SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File Number
June 30, 1998 0-1173
CITY HOLDING COMPANY
(Exact name of registrant as specified in its charter)
West Virginia 55-0619957
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
25 Gatewater Road
Charleston, West Virginia 25313
(Address of principal offices)
Registrant's telephone number, including area code: (304) 769-1100.
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Sections 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 report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes xx No
------ ------
The number of shares outstanding of the issuer's common stock as of August 11,
1998.
Common Stock, $2.50 Par Value - 6,707,276 shares
<PAGE>
Index
City Holding Company and Subsidiaries
This form 10-Q may include forward-looking financial information within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking information is identified
by phrases such as the Company "expects" or "anticipates" and words of similar
effect. The Company's actual results achieved may differ materially from those
projected in the forward-looking information. Factors that could cause such a
difference include, among others: changes in interest rates and economic and
other market conditions generally and in the Company's principal markets;
competition for origination and servicing of mortgage loans, particularly loans
with high loan-to-value