bank or savings association, banking organization, banking
corporation or trust company, all statutes, rules, regulations and policy
statements pertaining to the conduct of a banking, deposit-taking, lending or
related business, or to the exercise of trust powers) and governing instruments
applicable to them and to the conduct of their business, and (ii) neither Seller
nor any Seller Subsidiary is in default under, and no event has occurred which,
with the lapse of time or notice or both, could result in the default under, the
terms of any judgment, order, writ, decree, permit, or license of any Regulatory
Authority or court, whether federal, state, municipal, or local and whether at
law or in equity. Except as set forth in Schedule 2.13B, neither Seller nor any
Seller Subsidiary is subject to or reasonably likely to incur a liability as a
result of its ownership, operation, or use of any Property (as defined below) of
Seller (whether directly or, to the best knowledge of Seller, as a consequence
of such Property being part of the investment portfolio of Seller or any Seller
Subsidiary) (A) that is contaminated by or contains any hazardous waste, toxic
substance, or related materials, including without limitation asbestos, PCBs,
pesticides, herbicides, and any other substance or waste that is hazardous to
human health or the environment (collectively, a "Toxic Substance"), or (B) on
which any Toxic Substance has been stored, disposed of, placed, or used in the
construction thereof. "Property" of a person shall include all property (real or
personal, tangible or intangible) owned or controlled by such person, including
without limitation property under foreclosure, property held by such person or
any Subsidiary of such person in its capacity as a trustee and property in which
any venture capital or similar unit of such person or any Subsidiary of such
person has an interest. Except as set forth in Schedule 2.13B, no claim, action,
suit, or proceeding is pending against Seller or any Seller Subsidiary relating
to Property of Seller before any court or other Regulatory Authority or
arbitration tribunal relating to hazardous substances, pollution, or the
environment, and there is no outstanding judgment, order, writ, injunction,
decree, or award against or affecting Seller or any Seller Subsidiary with
respect to the same. Except for statutory or regulatory restrictions of general
application, no Regulatory Authority has placed any restriction on the business
of Seller or any Seller Subsidiary which reasonably could be expected to have a
material adverse effect on the Condition of Seller and its Subsidiaries, taken
as a whole. From and after January 1, 1995, neither Seller nor any Seller
Subsidiary has received any notification or communication which has not been
resolved from any Regulatory Authority (i) asserting that any Seller or any
Subsidiary of Seller, is not in substantial compliance with any of the statutes,
regulations or ordinances that such Regulatory Authority enforces, except with
respect to matters which (A) are set forth on Schedule 2.13C or in any writing
previously furnished to Buyer and (B) reasonably could not be expected to have a
material adverse effect on the Condition of Seller and its Subsidiaries, taken
as a whole, (ii) threatening to revoke any license, franchise, permit or
governmental authorization that is material to the Condition of Seller and its
Subsidiaries, taken as a whole, including without limitation such company's
status as an insured depository institution under the Federal Deposit Insurance
Act, or (iii) requiring or threatening to require Seller or any of its
Subsidiaries, or indicating that Seller or any of its Subsidiaries may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting or purporting to
direct, restrict or limit in any manner the operations of Seller or any of its
Subsidiaries, including without limitation any restriction on the payment of
dividends. No such cease and desist order, agreement or memorandum of
understanding or other agreement is currently in effect. Neither Seller nor any
Seller Subsidiary is required by Section 32 of the Federal Deposit Insurance Act
to give prior notice to any federal banking agency of the proposed addition of
an individual to its board of directors or the employment of an individual as a
senior executive officer.
2.14 Labor. No work stoppage involving Seller or any Seller Subsidiary, is
pending or, to the best knowledge of Seller, threatened. Neither Seller nor any
Seller Subsidiary is involved in, or, to the best knowledge of Seller,
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding which reasonably could be expected to have a material
adverse affect on the Condition of Seller and its Subsidiaries, taken as a
whole. Employees of neither Seller nor any Seller Subsidiary are represented by
any labor union or any collective bargaining organization.
2.15 Material Interests of Certain Persons. (a) Except as set forth in Seller's
Proxy Statement for its 1998 Annual Meeting of Stockholders, to the best
knowledge of Seller, no officer or director of Seller or any Subsidiary of
Seller, or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any material interest in any
material contract or property (real or personal, tangible or intangible), used
in, or pertaining to the business of, Seller or any Subsidiary of Seller, which
in the case of Seller is required to be disclosed by Item 404 of Regulation S-K
promulgated by the SEC or in the case of any such Subsidiary would be required
to be so disclosed if such Subsidiary had a class of securities registered under
Section 12 of the Exchange Act. Each outstanding loan from Seller or any Seller
Subsidiary to any present officer, director, employee or any associate or
related interest of any such person which was or would be required under any
rule or regulation to be approved by or reported to Seller's or Seller
Subsidiary's Board of Directors ("Insider Loans") was approved by or reported to
the appropriate board of directors in accordance with applicable law and
regulations. Except as set forth on Schedule 2.15B, no Insider Loan has a
principal balance as of the date hereof in excess of $250,000 or a line of
credit in excess of $100,000.
2.16 Allowance for Loan and Lease Losses; Nonperforming Assets.(a)The allowances
for loan and lease losses contained in the Seller Financial Statements were
established in accordance with the past practices and experiences of Seller and
its Subsidiaries, and the allowance for loan losses shown on the consolidated
condensed balance sheet of Seller and its Subsidiaries contained in the most
recent Seller Report filed with the SEC is adequate in all material respects
under the requirements of GAAP to provide for possible losses on loans
(including without limitation accrued interest receivable) and credit
commitments (including without limitation stand-by letters of credit)
outstanding as of the date of such balance sheet. The aggregate amount of all
Nonperforming Assets (as defined below) on the books of Seller and its
Subsidiaries did not exceed $25,543,000 as of December 31, 1997. "Nonperforming
Assets" shall mean (i) all loans and leases (A) that are contractually past due
90 days or more in the payment of principal and/or interest, (B) that are on
nonaccrual status, and (C) where the interest rate terms have been reduced
and/or the maturity dates have been extended and/or otherwise restructured by
Seller's Subsidiary subsequent to the agreement under which the loan was
originally created due to concerns regarding the borrower's ability to pay in
accordance with such initial terms, and (ii) all assets classified as real
estate acquired through foreclosure or repossession and other assets acquired
through foreclosure or repossession.
2.17 Employee Benefit Plans. (a) Except as
set forth in Schedule 2.17A, neither Seller nor any Seller Subsidiary is a party
to any existing employment, management, consulting, deferred compensation,
change-in-control or other similar contract. Schedule 2.17A lists all pension,
retirement, supplemental retirement, savings, profit sharing, stock option,
stock purchase, stock ownership, stock appreciation right, deferred
compensation, consulting, bonus, medical, disability, workers' compensation,
vacation, group insurance, severance and other material employee benefit,
incentive and welfare policies, contracts, plans and arrangements, and all trust
agreements related thereto, maintained (currently or at any time in the last
five years) by or contributed to by Seller or any Seller Subsidiary in respect
of any of the present or former directors, officers, or other employees of
and/or consultants to Seller or any Seller Subsidiary (collectively, "Seller
Employee Plans"). Seller has furnished or made available to Buyer the following
documents with respect to each Seller Employee Plan: (i) a true and complete
copy of all written documents comprising such Seller Employee Plan (including
amendments and individual agreements relating thereto) or, if there is no such
written document, an accurate and complete description of the Seller Employee
Plan; (ii) the most recent Form 5500 or Form 5500-C (including all schedules
thereto), if applicable; (iii) the most recent financial statements and
actuarial reports, if any; (iv) the summary plan description currently in effect
and all material modifications thereof, if any; and (v) the most recent Internal
Revenue Service determination letter, if any. Without limiting the generality of
the foregoing, Seller has furnished or made available to Buyer true and complete
copies of each form of stock option grant or stock option agreement that is
outstanding under any stock option plan of Seller or any Seller Subsidiary. All
Seller Employee Plans have been maintained and operated materially in accordance
with their terms and with the material requirements of all applicable statutes,
orders, rules and final regulations, including without limitation ERISA and the
Internal Revenue Code. All contributions required to be made to Seller Employee
Plans have been made. With respect to each of the Seller Employee Plans which is
a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i)
each Pension Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Internal Revenue Code has been determined to be so
qualified by the Internal Revenue Service and, to the knowledge of Seller, such
determination letter may still be relied upon, except as disclosed in Schedule
2.17A, and each related trust is exempt from taxation under Section 501(a) of
the Internal Revenue Code; (ii) the present value of all benefits vested and all
benefits accrued under each Pension Plan which is subject to Title IV of ERISA,
valued using the assumptions in the most recent actuarial report, did not, in
each case, as of the last applicable annual valuation date, exceed the value of
the assets of the Pension Plan allocable to such vested or accrued benefits;
(iii) to the best knowledge of Seller, there has been no "prohibited
transaction," as such term is defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA, which could subject any Pension Plan or associated
trust, or the Seller or any Seller Subsidiary, to any material tax or penalty;
(iv) except as set forth on Schedule 2.17C, no Pension Plan or any trust created
thereunder has been terminated, nor have there been any "reportable events" with
respect to any Pension Plan, as that term is defined in Section 4043 of ERISA on
or after January 1, 1985; and (v) no Pension Plan or any trust created
thereunder has incurred any "accumulated funding deficiency," as such term is
defined in Section 302 of ERISA (whether or not waived), except as disclosed in
Schedule 2.17A. No Pension Plan is a "multiemployer plan" as that term is
defined in Section 3(37) of ERISA. Seller has no Pension Plan that is described
in Section 4063(a) of ERISA (a "Multiple Employer Plan"). Except as disclosed in
Schedule 2.17D, neither Seller nor any Seller Subsidiary has any liability for
any post-retirement health, medical or similar benefit of any kind whatsoever,
except as required by statute or regulation. Neither Seller nor any Seller
Subsidiary has any material liability under ERISA or the Internal Revenue Code
as a result of its being a member of a group described in Sections 414(b), (c),
(m) or (o) of the Internal Revenue Code. Except as set forth on Schedule 2.17F,
neither the execution nor delivery of this Agreement, nor the consummation of
any of the transactions contemplated hereby, will (i) result in any material
payment (including without limitation severance, unemployment compensation or
golden parachute payment) becoming due to any director or employee of Seller or
any Seller Subsidiary from any of such entities, (ii) materially increase any
benefit otherwise payable under any of the Seller Employee Plans or (iii) result
in the acceleration of the time of payment of any such benefit. Except as set
forth in Schedule 2.17F, no holder of an option to acquire stock of Seller has
or will have at any time through the Effective Time the right to receive any
cash or other payment (other than the issuance of stock of Seller) in exchange
for or with respect to all or any portion of such option. Seller shall use its
best efforts to insure that no amounts paid or payable by Seller, Seller
Subsidiaries or Buyer to or with respect to any employee or former employee of
Seller or any Seller Subsidiary will fail to be deductible for federal income
tax purposes by reason of Section 280G of the Internal Revenue Code. No Seller
Stock Option has an associated "additional option right" or similar "re-load"
feature.
2.18 Conduct of Seller to Date. From and after January 1, 1998 through
the date of this Agreement, except as set forth on Schedule 2.18 or reflected in
Seller Financial Statements: (i) Seller and the Seller Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practices; (ii) Seller has not issued, sold, granted,
conferred or awarded any of its Equity Securities (except shares of Seller
Common Stock upon exercise of Seller Stock Options), or any corporate debt
securities which would be classified under GAAP as long-term debt on the balance
sheets of Seller; (iii) Seller has not effected any stock split or adjusted,
combined, reclassified or otherwise changed its capitalization; (iv) Seller has
not declared, set aside or paid any dividend (other than its regular quarterly
or regular semi-annual common dividends) or other distribution in respect of its
capital stock, or purchased, redeemed, retired, repurchased, or exchanged, or
otherwise acquired or disposed of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise; (v) neither Seller nor any Seller Subsidiary has incurred any
material obligation or liability (absolute or contingent), except normal trade
or business obligations or liabilities incurred in the ordinary course of
business, or subjected to Lien any of its assets or properties other than in the
ordinary course of business consistent with past practice; (vi) neither Seller
nor any Seller Subsidiary has discharged or satisfied any material Lien or paid
any material obligation or liability (absolute or contingent), other than in the
ordinary course of business; (vii) neither Seller nor any Seller Subsidiary has
sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of
its properties or assets other than for a fair consideration in the ordinary
course of business; (viii) except as required by contract or law, neither Seller
nor any Seller Subsidiary has (A) increased the rate of compensation of, or paid
any bonus to, any of its directors, officers, or other employees, except merit
or promotion increases in accordance with existing policy, (B) entered into any
new, or amended or supplemented any existing, employment, management,
consulting, deferred compensation, severance, or other similar contract, (C)
entered into, terminated, or substantially modified any of the Seller Employee
Plans or (D) agreed to do any of the foregoing; (ix) neither Seller nor any
Seller Subsidiary has suffered any material damage, destruction, or loss,
whether as the result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any Regulatory Authority, flood,
windstorm, embargo, riot, act of God or the enemy, or other casualty or event,
and whether or not covered by insurance; (x) neither Seller nor any Seller
Subsidiary has cancelled or compromised any debt, except for debts charged off
or compromised in accordance with the past practice of Seller and its
Subsidiaries; and (xi) neither Seller nor any Seller Subsidiary has entered into
any material transaction, contract or commitment outside the ordinary course of
its business.
2.19 Proxy Statement,etc. None of the information regarding
Seller or any Seller Subsidiary supplied or to be supplied by Seller for
inclusion in (i) the registration statement on Form S-4 to be filed with the SEC
by Buyer for the purpose of registering the shares of Buyer Common Stock to be
exchanged for shares of Seller Common Stock pursuant to the provisions of this
Agreement (the "Registration Statement"), (ii) the proxy or information
statement (the "Proxy Statement") to be mailed to Seller's stockholders in
connection with the transactions contemplated by this Agreement or (iii) any
other documents to be filed with any Regulatory Authority in connection with the
transactions contemplated hereby will, at the respective times such documents
are filed with any Regulatory Authority and, in the case of the Registration
Statement, when it becomes effective and, with respect to the Proxy Statement,
when mailed, be false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of Seller's stockholders referred
to in Section 5.3 (the "Meeting") (or, if no Meeting is held, at the time the
Proxy Statement is first furnished to Seller's stockholders), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Meeting. All documents which Seller or any
Seller Subsidiary is responsible for filing with any Regulatory Authority in
connection with the Merger will comply as to form in all material respects with
the provisions of applicable law.
2.20 Registration Obligations. Neither
Seller nor any Seller Subsidiary is under any obligation, contingent or
otherwise to register any of its securities under the Securities Act.
2.21 State Takeover Statutes; Seller's Articles of Incorporation;
Seller Rights Agreement.
(a) The transactions contemplated by this Agreement are not subject to, or have
been exempted from, any applicable state law which purports to limit or restrict
business combinations or the ability to acquire or to vote shares. The
transactions contemplated by this Agreement and the agreements contemplated
hereby are not, and will not be, prohibited by, or subject to, or have been
exempted from, Article X of the Seller's Articles of Incorporation. Seller has
taken all necessary steps to render the Seller Rights Agreement inapplicable to
the Merger and the transactions contemplated by this Agreement and by the Stock
Option Agreement (including, such that the Rights related thereto will not be
distributed, become exercisable or be triggered in any way as a result of the
execution of this Agreement or the Stock Option Agreement or the consummation of
the transactions contemplated hereby or thereby).
2.22 Accounting, Tax and Regulatory Matters. Neither Seller nor any Seller
Subsidiary has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code or as a pooling of interests for accounting and financial
reporting purposes or (ii) materially impede or delay receipt of any approval
referred to in Section 6.1(b) or the consummation of the transactions
contemplated by this Agreement.
2.23 Brokers and Finders. Except for Donaldson,
Lufkin & Jenrette ("DLJ") and Chartwell Capital Limited ("CCL"), neither Seller
nor any Seller Subsidiary nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
broker or finder has acted directly or indirectly for Seller or any Seller
Subsidiary in connection with this Agreement or the transactions contemplated
hereby. Seller has furnished Buyer with a copy of any written contractual
arrangement with DLJ and CCL.
2.24 Other Activities. (a) Except as disclosed
in Schedule 2.24A, neither Seller nor any of its Subsidiaries engages in any
insurance activities other than acting as a principal, agent or broker for
insurance that is directly related to an extension of credit by Seller or any of
its Subsidiaries and limited to assuring the repayment of the balance due on the
extension of credit in the event of the death, disability or involuntary
unemployment of the debtor. To the knowledge of Seller's management: each
Subsidiary that is a national bank that performs personal trust, corporate trust
and other fiduciary activities ("Trust Activities") is doing so with requisite
authority under applicable law of Regulatory Authorities and in material
accordance with the agreements and instruments governing such Trust Activities,
sound fiduciary principles and applicable law and regulation (specifically
including but not limited to Section 9 of Title 12 of the Code of Federal
Regulations); there is no investigation or inquiry by any governmental entity
pending or threatened against Seller or any of its Subsidiaries thereof relating
to the compliance by Seller or any of its Subsidiaries with sound fiduciary
principles and applicable law and regulations; and each employee of any such
bank had the authority to act in the capacity in which such employee acted with
respect to Trust Activities in each case in which such employee was held out as
a representative of such bank; and such bank has established policies and
procedures for the purpose of complying with applicable laws of governmental
entities relating to Trust Activities, has followed such policies and procedures
in all material respects and has performed appropriate internal audit reviews of
Trust Activities, which audits have disclosed no material violations of
applicable laws of governmental entities or such policies and procedures.
2.25 Interest Rate Risk Management Instruments. (a) Set forth on Schedule 2.25A
is a list of all interest rate swaps, caps, floors, and option agreements to
which Seller or any of its Subsidiaries is a party or by which any of their
properties or assets may be bound. All interest rate swaps, caps, floors and
option agreements and other interest rate risk management arrangements to which
Seller or any of its Subsidiaries is a party or by which any of their properties
or assets may be bound were entered into in the ordinary course of business and
in accordance with prudent banking practice and applicable rules, regulations
and policies of Regulatory Authorities and with counterparties believed to be
financially responsible at the time and are legal, valid and binding obligations
and are in full force and effect. Seller and each of its Subsidiaries has duly
performed in all material respects all of its obligations thereunder to the
extent that such obligations to perform have accrued, and there are no material
breaches, violations or defaults or allegations or assertions of such by any
party thereunder.
2.26 Accuracy of Information. The statements of Seller
contained in this Agreement, the Schedules and any other written document
executed and delivered by or on behalf of Seller pursuant to the terms of this
Agreement are true and correct in all material respects, and such statements and
documents do not omit any material fact necessary to make the statements
contained therein not misleading.
2.27 Year 2000 Compliant. None of Seller or any of the Seller
Subsidiaries has received, or reasonably expects to receive, a "Year 2000
Deficiency Notification Letter" (as such term is employed in the Federal
Reserve's Supervision and Regulation Letter No. SR 98-3(SUP), dated March 4,
1998). Seller has disclosed to Buyer a complete and accurate copy of Seller's
plan for addressing the issues set forth in the statements of the Federal
Financial Institutions Examination Council, dated May 5, 1997, entitled "Year
2000 Project Management Awareness," and December 1997, entitled "Safety and
Soundness Guidelines Concerning the Year 2000 Business Risk," as such issues
affect Seller and its Subsidiaries. Between the date of this Agreement and the
Effective Time, Seller shall use commercially practicable efforts to implement
such plan.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents and warrants to and covenants with Seller as follows:
3.1 Organization and Authority. Buyer and each of its Subsidiaries is a
corporation, bank, trust company or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of
organization, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and has corporate power and authority to
own its properties and assets and to carry on its business as it is now being
conducted, except, in the case of the Buyer Subsidiaries, where the failure to
be so qualified would not have a material adverse effect on the Condition of
Buyer and its Subsidiaries, taken as a whole. Buyer is registered as a bank
holding company with the Board under the Holding Company Act. True and complete
copies of the Articles of Incorporation and Regulations of Buyer, each in effect
on the date of this Agreement, have been provided to Seller.
3.2 Capitalization of Buyer. The authorized capital stock of Buyer consists of
(i) 200,000,000 shares of Buyer Common Stock, of which, as of April 1, 1998,
95,567,122 shares were issued and outstanding and (ii) 1,000,000 shares of
preferred stock, no par value ("Buyer Preferred Stock"), issuable in series,
none of which, as of April 1, 1998, is issued or outstanding. Buyer has
designated (i) 500,000 shares of Buyer Preferred Stock as "Series A Preferred
Stock" and has reserved such shares for issuance upon exercise of Preferred
Stock Purchase Rights under a Rights Agreement dated October 27, 1989 (the
"Buyer Rights Agreement"), between Buyer and Star Bank, N.A., as Rights Agent
and (ii) 218,000 shares of Buyer Preferred Stock as "Series B Cumulative
Preferred Stock." Pursuant to the Buyer Rights Agreement, each certificate
representing one share of Buyer Common Stock also represents one Rights (as
defined in the Buyer Rights Agreement). As of December 31, 1997 Buyer had
options outstanding for 6,586,501 shares of Buyer Common Stock for issuance
under various employee stock option and incentive plans ("Buyer Stock Options").
From April 1, 1998 through the date of this Agreement, no shares of Buyer Common
Stock or other Equity Securities of Buyer have been issued excluding any such
shares which may have been issued pursuant to stock-based employee benefit or
incentive plans and programs. Buyer continually evaluates possible acquisitions
and may prior to the Effective Time enter into one or more agreements providing
for, and may consummate, the acquisition by it of another bank, association,
bank holding company, savings and loan holding company or other company (or the
assets thereof) for consideration that may include Equity Securities. In
addition, prior to the Effective Time, Buyer may, depending on market conditions
and other factors, otherwise determine to issue equity, equity-linked or other
securities for financing purposes. Notwithstanding the foregoing, Buyer will not
take any action that would (i) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code or as a pooling of interests for accounting and financial
reporting purposes or (ii) materially impede or delay receipt of any approval
referred to in Section 6.1(b) or the consummation of the transactions
contemplated by this Agreement. Except as set forth above and except pursuant to
the Buyer Rights Agreement, there are no other Equity Securities of Buyer
outstanding. All of the issued and outstanding shares of Buyer Common Stock are
validly issued, fully paid, and nonassessable, and have not been issued in
violation of any preemptive right of any stockholder of Buyer. At the Effective
Time, the Buyer Common Stock, including associated Rights, to be issued in the
Merger will be duly authorized, validly issued, fully paid and non-assessable,
and will not be issued in violation of any preemptive right of any stockholder
of Buyer.
3.3 Authorization. (a) Buyer has the corporate power and authority
to enter into this Agreement and to carry out its obligations hereunder. No
stockholder vote is required for Buyer to approve this Agreement. The execution,
delivery and performance of this Agreement by Buyer and the consummation by
Buyer of the transactions contemplated hereby have been duly authorized by all
requisite corporate action of Buyer. This Agreement is a valid and binding
obligation of Buyer enforceable against Buyer in accordance with its terms.
Neither the execution, delivery and performance by Buyer of this Agreement, nor
the consummation by Buyer of the transactions contemplated hereby, nor
compliance by Buyer with any of the provisions hereof, will (i) violate,
conflict with or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of, any Lien upon any of the material properties or
assets of Buyer or any Buyer Subsidiary under any of the terms, conditions or
provisions of (x) its articles or certificate of incorporation or bylaws, or (y)
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Buyer or any of the
material properties or assets of Buyer is a party or by which it may be bound,
or to which Buyer may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in paragraph (c) of this Section 3.3, to
the best knowledge of Buyer, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer or any of
its Subsidiaries or any of their respective material properties or assets. Other
than in connection with or in compliance with the provisions of the KBCA, the
OGCL, the Securities Act, the Exchange Act, the securities or blue sky laws of
the various states or filings, consents, reviews, authorizations, approvals or
exemptions required under the Holding Company Act, and the HSR Act, or any
required approvals of any other Regulatory Authority, no notice to, filing with,
exemption or review by, or authorization, consent or approval of, any public
body or authority is necessary for the consummation by Buyer of the transactions
contemplated by this Agreement.
3.4 Buyer Financial Statements.
The supplementalconsolidated and parent company only balance sheets of Buyer and
its Subsidiaries as of December 31, 1997, 1996 and 1995 and related supplemental
consolidated and parent company only statements of income, cash flows and
changes in stockholders' equity for each of the three years in the three-year
period ended December 31, 1997, together with the notes thereto, audited by
Arthur Andersen LLP ("Buyer Auditors") (collectively, the "Buyer Financial
Statements"), have been prepared in accordance with GAAP, present fairly the
consolidated financial position of Buyer and its Subsidiaries at the dates and
the consolidated results of operations, changes in stockholders' equity and cash
flows of Buyer and its Subsidiaries for the periods stated therein and are
derived from the books and records of Buyer and its Subsidiaries, which are
complete and accurate in all material respects and have been maintained in all
material respects in accordance with applicable laws and regulations. Neither
Buyer nor any of its Subsidiaries has any material contingent liabilities that
are not described in the financial statements described above.
3.5 Buyer Reports. Since January 1, 1995, each of Buyer and the Buyer
Subsidiaries has filed all material reports, registrations and statements,
together with any required material amendments thereto, that it was required to
file with any Regulatory Authority. All such reports and statements filed with
any such Regulatory Authority are collectively referred to herein as the "Buyer
Reports." As of its respective date, each Buyer Report complied in all material
respects with all the rules and regulations promulgated by the applicable
Regulatory Authority and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
3.6 Material Adverse Change. Since December 31,
1997, there has been no material adverse change in the Condition of Buyer and
its Subsidiaries, taken as a whole, except as may have resulted or may result
from changes to laws and regulations or changes in economic conditions
applicable to banking institutions generally or in general levels of interest
rates affecting banking institutions generally.
3.7 Compliance with Laws. Each
of Buyer and its Subsidiaries has complied with all laws, regulations, and
orders (including without limitation zoning ordinances, building codes, ERISA,
and securities, tax, environmental, civil rights, and occupational health and
safety laws and regulations and including without limitation in the case of any
Buyer Subsidiary that is a bank, banking organization, banking corporation or
trust company, all statutes, rules and regulations, pertaining to the conduct of
a banking, deposit-taking or lending or related business or to the exercise of
trust powers) and governing instruments applicable to them and to the conduct of
their business, and to the knowledge of Buyer all applicable listing
requirements and policies of the NYSE, except where such failure to comply would
not have a material adverse effect on the Condition of Buyer and its
Subsidiaries, taken as a whole, and (ii) neither Buyer nor any Buyer Subsidiary
is in default under, and no event has occurred which, with the lapse of time or
notice or both, could result in the default under, the terms of any judgment,
order, writ, decree, permit, or license of any Regulatory Authority or court,
whether federal, state, municipal, or local and whether at law or in equity,
except where such default would not have a material adverse effect on the
Condition of Buyer and its Subsidiaries, taken as a whole. Neither Buyer nor any
Buyer Subsidiary is subject to or reasonably likely to incur a liability as a
result of its ownership, operation, or use of any Property of Buyer (whether
directly or, to the best knowledge of Buyer, as a consequence of such Property
being part of the investment portfolio of Buyer or any Buyer Subsidiary) (A)
that is contaminated by or contains any Toxic Substance, or (B) on which any
Toxic Substance has been stored, disposed of, placed, or used in the
construction thereof; and which, in each case, reasonably could be expected to
have a material adverse effect on the Condition of Buyer and its Subsidiaries,
taken as a whole. Except for statutory or regulatory restrictions of general
application, no Regulatory Authority has placed any restriction on the business
of Buyer or any Buyer Subsidiary which reasonably could be expected to have a
material adverse effect on the Condition of Buyer and its Subsidiaries, taken as
a whole.
3.8 Registration Statement,etc. None of the information regarding
Buyer or any of its Subsidiaries supplied or to be supplied by Buyer for
inclusion or included in (i) the Registration Statement, (ii) the Proxy
Statement, or (iii) any other documents to be filed with any Regulatory
Authority in connection with the transactions contemplated hereby will, at the
respective times such documents are filed with any Regulatory Authority and, in
the case of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statement, when mailed (or furnished to stockholders of
Seller), be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Meeting, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Meeting. All documents which Buyer or any of
its Subsidiaries are responsible for filing with any Regulatory Authority in
connection with the Merger will comply as to form in all material respects with
the provisions of applicable law.
3.9 Brokers and Finders. Except for Credit
Suisse First Boston, neither Buyer nor any of its Subsidiaries nor any of their
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted directly or
indirectly for Buyer or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
3.10 Litigation and Other Proceedings. Neither Buyer nor any Buyer Subsidiary is
a party to any pending or, to the best knowledge of Buyer, threatened claim,
action, suit, investigation or proceeding, or is subject to any order, judgment
or decree, except for matters which, in the aggregate, will not have, or
reasonably could not be expected to have, a material adverse effect on the
Condition of Buyer and its Subsidiaries, taken as a whole. Without limiting the
generality of the foregoing, as of the date of this Agreement, there are no
actions, suits, or proceedings pending or, to the best knowledge of Buyer,
threatened against Buyer or any Buyer Subsidiary or any of their respective
officers or directors by any stockholder of Buyer or any Buyer Subsidiary (or
any former stockholder of Buyer or any Buyer Subsidiary) or involving claims
under the Securities Act, the Exchange Act, the Community Reinvestment Act of
1977, as amended, or the fair lending laws or which purport or seek to enjoin or
restrain the transactions contemplated by this Agreement.
3.11 Taxes. Buyer
and each Buyer Subsidiary have timely filed or will timely file (including
extensions) all material tax returns required to be filed at or prior to the
Closing Date ("Buyer Returns"). Each of Buyer and its Subsidiaries has paid, or
set up adequate reserves on the Buyer Financial Statements for the payment of,
all taxes required to be paid in respect of the periods covered by the Buyer
Financial Statements and has paid or set up adequate reserves on the most recent
financial statements Buyer has filed under the Exchange Act for the payment of,
all taxes anticipated to be payable in respect of the periods covered by such
financial statements. No material deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed in writing by any
governmental or taxing authority against any of Buyer or any Buyer Subsidiary
which have not been settled or would not be covered by existing reserves. To the
knowledge of Buyer, neither Buyer nor any Buyer Subsidiary is delinquent in the
payment of any material tax, assessment or governmental charge shown to be due
on any Buyer Return (taking into account extensions properly obtained), and no
waiver of the time to assess any tax granted in writing by Buyer or any Buyer
Subsidiary is pending. The federal and state income tax returns of Buyer and the
Buyer Subsidiaries have been audited and finally settled by the IRS or
appropriate state tax authorities or the relevant statute of limitations has
expired for all periods ended through December 31, 1994, or the period for
assessment of taxes in respect of such periods has expired.
3.12 Accounting, Tax and Regulatory Matters. Neither Buyer nor any Buyer
Subsidiary has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code or as a pooling of interests for accounting and financial
reporting purposes or (ii) materially impede or delay receipt of any approval
referred to in Section 6.1(b) or the consummation of the transactions
contemplated by this Agreement.
3.13 Accuracy of Information. The statements of
Buyer contained in this Agreement, the Schedules and in any other written
document executed and delivered by or on behalf of Buyer pursuant to the terms
of this Agreement are true and correct in all material respects, and such
statements and documents do not omit any material fact necessary to make the
statements contained herein or therein not misleading.
3.14 Year 2000 Compliant. None of Buyer or any of
the Buyer Subsidiaries has received, or reasonably expects to receive, a "Year
2000 Deficiency Notification Letter" (as such term is employed in the Federal
Reserve's Supervision and Regulation Letter No. SR 98-3(SUP), dated March 4,
1998). Buyer has disclosed to Seller a complete and accurate copy of Buyer's
plan for addressing the issues set forth in the statements of the Federal
Financial Institutions Examination Council, dated May 5, 1997, entitled "Year
2000 Project Management Awareness," and December 1997, entitled "Safety and
Soundness Guidelines Concerning the Year 2000 Business Risk," as such issues
affect Buyer and its Subsidiaries. Between the date of this Agreement and the
Effective Time, Buyer shall use commercial practicable efforts to implement such
plan.
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Businesses Prior to the Effective Time.
During the period from the date of this Agreement to the Effective Time, each
of Buyer and Seller shall, and shall cause each of their respective Subsidiaries
to, conduct its business according to the ordinary and usual course consistent
with past practices and shall, and shall cause each such Subsidiary to, use
its reasonable best efforts to maintain and preserve its business organization,
employees and advantageous business relationships and retain the services
of its officers and key employees.
4.2 Forbearances. Except as set forth on Schedule 4.2 or as
otherwise contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, Seller shall not and shall not permit any
of its Subsidiaries to, without the prior written consent of Buyer: declare, set
aside or pay any dividends or other distributions, directly or indirectly, in
respect of its capital stock (other than dividends from a Subsidiary of Seller
to Seller or another Subsidiary of Seller), except that Seller may declare and
pay cash dividends on the Seller Common Stock of not more than $.18 per share
per quarterly period; provided, that Seller shall not declare any dividends on
Seller Common Stock or Seller Preferred Stock during any quarter in which its
stockholders will be entitled to receive any regular quarterly dividend on the
shares of Buyer Common Stock to be issued in the Merger; or enter into or amend
any employment, severance or similar agreement or arrangement with any director
or officer or employee, or materially modify any of the Seller Employee Plans or
grant any salary or wage increase or materially increase any employee benefit
(including incentive or bonus payments), except normal individual increases in
compensation to employees consistent with past practice, or as required by law
or contract; or authorize, recommend, propose or announce an intention to
authorize, so recommend or propose, or enter into an agreement in principle with
respect to, any merger, consolidation or business combination (other than the
Transactions), any acquisition or disposition of a material amount of assets
(except in the usual course of business consistent with past practices),
including mortgage servicing rights, loans or securities as well as any release
or relinquishment of any material contract rights; or propose or adopt any
amendments to its articles of incorporation, association or other charter
document or bylaws; or issue, sell, grant, confer or award any of its Equity
Securities (except shares of Seller Common Stock issued upon exercise of Seller
Stock Options outstanding on the date of this Agreement (Seller agreeing to
promptly notify Buyer of any such issuance of treasury or previously unissued
shares)) or effect any stock split or adjust, combine, reclassify or otherwise
change its capitalization as it existed on the date of this Agreement; or
purchase, redeem, retire, repurchase, or exchange, or otherwise acquire or
dispose of, directly or indirectly, any of its Equity Securities, whether
pursuant to the terms of such Equity Securities or otherwise; or directly or
indirectly (including through its officers, directors, employees or other
representatives) initiate, solicit, engage in or encourage any discussions,
inquiries or proposals with any third party relating to the disposition of any
significant portion of the business or assets of Seller or any Seller Subsidiary
or the acquisition of Equity Securities of Seller or any Seller Subsidiary or
the merger of Seller or any Seller Subsidiary with any person (other than Buyer)
or any similar transaction (each such transaction being referred to herein as an
"Acquisition Transaction"), or provide any such person with information or
assistance or negotiate with any such person with respect to an Acquisition
Transaction, and Seller shall notify Buyer orally of all the relevant details
relating to all inquiries, indications of interest and proposals which it may
receive with respect to any Acquisition Transaction within 24 hours of the
receipt of any such inquiry, indication, or proposal; or take any action that
would (A) materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Buyer or Seller to obtain any
approval of any Regulatory Authority required for the transactions contemplated
by this Agreement or to perform its covenants and agreements under this
Agreement or (B) prevent the transactions contemplated hereby from qualifying as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code or as a pooling of interests for accounting and financial reporting
purposes; or other than in the ordinary course of business consistent with past
practice (but not pursuant to any outstanding letters of credit), incur any
indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible or liable for the obligations of any other
individual, corporation or other entity; or materially restructure or materially
change its investment securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is classified or reported as of
the date of the Agreement; or agree in writing or otherwise to take any of the
foregoing actions or engage in any activity, enter into any transaction or take
or omit to take any other act which would make any of the representations and
warranties in Article II of this Agreement untrue or incorrect in any material
respect if made anew after engaging in such activity, entering into such
transaction, or taking or omitting such other act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access and Information. Buyer and its Subsidiaries, on the one hand, and
Seller and its Subsidiaries, on the other hand, shall each afford to each other,
and to the other's accountants, counsel and other representatives, full access
during normal business hours, during the period prior to the Effective Time, to
all their respective properties, books, contracts, commitments and records and,
during such period, each shall furnish promptly to the other (i) a copy of each
report, schedule and other document filed or received by it during such period
pursuant to the requirements of federal and state securities laws and (ii) all
other existing or regularly produced information concerning its business,
properties and personnel as such other party may reasonably request. Each party
hereto shall, and shall cause its advisors and representatives to, (A) hold
confidential all information obtained in connection with any transaction
contemplated hereby with respect to the other party which is not otherwise
public knowledge, (B) return all documents (including copies thereof) obtained
hereunder from the other party to such other party and (C) use its reasonable
best efforts to cause all information obtained pursuant to this Agreement or in
connection with the negotiation of this Agreement to be treated as confidential
and not use, or knowingly permit others to use, any such information unless such
information becomes generally available to the public without breach of either
party's confidentiality obligation.
5.2 Registration Statement; Regulatory Matters. (a) Buyer shall prepare and,
subject to the review and consent of Seller with respect to matters relating to
Seller, file with the SEC as soon as is reasonably practicable the Registration
Statement (or the equivalent in the form of preliminary proxy material) with
respect to the shares of Buyer Common Stock to be issued in the Merger and shall
apply to the NYSE to list the shares of Buyer Common Stock to be issued in
connection with the transactions contemplated by this Agreement. Buyer shall
prepare and file a notice with the Board as soon as reasonably practicable.
Buyer shall use all reasonable efforts to cause the Registration Statement to
become effective. Buyer shall also take any action required to be taken under
any applicable state blue sky or securities laws in connection with the issuance
of such shares, and Seller and its Subsidiaries shall furnish Buyer all
information concerning Seller and its Subsidiaries and the stockholders thereof
as Buyer may reasonably request in connection with any such action. Seller and
Buyer shall cooperate and use their respective best efforts to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties and Regulatory Authorities
necessary to consummate the transactions contemplated by this Agreement and, as
and if directed by Buyer, to consummate such other mergers, consolidations or
asset transfers or other transactions by and among Buyer's Subsidiaries and
Seller's Subsidiaries concurrently with or following the Effective Time.
5.3 Stockholder Approval. Seller shall call a meeting of its stockholders to
be held as soon as practicable after the Registration Statement is declared
effective for the purpose of voting upon the Merger or take other action for
stockholders to authorize the Merger. In connection therewith, Buyer shall
prepare the Proxy Statement and, with the approval of each of Buyer and Seller,
the Proxy Statement shall be filed with the SEC and mailed to the stockholders
of Seller. The Board of Directors of Seller shall submit for approval of
Seller's stockholders the matters to be voted upon in order to authorize the
Merger. The Board of Directors of Seller hereby does and (subject to the
fiduciary duty of Seller's Board of Directors, as advised in writing by outside
counsel) will recommend this Agreement and the transactions contemplated hereby
to stockholders of Seller and will use its best efforts to obtain any vote of
Seller's stockholders that is necessary for the approval and adoption of this
Agreement and consummation of the transactions contemplated hereby.
5.4 Current Information. During the period from the date of this Agreement to
the Effective Time, each party shall promptly furnish the other with copies of
all monthly and other interim financial statements as the same become available
and shall cause one or more of its designated representatives to confer on a
regular and frequent basis with representatives of the other party. Each party
shall promptly notify the other party of any material change in its business or
operations and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the institution
or the threat of material litigation involving such party, and shall keep the
other party fully informed of such events.
5.5 Agreements of Affiliates.
As soon as practicable after the date of this Agreement, Seller shall deliver to
Buyer a letter identifying all persons whom Seller believes to be, at the time
this Agreement is submitted to a vote of the stockholders of Seller,
"affiliates" of Seller for purposes of Rule 145 under the Securities Act or for
determining the qualification of the Merger as a pooling of interests for
accounting and financial reporting purposes. Seller shall use its reasonable
best efforts to cause each person who is so identified as such an "affiliate" to
deliver to Buyer as soon as practicable thereafter, and in any event no later
than the publication of notice in the Federal Register of Buyer's notice to the
Board referred to in Section 5.2, a written agreement in the form attached
hereto as Exhibit B. Prior to the Effective Time, Seller shall amend and
supplement such letter and use its reasonable best efforts to cause each
additional person who is identified as an "affiliate" to execute a written
agreement as set forth in this Section 5.5.
5.6 Expenses. Each party hereto shall bear its own expenses incident to
preparing, entering into and carrying out this Agreement and to consummating
the Merger.
5.7 Securities Act and Exchange Act Filings.
Buyer shall make all filings with the SEC that are described in Section (c) of
Rule 144 under the Securities Act for a
period of two years following the Effective Time. Buyer shall within 30 days
after the Effective Time file a registration statement on Form S-3 or Form S-8,
as the case may be (or any successor or other appropriate forms), with respect
to the shares of Buyer Common Stock subject to the options issued pursuant to
Section 5.10 and shall use its reasonable efforts to maintain the effectiveness
of such registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options remain
outstanding.
5.8 Miscellaneous Agreement and Consents. (a) Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use its
respective reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as expeditiously as possible,
including without limitation using its respective reasonable best efforts to
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions contemplated
hereby. Each party shall, and shall cause each of its respective Subsidiaries
to, use its reasonable best efforts to obtain consents of all third parties and
Regulatory Authorities necessary or, in the opinion of Buyer, desirable for the
consummation of the transactions contemplated by this Agreement. Seller, prior
to the Effective Time, shall (i) consult and cooperate with Buyer regarding the
implementation of those policies and procedures established by Buyer for its
governance and that of its Subsidiaries and not otherwise referenced in Section
5.17 hereof, including, without limitation, policies and procedures pertaining
to the accounting, asset/liability management, audit, credit, human resources,
treasury and legal functions, and (ii) at the request of Buyer, effective not
later than the Effective Time conform Seller's existing policies and procedures
in respect of such matters to Buyer's policies and procedures or, in the absence
of any existing Seller policy or procedure regarding any such function,
introduce Buyer's policies or procedures in respect thereof, unless to do so
would cause Seller or any of the Seller Subsidiaries to be in violation of any
law, rule or regulation of any Regulatory Authority having jurisdiction over
Seller and/or the Seller Subsidiary affected thereby.
5.9 Employee Benefits.
(a) Subject to Section 5.10, the provisions of the Seller Stock Plans and of any
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of Seller or any Seller
Subsidiary shall be deleted and terminated as of the Effective Time, and Seller
shall ensure that following the Effective Time no holder of Seller Stock Options
or any participant in any Seller Stock Plan shall have any right thereunder to
acquire any securities of Seller or any Seller Subsidiary. Buyer shall take such
steps as are necessary or required to integrate the employees of Seller and the
Seller Subsidiaries in Buyer's employee benefit plans available to similarly
situated employees of Buyer and Buyer Subsidiaries as soon as practicable after
the Effective Time, (i) with full credit for prior service with Seller or any of
the Seller Subsidiaries for all purposes other than determining benefit accruals
under any tax-qualified defined benefit plan, (ii) without any waiting periods,
evidence of insurability or application of any pre-existing condition
limitation, and (iii) with full credit for claims arising prior to the Effective
Time for purposes of deductibles, out-of-pocket maximums, benefit maximums and
all other similar limitations for the applicable plan year during which the
Merger is consummated. Each of Buyer and Seller shall use all reasonable efforts
to insure that no amounts paid or payable by Seller, Seller Subsidiaries or
Buyer to or with respect to any employee or former employee of Seller or any
Seller Subsidiary will fail to be deductible for federal income tax purposes by
reason of Section 280G of the Internal Revenue Code. Prior to the Effective
Time, Buyer and Seller agree to establish a supplemental employee severance
program in accordance with the terms outlined in Schedule 5.9C to provide
supplemental severance for the employees of Seller. Buyer agrees to enter into
Employment Agreements with the individuals identified in Schedule 5.9D in the
forms previously provided to Seller. For a period of one (1) year from and after
the Effective Time, the Buyer will continue the Seller's severance plans and
policies with respect to the employees of the Seller and the Seller Subsidiaries
immediately prior to the Effective Time, as such severance plans and policies
are in effect immediately prior to the Effective Time, and will honor all
obligations of the Seller thereunder.
5.10 Seller Stock Options. At the Effective Time, all rights with respect
to Seller Common Stock pursuant to
Seller Stock Options that are outstanding at the Effective Time, whether or not
then exercisable, shall be converted into and become rights with respect to
Buyer Common Stock, and Buyer shall assume each Seller Stock Option in
accordance with the terms of the stock option plan governing outstanding Seller
Stock Options. From and after the Effective Time, (i) each Seller Stock Option
assumed by Buyer shall be exercised solely for shares of Buyer Common Stock,
(ii) the number of shares of Buyer Common Stock subject to each Seller Stock
Option shall be equal to the number of shares of Seller Common Stock subject to
such Seller Stock Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole share of Buyer Common
Stock and (iii) the per share exercise price under each Seller Stock Option
shall be adjusted by dividing the per share exercise price under such Seller
Stock Option by the Exchange Ratio and rounding up to the nearest cent;
provided, however, that the terms of each Seller Stock Option shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, recapitalization or other similar
transaction subsequent to the Effective Time. The foregoing assumption shall be
undertaken by Buyer in a manner that will comply with Section 424(a) of the
Internal Revenue Code, as to any Seller Stock Option that is an "incentive stock
option."
5.11 Seller Employee Stock Ownership Plan. Seller may cause the Employee
Stock Ownership Plan of the Seller Banks (the "Seller ESOP") to allocate, prior
to the Effective Time, to participants in the Seller ESOP the maximum number of
currently unallocated shares of Seller Common Stock allowable under Section 415
of the Internal Revenue Code. Except as provided in the following paragraph,
Seller shall not take any action which would cause the Seller ESOP to be
disqualified under Section 401(a) of the Internal Revenue Code or to lose its
status as an employee stock ownership plan under Section 4975 of the Internal
Revenue Code.
On or before the Effective Time, Seller will take steps
reasonably necessary to cause the Seller ESOP to be terminated as of the
Effective Time. Any indebtedness of the ESOP shall be repaid from the Trust
associated with the Seller ESOP. A final allocation will be prepared, and a
request for a favorable determination letter on the termination of the Seller
ESOP will be filed with the Internal Revenue Service. To the maximum extent
permitted by the rules and regulations of the Internal Revenue Service, upon
receipt of the favorable determination letter, the assets of the Seller ESOP
will be distributed to the participants in due course. At and after the
Effective Time, no additional employees will become eligible to participate in
the Seller ESOP and the assets of the Seller ESOP will be applied in accordance
with its terms and the rules and regulations of the Internal Revenue Service and
the Department of Labor.
5.12 D & O Indemnification. Buyer agrees that the Merger shall not affect or
diminish any of Seller's duties and obligations of indemnification existing as
of the Effective Time in favor of employees, agents, directors or officers of
Seller or its Subsidiaries arising by virtue of its Certificate of Incorporation
or Bylaws in the form in effect at the date of this Agreement or arising by
operation of law or arising by virtue of any contract, resolution or other
agreement or document existing at the date of this Agreement, and such duties
and obligations shall continue in full force and effect and be honored by Buyer
for so long as they would (but for the Merger) otherwise survive and continue in
full force and effect. Buyer will provide, or cause to be provided, for a period
of not less than two years from the Effective Time, a "tail" insurance and
indemnification policy that provides the officers and directors of Seller
Subsidiaries immediately prior to the Effective Time coverage no less favorable,
in the aggregate, than as currently provided by Buyer to its officers and
directors.
5.13 Press Releases. Except as may be required by law, Seller and
Buyer shall consult and agree with each other as to the form, substance and
timing of any proposed press release relating to this Agreement or any of the
transactions contemplated hereby.
5.14 State Takeover Statutes; Seller's Articles of Incorporation; Seller Rights
Agreement.
(a) Seller will take all steps necessary to exempt the transactions contemplated
by this Agreement and any agreement contemplated hereby from, and if necessary
challenge the validity of, any applicable state takeover law. Seller will take
all steps necessary to exempt the transactions contemplated by this Agreement
and any agreement contemplated hereby from the provisions of Article X of
Seller's Articles of Incorporation. Seller shall take all action (including, if
required, redeeming all of the outstanding Rights related to the Seller Rights
Agreement or amending or terminating the Seller Rights Agreement) so that the
entering into of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby shall not
result in the grant of any rights to any person under the Seller Rights
Agreement to purchase or receive additional shares of capital stock of Seller,
Buyer or any affiliate of the foregoing or enable or require the Rights related
thereto to be exercised, distributed or triggered in any way.
5.15 Best Efforts. Each of Buyer and Seller undertakes and agrees to use its
best efforts to cause the Merger (i) to qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and as a pooling of
interests for accounting and financial reporting purposes (in each case,
including, if necessary, to take reasonable steps to restructure the
transactions contemplated by this Agreement to so qualify) and (ii) to occur as
soon as practicable. Each of Buyer and Seller agrees to not take any action that
would materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Buyer or Seller to obtain any
approval of any Regulatory Authority required for the transactions contemplated
by this Agreement or to perform its covenants and agreements under this
Agreement.
5.16 Insurance. Seller shall, and Seller shall cause its
Subsidiaries to, use its best efforts to maintain its existing insurance.
5.17 Conforming Entries. (a) Notwithstanding that Seller believes that Seller
and the Seller Subsidiaries have established all reserves and taken all
provisions for possible loan losses required by GAAP and applicable laws, rules
and regulations, Seller recognizes that Buyer may have adopted different loan,
accrual and reserve policies (including loan classifications and levels of
reserves for possible loan losses). From and after the date of this Agreement,
Seller and Buyer shall consult and cooperate with each other with respect to
conforming the loan, accrual and reserve policies of Seller and the Seller
Subsidiaries to those policies of Buyer, as specified in each case in writing to
Seller, based upon such consultation and as hereinafter provided. In addition,
from and after the date of this Agreement to the Effective Time, Seller and
Buyer shall consult and cooperate with each other with respect to determining
appropriate Seller accruals, reserves and charges to establish and take in
respect of excess equipment write-off or write-down of various assets and other
appropriate charges and accounting adjustments taking into account the parties'
business plans following the Merger, as specified in each case in writing to
Seller, based upon such consultation and as hereinafter provided. Seller and
Buyer shall consult and cooperate with each other with respect to determining,
as specified in a written notice from Buyer to Seller, based upon such
consultation and as hereinafter provided, the amount and the timing for
recognizing for financial accounting purposes Seller's expenses of the Merger
and the restructuring charges relating to or to be incurred in connection with
the Merger. To the extent permissible under applicable laws, regulations, and
requirements of Regulatory Authorities, and provided further, that Seller shall
not be required to take any such action that, in the opinion of Seller's
independent auditors, is not consistent with GAAP and regulatory accounting
principles, Seller shall (i) establish and take such reserves and accruals at
such time as Buyer shall reasonably request to conform Seller's loan, accrual
and reserve policies to Buyer's policies, and (ii) establish and take such
accruals, reserves and charges in order to implement such policies in respect of
excess facilities and equipment capacity, severance costs, litigation matters,
write-off or write-down of various assets and other appropriate accounting
adjustments, and to recognize for financial accounting purposes such expenses of
the Merger and restructuring charges related to or to be incurred in connection
with the Merger, in each case at such times as are reasonably requested by
Buyer; provided, however, that on the date such reserves, accruals and charges
are to be taken, Buyer shall certify to Seller that Buyer's representations and
warranties are true and correct as of such date, that the approval conditions to
its obligations contemplated by Section 6.1(b) have been satisfied or waived
(except to the extent that any waiting period associated therewith may then have
commenced but not expired) and that Buyer is otherwise in compliance with this
Agreement and is prepared to proceed with the Closing; and provided, further,
that Seller shall not be required to take any such action that is not consistent
with GAAP and regulatory accounting principles.
5.18 Charitable Foundation.
Promptly following the Effective Time, Buyer shall establish a charitable
foundation for the benefit of the communities served by Seller as of immediately
prior to the Effective Time, which charitable foundation will be initially
funded with a $300,000 contribution by Buyer and thereafter funded annually with
such amounts determined by Buyer as will aggregate no less than $3,000,000
during the six years immediately following the Effective Time.
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligation To Effect the Merger. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the following
conditions: This Agreement shall have received the requisite approval of
stockholders of Seller. All requisite approvals of this Agreement and the
transactions contemplated hereby shall have been received from the Board and any
other Regulatory Authority, and all applicable waiting periods shall have
expired under applicable law. The Registration Statement shall have been
declared effective and shall not be subject to a stop order or any threatened
stop order. Neither Seller nor Buyer shall be subject to any order, decree or
injunction, and there shall be no pending or threatened order, decree or
injunction, of a court or agency of competent jurisdiction which enjoins or
prohibits, or seeks to enjoin or prohibit, the consummation of any of the
Transactions. There shall be no legislative, statutory or regulatory action
(whether federal or state) pending which prohibits or threatens to prohibit
consummation of the Transactions or which otherwise materially adverse affect
the Transactions. Each of Buyer and Seller shall have received, from counsel
reasonably satisfactory to it, an opinion reasonably satisfactory in form and
substance to it to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code and that no
gain or loss will be recognized by the stockholders of Seller who receive solely
Buyer Common Stock in exchange for shares of Seller Common Stock, except with
respect to cash received in lieu of fractional shares of Buyer Common Stock. The
shares of Buyer Common Stock which shall be issued to the holders of Seller
Common Stock (and where applicable, Seller Stock Options) upon consummation of
the Merger shall have been authorized for listing on the NYSE, subject to
official notice of issuance. Buyer and Seller shall have received a letter, in
form and substance reasonably satisfactory to each, from the Buyer Auditors,
dated the date of the Proxy Statement and confirmed in writing at the Effective
Time, stating that the Merger will qualify as a pooling of interests transaction
under Opinion 16 of the Accounting Principles Board, the interpretive releases
issued pursuant thereto and the pronouncements of the SEC thereon.
6.2 Conditions to Obligations of Seller To Effect the Merger. The obligations of
Seller to effect the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following additional conditions:
Representations and Warranties. The representations and warranties of Buyer set
forth in Article III of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time (as
though made on and as of the Effective Time except (i) to the extent such
representations and warranties are by their express provisions made as of a
specified date or period and (ii) for the effect of transactions contemplated by
this Agreement) and Seller shall have received a certificate of the chief
financial officer of Buyer to that effect. Performance of Obligations. Buyer
shall have performed in all material respects all obligations required to be
performed by it under this Agreement prior to the Effective Time, and Seller
shall have received a certificate of the chief financial officer of Buyer to
that effect.
6.3 Conditions to Obligations of Buyer To Effect the Merger. The
obligations of Buyer to effect the Merger shall be subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional conditions:
Representations and Warranties. The representations and warranties of Seller set
forth in Article II of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time (as
though made on and as of the Effective Time except (i) to the extent such
representations and warranties are by their express provisions made as of a
specific date or period and (ii) for the effect of transactions contemplated by
this Agreement) and Buyer shall have received a certificate of the chairman or
president of Seller to that effect. Performance of Obligations. Seller shall
have performed in all material respects all obligations required to be performed
by it under this Agreement prior to the Effective Time, and Buyer shall have
received a certificate of the chairman or president of Seller to that effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after any requisite stockholder approval: by
mutual consent by the Executive Committee of the Board of Directors of Buyer and
the Board of Directors of Seller; by the Executive Committee of the Board of
Directors of Buyer or the Board of Directors of Seller at any time after the
date that is twelve months after the date of this Agreement if the Merger shall
not theretofore have been consummated (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained herein which has resulted in the delay in performance of
this Agreement); by the Executive Committee of the Board of Directors of Buyer
or the Board of Directors of Seller if (i) the Board has denied approval of the
Merger and such denial has become final and nonappealable or (ii) stockholders
of Seller shall not have approved this Agreement at the Meeting provided that
Seller has not breached its obligation under Section 5.3; by the Executive
Committee of the Board of Directors of Buyer in the event of a material breach
by Seller of any representation, warranty, covenant or other agreement contained
in this Agreement, which breach is not cured within 30 days after written notice
thereof to Seller by Buyer; by the Board of Directors of Seller in the event of
a material breach by Buyer of any representation, warranty, covenant or other
agreement contained in this Agreement, which breach is not cured within 30 days
after written notice thereof is given to Buyer by Seller; or by the Board of
Directors of Seller, upon written notice to Buyer at any time during the ten-day
period commencing two days after the Determination Date (as defined below), if
both of the following conditions are satisfied:
The Average Closing Price shall be less than the product of 0.80
and the Starting Price; and
(A) the quotient obtained by dividing the Average Closing
Price by the Starting Price shall be less than (B) the
quotient obtained by dividing the Average Index Price
by the Index Price on the Starting Date and subtracting
0.15 from the quotient in this clause (ii)(B);
subject, however, to the following provisions. If Seller elects to exercise its
termination right pursuant to the immediately preceding sentence, it shall give
prompt written notice to Buyer; provided, however, that such notice of election
to termination may be withdrawn at any time within the aforementioned ten-day
period.
For purposes of this Section 7.1(f), the following terms shall
have the meanings indicated:
"Average Closing Price" means the average of the daily closing
prices of Buyer Common Stock as reported on the NYSE composite tape (as reported
in The Wall Street Journal or, if not reported therein, in another mutually
agreed upon authoritative source) for the ten consecutive full trading days in
which such shares are traded on the NYSE ending at the close of trading on the
Determination Date.
"Average Index Price" means the average of the Index Prices
for the ten consecutive full trading days ending at the close of trading on the
Determination Date.
"Determination Date" means the date on which the approval of
the Board required for consummation of the Merger shall be received.
"Index Group" means the 22 bank holding companies listed
below, the common stocks of all of which shall be publicly traded and as to
which there shall not have been, since the Starting Date and before the
Determination Date, an announcement of a proposal for such company to be
acquired or for such company to acquire another company or companies in
transactions with a value exceeding 25% of the acquiror's market capitalization
as of the Starting Date. In the event that the common stock of any such company
ceases to be publicly traded or any such announcement is made with respect to
any such company, such company shall be removed from the Index Group, and the
weights (which have been determined based on the number of outstanding shares of
common stock) redistributed proportionately for purposes of determining the
Index Price. The 22 bank holding companies and the weights attributed to them
are as follows:
Holding Company Weighting (%)
NationsBank Corp. 11.576
BankAmerica Corp. 9.676
Chase Manhattan Corp. 9.615
Banc One Corp. 6.422
First Union Corp. 5.924
Norwest Corp. 5.110
US Bancorp 4.958
Wells Fargo & Co. 4.918
First Chicago NBD 4.401
J.P. Morgan 4.022
National City Corp. 3.938
Bank New York 3.883
Fleet Financial Group 3.729
PNC Bank Corp. 3.003
Mellon Bank Corp. 2.833
Wachovia Corp. 2.803
KeyCorp 2.769
BankBoston Corp. 2.639
SunTrust Banks 2.551
Bankers Trust New York 2.027
Comerica Inc. 1.765
Summit Bancorp 1.438
"Index Price" on a given date means the weighted average
(weighted in accordance with the factors listed above) of the closing prices on
such date of the companies comprising the Index Group.
"Starting Date" means the last full day on which the NYSE was
open for trading prior to the execution of this Agreement.
"Starting Price" shall mean the closing price per share of
Buyer Common Stock on the Starting Date, as reported on the NYSE composite tape
(as reported in The Wall Street Journal or, if not reported therein, in another
mutually agreed upon authoritative source).
If Buyer or any company belonging to the Index Group declares
or effects a stock dividend, reclassification, recapitalization, slit-up,
combination, exchange of shares or similar transaction between the Starting Date
and the Determination Date, the prices for the common stock of such company
shall be appropriately adjusted for the purposes of applying this Section
7.1(f).
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Sections 7.1(a) through 7.1(c) and Section 7.1(f) above, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Buyer or Seller or their respective officers or
directors except as set forth in the second sentence of Section 5.1 and in
Section 5.6.
7.3 Amendment. This Agreement and the Schedules hereto may be
amended by the parties hereto, by action taken by or on behalf of their
respective Boards of Directors, at any time before or after approval of this
Agreement by the stockholders of Seller; provided, however, that after any such
approval by the stockholders of Seller no such modification shall alter or
change the amount or kind of consideration to be received by holders of Seller
Common Stock as provided in this Agreement. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of Buyer and Seller
7.4 Severability. Any term, provision, covenant or restriction contained in
this Agreement held by a court or a Regulatory Authority of competent
jurisdiction or the Board to be invalid, void or unenforceable, shall be
ineffective to the extent of such invalidity, voidness or unenforceability, but
neither the remaining terms, provisions, covenants or restrictions contained in
this Agreement nor the validity or enforceability thereof in any other
jurisdiction shall be affected or impaired thereby. Any term, provision,
covenant or restriction contained in this Agreement that is so found to be so
broad as to be unenforceable shall be interpreted to be as broad as is
enforceable.
7.5 Waiver. Any term, condition or provision of this Agreement
may be waived in writing at any time by the party which is, or whose
stockholders are, entitled to the benefits thereof.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. No investigation
by the parties hereto made heretofore or hereafter shall affect the
representations and warranties of the parties which are contained herein and
each such representation and warranty shall survive such investigation. Except
as set forth below in this Section 8.1, all representations, warranties and
agreements in this Agreement of Buyer and Seller or in any instrument delivered
by Buyer or Seller pursuant to or in connection with this Agreement shall expire
at the Effective Time or upon termination of this Agreement in accordance with
its terms or, in the case of any other such instrument, in accordance with the
terms of such instrument. In the event of consummation of the Merger, the
agreements contained in or referred to in Sections 5.2(b), 5.7, 5.9, 5.10, 5.11,
5.12 and 5.18 shall survive the Effective Time. In the event of termination of
this Agreement in accordance with Sections 7.1(a), 7.1(b), 7.1(c) or 7.1(f), the
agreements contained in or referred to in the second sentence of Section 5.1,
Section 5.6 and Section 7.2 shall survive such termination.
8.2 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed to be duly received (i) on the date given if delivered
personally or (ii) upon confirmation of receipt, if by facsimile transmission
or (iii) on the date received if mailed by registered or certified mail (return
receipt requested), or (iv) on the business date after being delivered to a
reputable overnight delivery service, if by such service, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) if to Buyer:
Star Banc Corporation
425 Walnut Street
Cincinnati, Ohio 45202
Attention: David Moffett
Telecopy: (513) 632-4279
Copies to:
Star Banc Corporation
425 Walnut Street
Cincinnati, Ohio 45202
Attention: Jennie Carlson
Telecopy: (513) 632-4279
(ii) if to Seller:
Trans Financial, Inc.
500 East Main Street
Bowling Green, Kentucky 42101
Attention: Vince A Berta
Telecopy: (502) 782-4912
Copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Telecopy: (212) 403-2000
8.3 Miscellaneous. This Agreement (including the Schedules and other written
documents referred to herein or provided hereunder) (i) constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the subject
matter hereof, including any confidentiality agreement between the parties
hereto, (ii) except with respect to Sections 5.9(c) and 5.12 is not intended to
confer upon any person not a party hereto any rights or remedies hereunder,
(iii) shall not be assigned by operation of law or otherwise and (iv) shall be
governed in all respects by the laws of the State of Ohio, except as otherwise
specifically provided herein or required by the KBCA. This Agreement may be
executed in counterparts which together shall constitute a single agreement and
may be delivered by facsimile.
<PAGE>
IN WITNESS WHEREOF, Buyer and Seller have caused this
Agreement to be signed as of the date first written above.
STAR BANC CORPORATION
By: /s/ Jerry A. Grundhofer
Name: Jerry A. Grundhofer
Title: Chairman, President and Chief
Executive Officer
TRANS FINANCIAL, INC.
By: /s/ Vince A. Berta
Name: Vince A. Berta
Title: President and Chief
Executive Officer
Exhibit 2.2.
STOCK OPTION AGREEMENT, dated April 9, 1998, between Trans
Financial, Inc., a Kentucky corporation ("Issuer"), and Star Banc Corporation,
an Ohio corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), which agreement
has been executed by the parties hereto immediately prior to this Stock Option
Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 2,331,962 fully paid and nonassessable shares of Issuer's Common Stock, no
par value per share ("Common Stock"), at a price of $46.625 per share (the
"Option Price"); provided, however, that in no event shall the number of shares
of Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving effect to
any shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement or as permitted under the terms
of the Merger Agreement) or (ii) redeemed, repurchased, retired or otherwise
cease to be outstanding after the date of the Agreement, the number of shares of
Common Stock subject to the Option shall be increased or decreased, as
appropriate, so that, after such issuance, such number equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if, both an
Initial Triggering Event (as hereinafter defined) and a Subsequent Triggering
Event (as hereinafter defined) shall have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined), provided that the Holder
shall have sent the written notice of such exercise (as provided in subsection
(e) of this Section 2) within 90 days following such Subsequent Triggering
Event. Each of the following shall be an "Exercise Termination Event": (i) the
Effective Time (as defined in the Merger Agreement) of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions thereof if
such termination occurs prior to the occurrence of an Initial Triggering Event
except a termination by Grantee pursuant to Section 7.1(d) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of termination
is non-volitional); or (iii) the passage of 12 months after termination of the
Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a termination by Grantee pursuant to Section 7.1(d) of
the Merger Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional) (provided that if an Initial Triggering Event
continues or occurs beyond such termination and prior to the passage of such
12-month period, the Exercise Termination Event shall be 12 months from the
expiration of the Last Triggering Event but in no event more than 18 months
after such termination). The "Last Triggering Event" shall mean the last Initial
Triggering Event to expire. The term "Holder" shall mean the holder or holders
of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person"
for purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations thereunder)
other than Grantee or any of its Subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended
that the stockholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "Acquisition Transaction"
shall mean (w) a merger or consolidation, or any similar transaction,
involving Issuer or any Significant Subsidiary (as defined in Rule 1-02
of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC")) of Issuer, (x) a purchase, lease or other acquisition or
assumption of all or a substantial portion of the assets or deposits of
Issuer or any Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of securities representing 10% or more of the voting
power of Issuer, or (z) any substantially similar transaction;
provided, however, that in no event shall any merger, consolidation,
purchase or similar transaction involving only the Issuer and one or
more of its Subsidiaries or involving only any two or more of such
Subsidiaries, be deemed to be an Acquisition Transaction, provided that
any such transaction is not entered into in violation of the terms of
the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or the Board of Directors of
Issuer shall have publicly withdrawn or modified, or publicly announced
its intention to withdraw or modify, in any manner adverse to Grantee,
its recommendation that the stockholders of Issuer approve the
transactions contemplated by the Merger Agreement in anticipation of
engaging in an Acquisition Transaction;
(iii) Any person other than Grantee or a trustee holding on
behalf of an employee benefit plan of the Issuer, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in
the ordinary course of its business shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more
of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its stockholders by
public announcement or written communication that is or becomes the
subject of public disclosure to engage in an Acquisition Transaction;
(v) After an overture is made by a third party to Issuer or
its stockholders to engage in an Acquisition Transaction, Issuer shall
have breached any covenant or obligation contained in the Merger
Agreement and such breach (x) would entitle Grantee to terminate the
Merger Agreement and (y) shall not have been cured prior to the Notice
Date (as defined below); or
(vi) Any person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction to which Grantee has given
its prior written consent, shall have filed an application or notice
with the Federal Reserve Board, or other federal or state bank
regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described
in paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing Date"); provided that
if prior notification to or approval of the Federal Reserve Board or any other
regulatory agency is required in connection with such purchase, the Holder shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer a copy of this Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain,
free from preemptive rights, sufficient authorized but unissued or treasury
shares of Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. ' 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956, as
amended (the "BHCA"), or the Change in Bank Control Act of 1978, as amended, or
any state banking law, prior approval of or notice to the Federal Reserve Board
or to any state regulatory authority is necessary before the Option may be
exercised, cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
state regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Stock Option Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, option exercise, exchanges of shares, distributions on or in
respect of the Common Stock that would be prohibited under the terms of the
Merger Agreement, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any such
transaction to provide for such proper adjustment and the full satisfaction of
the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 90 days of such Subsequent Triggering Event (whether on
its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the 1933 Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reasonable best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The foregoing notwithstanding,
if, at the time of any request by Grantee for registration of the Option or
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase
Event (as defined below), (i) following a request of the Holder, delivered prior
to an Exercise Termination Event, Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the Market/Offer Price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered within 90 days of such
occurrence (or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner shall
designate at a price (the "Option Share Repurchase Price") equal to the
Market/Offer Price multiplied by the number of Option Shares so designated. The
term "Market/Offer Price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been made
and not withdrawn prior to acceptance of such shares, (ii) the price per share
of Common Stock to be paid by any third party pursuant to an agreement with
Issuer, (iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice of the
required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or a substantial portion of Issuer's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to the Issuer, divided by the number of shares of Common Stock of
Issuer outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm selected by the Holder or Owner,
as the case may be, and reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof, if any,
that Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to the Holder and/or the
Owner, as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this Section 7
is prohibited under applicable law or regulation from delivering to the Holder
and/or the Owner, as appropriate, the Option Repurchase Price and the Option
Share Repurchase Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals and
to file any required notices, in each case as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisos to Section 2(b)(i) hereof or (ii) upon the acquisition
by any person of beneficial ownership of 50% or more of the then outstanding
shares of Common Stock, provided that no such event shall constitute a
Repurchase Event unless a Subsequent Triggering Event shall have occurred prior
to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or merge
into any person, other than Grantee or one of its Subsidiaries, and shall not be
the continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its Subsidiaries, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding voting shares
and voting share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that controls
the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of Substitute Common
Stock on the day preceding such consolidation, merger or sale; provided
that if Issuer is the issuer of the Substitute Option, the Average
Price shall be computed with respect to a share of common stock issued
by the person merging into Issuer or by any company which controls or
is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to (x) the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise price
of the Substitute Option, multiplied by the number of shares of Substitute
Common Stock for which the Substitute Option may then be exercised plus (y)
Grantee's reasonable out-of-pocket expenses (to the extent not previously
reimbursed), and at the request of the owner (the "Substitute Share Owner") of
shares of Substitute Common Stock (the "Substitute Shares"), the Substitute
Option Issuer shall repurchase the Substitute Shares at a price (the "Substitute
Share Repurchase Price") equal to (x) the Highest Closing Price multiplied by
the number of Substitute Shares so designated plus (y) Grantee's reasonable
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable, and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals, in each case as promptly as
practicable, in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under
Sections 2, 6, 7 and 13 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and except for limitations on voting rights contained in the
certificate of incorporation, will be delivered free and clear of all claims,
liens, encumbrance and security interests and not subject to any preemptive
rights.
12. Grantee hereby represents and warrants to Issuer
that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10); provided, however, that until the date 15 days
following the date on which the Federal Reserve Board approves an application by
Grantee under the BHCA to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting shares of
Issuer, (iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making notification
or application to list the shares of Common Stock issuable hereunder on the
Nasdaq National Market System upon official notice of issuance and applying to
the Federal Reserve Board under the BHCA for approval to acquire the shares
issuable hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
15. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
21. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
STAR BANC CORPORATION
By: /s/ Jerry A. Grundhofer
Name: Jerry A. Grundhofer
Title: Chairman, President
and Chief Executive
Officer
TRANS FINANCIAL, INC.
By: /s/Vince A. Berta
Name: Vince A. Berta
Title: President and Chief
Executive Officer
Exhibit 10.
TRANS FINANCIAL, INC.
1998 STOCK INCENTIVE PLAN
Trans Financial, Inc. hereby establishes this 1998 Stock Incentive Plan
to promote the interests of the Company by affording an incentive to certain key
employees to remain in the employ of the Company and its Subsidiaries; to use
their best efforts on its behalf and to associate their interests with those of
the Company's shareholders, resulting in increased shareholder value through
profitable growth; and to aid the Company and its Subsidiaries in attracting,
maintaining, and developing capable personnel of a caliber required to ensure
the continued success of the Company and its Subsidiaries.
Section 1 - Definitions
1.1 Award. The term "Award" includes, without limitation, stock options
(including incentive stock options under Section 422 of the Code), stock
appreciation rights, restricted and performance shares, restricted and
performance share units, Performance Stock Awards, dividend or equivalent
rights, or other awards that are valued in whole or in part by reference to, or
are otherwise based on, the Common Stock ("other Common Stock-based Awards"),
all on a stand alone, combination or tandem basis, as described in or granted
under this Plan.
1.2 Award Agreement. The term "Award Agreement" means a written
agreement entered into between the Company and a Participant setting forth the
terms and conditions of an Award made to such Participant under this Plan, in
the form prescribed by the Plan Committee.
1.3 Board. The term "Board" means the Board of Directors
of the Company.
1.4 Business Combination. The term "Business Combination" means any
business combination between the Company or a Subsidiary and any entity other
than the Company or a Subsidiary, that does not constitute a Change in Control
but which the Company intends to reflect as a pooling of interests for
accounting purposes.
1.5 Change in Control. The term "Change in Control" means: (i) any
share exchange or merger or consolidation to which the Company or a Significant
Subsidiary of the Company is a party, or any purchase or other acquisition of
substantially all the business or assets of the Company or any Significant
Subsidiary in any transaction or series of transactions, by another corporation
or entity, if there will be a 25% change in the proportionate ownership of
outstanding shares of voting stock of the Company as a result of the
transactions contemplated by such plan or agreement of exchange, merger,
consolidation or sale of assets; (ii) any person (as that term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than a Subsidiary of the
Company, any employee benefit plan of the Company or any of its Subsidiaries, or
any person holding Common Stock for or pursuant to the terms of any such
employee benefit plan, is or becomes the beneficial owner (as that term is used
in Section 13(d) of the Exchange Act) of stock of the Company entitled to cast
more than 20% of the votes at the time entitled to be cast generally for the
election of directors; (iii) more than 50% of the members of the Board of
Directors shall not be Continuing Directors (which term, as used herein, means
the directors of the Company (A) who were members of the Board of Directors on
January 1, 1998, or (B) who subsequently became directors of the Company by a
vote of a majority of the Continuing Directors then on the Board of Directors,
or whose election or nomination for election by the Company's stockholders was
approved by a vote of a majority of the Continuing Directors then on the Board
of Directors); or (iv) the Board of Directors or the shareholders of the Company
approve, adopt, agree to recommend, or accept any agreement, contract, offer or
other arrangement providing for, or any series of transactions resulting in, any
of the transactions described above.
1.6 Code. The term "Code" means the Internal Revenue Code of
1986, as amended from time to time.
1.7 Common Stock. The term "Common Stock" means the Company's
common stock or the common stock or securities of a Successor that have been
substituted therefor.
1.8 Company. The term "Company" means Trans Financial, Inc., a Kentucky
corporation, with its principal place of business at 500 East Main Street,
Bowling Green, Kentucky 42101.
1.9 Employee. The term "Employee" means an employee of the
Company or of a Subsidiary.
1.10 ERISA. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
1.11 Exchange Act. The term "Exchange Act" means the Securitie
Exchange Act of 1934, and the rules and regulations promulgated thereunder,
as amended.
1.12 Fair Market Value. The term "Fair Market Value" means the closing
transaction price for the Common Stock in the over-the-counter market, as
reported by the National Association of Securities Dealers Automated Quotation
System National Market, on the trading day immediately preceding the date for
which the Fair Market Value is to be determined. If there were no transactions
in the Common Stock on such date, then the Fair Market Value shall mean the
average of the closing bid and ask quotations in the over-the-counter market on
such date, as reported by the National Association of Securities Dealers
Automated Quotation System National Market.
1.13 Negative Discretion. The term "Negative Discretion" means other
factors to be applied by the Plan Committee in reducing the number of shares or
other compensation to be issued pursuant to an Award if the Performance Goals
with respect to that Award have been met or exceeded, if, in the Plan
Committee's sole judgment, such application is appropriate in order to act in
the best interest of the Company and its shareholders. The Negative Discretion
factors may include, but are not limited to, the achievement of measurable
individual performance objectives established by the Plan Committee, and
competitive pay practices.
1.14 Participant. The term "Participant" means an Employee who
has been granted an Award under this Plan.
1.15 Performance Goals. The term "Performance Goals" means, with
respect to any Performance Period, performance goals based on any of the
following criteria: earnings or earnings growth; return on equity, assets or
investment; revenues; expenses; stock price; market share; charge-offs;
reductions in non-performing assets; or any combination of the foregoing. Such
Performance Goals may be particular to an Employee, and may be based on (i) the
performance of the Employee; (ii) the performance of the division, department,
branch, line of business, Subsidiary or other unit in which the Employee works;
(iii) the performance of the Company generally; or (iv) a combination of any of
the foregoing.
1.16 Performance Period. The term "Performance Period" means the
period of time designated by the Plan Committee applicable to an Award during
which the Performance Goals for that Award shall be measured.
1.17 Performance Stock Award. The term "Performance Stock
Award" shall have the meaning specified in Section 5.7.
1.18 Plan. The term "Plan" means the Trans Financial, Inc. 1998
Stock Incentive Plan, as set forth herein, and as amended from time to time.
1.19 Plan Committee. The term "Plan Committee" means the
committee appointed by the Board pursuant to Section 3.
1.20 Plan Year. The term "Plan Year" means a twelve-month period
beginning with January 1 of each year.
1.21 Reporting Person. The term "Reporting Person" means an
Employee subject to the reporting requirements of Section 16 of the Exchange
Act.
1.22 Significant Subsidiary. The term "Significant Subsidiary" means
any Subsidiary which meets either of the following: (i) the assets of the
Subsidiary exceed 40% of the total consolidated assets of the Company as of the
end of the most recently completed fiscal year; or (ii) the Subsidiary's income
from continuing operations before income taxes and extraordinary items exceeds
40% of the consolidated income of the Company as of the most recently completed
fiscal year.
1.23 Subsidiary. The word "Subsidiary" or "Subsidiaries" means, as
defined in Code Section 424(t), any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
granting of an Award under the Plan, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock of one of the other
corporations in such chain.
1.24 Successor. The word "Successor" means the entity surviving a
merger or consolidation with the Company, or the entity that acquires all or a
substantial portion of the Company's assets or outstanding capital stock
(whether by merger, purchase or otherwise).
Section 2 - Shares Subject To Plan
2.1 Shares. The shares of Common Stock subject to the provisions of
this Plan shall either be shares of authorized but unissued Common Stock, shares
of Common Stock held as treasury stock, or previously issued shares of Common
Stock reacquired by the Company, including shares purchased on the open market.
2.2 Aggregate Number of Shares Available for Award. Subject to
adjustment in accordance with the provisions of Section 9, the aggregate number
of shares of Common Stock available for grant of Awards under the Plan shall be
150,000. For purposes of calculating the aggregate number of shares of Common
Stock subject to Awards already granted, the following shares shall not be
included: (i) shares of Common Stock represented by Awards which have been
canceled, forfeited, surrendered, terminated or expired unexercised at the time
of such calculation; and (ii) the excess amount of variable Awards which have
become fixed at less than their maximum limitations at the time of such
calculation.
2.3 Number of Shares Available for Award Each Plan Year. Subject to
adjustment in accordance with the provisions of Section 9, and subject to
Section 2.4, (i) the total number of shares of Common Stock available for grants
of Awards (including, without limitation, Awards of restricted and performance
shares) in any Plan Year shall not exceed one-half of one percent of the
outstanding Common Stock as reported as of year-end in the Company's Annual
Report on Form 10-K for the fiscal year ending immediately prior to such Plan
Year; and (ii) the total number of shares of Common Stock available for grants
of restricted and performance shares (including shares to be issued pursuant to
Performance Stock Awards) in any Plan Year shall not exceed one-fourth of one
percent of the outstanding Common Stock as reported as of year-end in the
Company's Annual Report on Form 10-K for the fiscal year ending immediately
prior to such Plan Year.
2.4 Additional Available Shares. There shall be available for Awards
under this Plan in each Plan Year, in addition to shares of Common Stock
available for grant under Section 2.3, all of the following: (i) any unused
portion of the limit set forth in Section 2.3 for the two immediately preceding
Plan Years; (ii) shares of Common Stock represented by Awards which have been
canceled, forfeited, surrendered, terminated or expire unexercised (A) during
that Plan Year, or (B) during the two immediately preceding Plan Years to the
extent such shares have not been used during such two immediately preceding Plan
Years; and (iii) the excess amount of variable Awards which become fixed at less
than their maximum limitations (A) during that Plan Year, or (B) during the two
immediately preceding Plan Years to the extent such shares have not been used
during such two immediately preceding Plan Years.
2.5 Shares Available for Award to One Participant. Subject to
adjustment in accordance with Section 9, (i) the total number of shares of
Common Stock available for grants of Awards in any Plan Year to any one Employee
shall not exceed one-fourth of one percent of the outstanding Common Stock as
reported as of year-end in the Company's Annual Report on Form 10-K for the
fiscal year ending immediately prior to such Plan Year; (ii) the total number of
shares of Common Stock available for (A) grants of restricted and performance
shares and (B) grants of Performance Stock Awards to be issued in any Plan Year
to any one Employee shall not exceed one-eighth of one percent of the
outstanding Common Stock as reported as of year-end in the Company's Annual
Report on Form 10-K for the fiscal year ending immediately prior to such Plan
Year, and (iii) the total number of shares of Common Stock available for grants
of stock options (including Incentive Stock Options) to be issued in any Plan
Year to any one Employee shall not exceed 25,000.
2.6 Calculation of Available Shares. For purposes of calculating the
total number of shares of Common Stock available for grants of Awards, (i) the
grant of a performance or restricted share unit Award shall be deemed to be
equal to the maximum number of shares of Common Stock which may be issued under
the Award; and (ii) where the value of an Award is variable on the date it is
granted, the value shall be deemed to be the maximum limitation of the Award.
Awards payable solely in cash will not reduce the number of shares of Common
Stock available for Awards granted under this Plan.
Section 3 - Administration
3.1 Plan Committee. The Plan shall be administered by the Plan
Committee, whose membership shall be determined and reviewed from time to time
by the Board of Directors. The Plan Committee shall consist of not less than two
members of the Board of Directors. The Plan Committee shall periodically make
determinations with respect to the participation of Employees in this Plan and,
except as otherwise required by law or this Plan, the grant terms of Awards
including vesting schedules, price, performance standards (including Performance
Goals), length of relevant performance, restriction or option period, dividend
rights, post-retirement and termination rights, payment alternatives such as
cash, stock, contingent awards or other means of payment consistent with the
purposes of this Plan, and such other terms and conditions as the Plan Committee
deems appropriate. The Plan Committee shall have full power and authority to
construe, interpret, and administer the Plan and may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem proper and
in the best interests of the Company. The interpretation of any provisions of
the Plan by the Plan Committee shall be final, conclusive, and binding upon all
persons, and the officers of the Company shall place into effect and shall cause
the Company to perform its obligations under the Plan in accordance with the
determinations of the Plan Committee in administering the Plan. The decision of
a majority of the members of the Plan Committee shall constitute the decision of
the Plan Committee and the Plan Committee may act either at a meeting at which a
majority of the members of the Plan Committee is present, or by a writing signed
by all of the members of the Plan Committee.
3.2 Delegation. The Plan Committee may delegate to one or more persons
other than its members, including without limitation any person who is an
officer of the Company, a Participant and/or a Reporting Person, the authority
to carry out the Plan Committee's responsibilities under such conditions or
limitations as the Plan Committee may set, other than the Plan Committee's
authority with regard to granting Awards to Reporting Persons and determining
the satisfaction of conditions or performance goals with respect to Awards
granted to Reporting Persons.
Section 4 - Eligibility
All Employees who, in the opinion of the Plan Committee, are from time
to time materially responsible for the management of the business or have
materially contributed, or will in the future materially contribute, to the
successful performance of the Company or of any of its Subsidiaries, shall be
eligible to be granted Awards under the Plan; provided, however, that no
Employee may be granted options under the Plan if, at the time such options are
granted, the Employee owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of its Subsidiaries.
Section 5 - Awards Under The Plan
As the Plan Committee may determine, the following types of Awards may
be granted under this Plan to Employees on a stand alone, combination or tandem
basis, to the extent permitted by applicable laws and regulations:
5.1 Stock Option. A right to buy a specified number of shares of Common
Stock at a fixed exercise price during a specified time, all as the Plan
Committee may determine; provided that the exercise price of any option shall
not be less than 100% of the Fair Market Value of the Common Stock on the date
of grant of the Award.
5.2 Incentive Stock Option. An award in the form of a stock
option which shall comply with the requirements of Section 422 of the Code
or any successor Section as it may be amended from time to time.
5.3 Stock Appreciation Right. A right to receive the excess of the Fair
Market Value of a share of Common Stock on the date the stock appreciation right
is exercised over the Fair Market Value of a share of Common Stock on the date
the stock appreciation right was granted.
5.4 Restricted and Performance Shares. A transfer of shares of Common
Stock to a Participant, subject to such restrictions on transfer, forfeiture
provisions, or other incidents of ownership, or subject to specified performance
standards, for such periods of time as the Plan Committee may determine.
5.5 Restricted and Performance Share Unit. A fixed or variable share
or dollar denominated unit subject to conditions of vesting, performance and
time of payment as the Plan Committee may determine, which may be paid in shares
of Common Stock, cash or a combination of both.
5.6 Dividend or Equivalent Right. A right to receive dividends
or their equivalent in value in shares of Common Stock, cash or in a
combination of both, with respect to any new or previously existing Award.
5.7 Performance Stock Awards. A right to receive shares (which may
consist of or include restricted shares as defined in Section 5.4) that are not
to be issued to the Employee until after the end of the related Performance
Period, subject to satisfaction of the Performance Goals for such Performance
Period.
5.8 Other Common Stock-Based Awards. Other Common Stock-based
Awards which are related to or serve a similar function to those Awards set
forth in this Section 5.
In addition to granting Awards for purposes of incentive compensation,
Awards may also be made in tandem with or in lieu of current or deferred
Employee compensation.
Section 6 - Performance Stock Awards
6.1 Administration. Performance Stock Awards may be granted either
alone or in addition to other Awards granted under this Plan. The Plan Committee
shall determine the Employees to whom Performance Stock Awards shall be awarded
for any Performance Period, the duration of the applicable Performance Period,
the number of shares to be awarded at the end of a Performance Period to
Employees if the Performance Goals are met or exceeded, and the terms and
conditions of the Performance Stock Award in addition to those contained in this
Section 6.
6.2 Payment of Award. After the end of a Performance Period, the
financial performance of the Company during such Performance Period shall be
measured against the Performance Goals. If the Performance Goals are not met, no
shares shall be issued pursuant to the Performance Stock Award. If the
Performance Goals are met or exceeded, the Plan Committee shall certify that
fact in writing in the Plan Committee minutes or elsewhere and certify the
number of shares to be issued under each Performance Stock Award in accordance
with the related Award Agreement. The Plan Committee may, in its sole
discretion, apply Negative Discretion to reduce the number of shares to be
issued under a Performance Stock Award.
6.3 Requirement of Employment. To be entitled to receive shares or
other compensation pursuant to a Performance Stock Award, an Employee must
remain in the employment of the Company through the end of the Performance
Period, except that the Plan Committee may provide for partial or complete
exceptions to this requirement as it deems equitable in its sole discretion.
Section 7 - Other Terms and Conditions
7.1 Nontransferability. Awards granted hereunder shall not be
transferable by the Participant otherwise than by bequest or the laws of descent
and distribution, and during the lifetime of the Participant shall be
exercisable by or payable to only the Participant. Notwithstanding the
foregoing, an Award Agreement may provide that a Participant may, subject to any
restrictions under Section 16(b) of the Exchange Act and the Award Agreement,
transfer the Award to (i) the Participant's spouse or lineal descendants
("Immediate Family Members"), (ii) trusts for the exclusive benefit of the
Participant and/or his or her Immediate Family Members, or (iii) a partnership
or limited liability company in which the Participant and/or his or her
Immediate Family Members are the only partners or members, as applicable;
provided that (A) there may be no consideration for any such transfer, and (B)
subsequent transfers of any transferred Award shall be prohibited other than by
bequest or the laws of descent and distribution. Following transfer, an Award
shall continue to be subject to the same terms and conditions as were applicable
immediately before the transfer, as modified by any provisions in the Award
Agreement dealing specifically with the Award after transfer.
7.2 Award Agreement. Each Award under this Plan shall be
evidenced by an Award Agreement.
7.3 Rights As A Shareholder. Except as otherwise provided herein or in
any Award Agreement, a Participant shall have no rights as a shareholder with
respect to shares of Common Stock covered by an Award until the date the
Participant or the Participant's nominee (which, for purposes of this Plan,
shall include any third party agent selected by the Plan Committee to hold such
shares on behalf of a Participant), guardian or legal representative is the
holder of record of such shares.
7.4 No Obligation to Exercise. The grant of an Award shall impose
no obligation upon the Participant to exercise the Award.
7.5 Payments by Participants. The Plan Committee may determine that
Awards for which a payment is due from a Participant may be payable: (i) in U.S.
dollars by personal check, bank draft or money order payable to the order of the
Company, by money transfers or direct account debits; (ii) through the delivery
or deemed delivery based on attestation to the ownership of shares of Common
Stock with a Fair Market Value equal to the total payment due from the
Participant; (iii) by a combination of the methods described in (i) and (ii)
above; or (iv) by such other methods as the Plan Committee may deem appropriate.
7.6 Tax Withholding. The Company shall have the right to withhold from
any payments made under this Plan, or to collect as a condition of payment, an
amount sufficient to satisfy all federal, state and local withholding tax
requirements. At any time when a Participant is required to pay to the Company
an amount required to be withheld under applicable income tax laws in connection
with a distribution of shares of Common Stock pursuant to this Plan, the Company
shall have the right to retain shares of Common Stock otherwise distributable,
in an amount sufficient to satisfy such withholding requirements, before
delivery to the Participant of any certificate(s) for shares of Common Stock
7.7 Requirements of Law. The granting of Awards and the issuance of
shares of Common Stock upon the exercise of Awards shall be subject to all
applicable requirements imposed by federal and state securities and other laws,
rules and regulations and by any regulatory agencies having jurisdiction, and by
any stock exchanges upon which the Common Stock may be listed. As a condition
precedent to the issuance of shares of Common Stock pursuant to the grant or
exercise of an Award, the Company may require the Participant to take any
reasonable action to meet such requirements.
Section 8 - Amendments
Except as otherwise provided in this Plan, the Board shall have the
right at any time, and from time to time, to amend, suspend or terminate the
Plan in any respect that it may deem to be in the best interests of the Company,
except that, without approval by the shareholders of the Company holding not
less than a majority of the votes represented and entitled to be voted at a duly
held meeting of the Company's shareholders, no amendment shall be made if
shareholder approval is necessary to continue to qualify the Plan under Rule
16b-3 under the Exchange Act or to maintain the Plan as one under which
Incentive Stock Options may be granted. Any amendment or alteration of the Plan
may be limited to, or may exclude from its effect, any particular class of
Participants. No amendment or alteration of the Plan may, without the consent of
the Participant, make any changes in any outstanding Award theretofore granted
under the Plan which would adversely affect the rights of such Participant.
Section 9 - Recapitalization
The aggregate number of shares of Common Stock as to which Awards may
be granted to Participants, the number of shares thereof covered by each
outstanding Award, and the price per share thereof in each such Award, shall all
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, stock dividend, combination
or exchange of shares, exchange for other securities, reclassification,
reorganization, redesignation, merger, consolidation, recapitalization or other
such change. Any such adjustment may provide for the elimination of fractional
shares.
Section 10 - No Right To Employment
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to be
retained in the employ of the Company or a Subsidiary. Nothing in this Plan
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.
Section 11 - Change in Control
11.1 Acceleration Provisions. Each Award Agreement shall provide that
all applicable performance standards shall be automatically maximized, all
restrictions shall lapse, and any time periods relating to the exercise,
realization or vesting of such Awards shall accelerate, so that such Awards will
be immediately exercised, realized or vested in full on the date of the Change
in Control, or such other date within 90 days of the Change in Control as the
Plan Committee, in its sole discretion, shall provide in the Award Agreement..
11.2 Additional Provisions. The Award Agreements may, in the
sole discretion of the Plan Committee, provide that any or all of the following
shall occur in the event of a Change in Control:
11.2.1 Payment in Cash. Performance shares or performance units may
be paid entirely in cash.
11.2.2 Termination of Employment. If a Participant's employment
terminates for any reason other than retirement or death following a Change in
Control, any Options held by such Participant may be exercised by such
Participant until the earlier of three months after the termination of
employment or the expiration date of such Options.
11.2.3 Cancellation. All Awards become non-cancelable.
11.3 Plan Committee Discretion. Notwithstanding the foregoing, the Plan
Committee may, in its sole discretion, provide in any Award Agreement with
respect to an Award, that (i) if (A) a Change in Control occurs within two years
following adoption of the Plan by the shareholders of the Company or the grant
of the Award, (B) the transaction in which the Change in Control occurs is
intended to be reflected as a pooling of interests for accounting purposes, and
(C) the Board of Directors finds that any of the provisions required or
permitted under Sections 11.1 and 11.2 above would prevent such transaction from
being reflected as a pooling of interests for accounting purposes, or (ii) if
(A) the Company or a Subsidiary engages in a Business Combination within two
years following adoption of the Plan by the shareholders of the Company or the
grant of the Award, (B) the Business Combination is intended to be reflected as
a pooling of interests for accounting purposes, and (C)the Board of Directors
finds that any of the provisions required or permitted under Sections 11.1 and
11.2 above with respect to a subsequent Change in Control would prevent the
Business Combination from being reflected as a pooling of interests for
accounting purposes, then the Board of Directors may declare any or all of the
provisions required or permitted under Sections 11.1 and 11.2 that were included
in the Award Agreement to be null and void with respect to such Award Agreement.
Section 12 - Governing Law
To the extent that federal laws do not otherwise control, this Plan
shall be construed in accordance with and governed by the laws of the
Commonwealth of Kentucky.
Section 13 - Savings Clause
This Plan is intended to comply in all aspects with applicable law and
regulation, including, with respect to those Employees who are Reporting
Persons, Rule 16b-3 under the Exchange Act. In case any one or more of the
provisions of this Plan shall be held invalid, illegal or unenforceable in any
respect under applicable law and regulation (including Rule 16b-3), the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by laws, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan to
be construed in compliance with all applicable laws (including Rule 16b-3) so as
to foster the intent of this Plan. Notwithstanding anything in this Plan to the
contrary, the Plan Committee, in its sole and absolute discretion, may bifurcate
this Plan so as to restrict, limit or condition the use of any provision of this
Plan to Participants who are Reporting Persons without so restricting, limiting
or conditioning this Plan with respect to other Participants.
Section 14 - Effective Date And Term
The effective date of this Plan is January 1, 1998, subject to its
approval by the Company's shareholders at their next annual meeting or at any
adjournment thereof, within twelve months following the date of its adoption by
the Board. This Plan shall terminate on December 31, 2007, and no Awards may be
granted under the Plan after such date, but any Award granted prior thereto
shall be enforced in accordance with its terms.
<PAGE>
EXECUTED as of the 20th day of April, 1998
TRANS FINANCIAL, INC.
By: /s/ Vince A. Berta
Vince A. Berta, Chairman of the
Board, President and Chief
Executive Officer
ATTEST:
/s/ Jay B. Simmons
Jay B. Simmons, Senior Vice President,
General Counsel and Secretary
Exhibit 11.
Statement Regarding Computation of Per Share Earnings
In thousands, except per share amounts
For the three months ended March 31 1998 1997
Diluted earnings per common share:
Average common shares outstanding .... 11,597 11,400
Common stock equivalents ............. 313 245
------- -------
Average shares and share equivalents 11,910 11,645
Net income ............................. $ 6,574 $ 5,548
Diluted net income per share ........... $ 0.55 $ 0.48
Basic earnings per common share:
Average common shares outstanding .... 11,597 11,400
Net income ............................. $ 6,574 $ 5,548
Basic net income per share ............. $ 0.57 $ 0.49
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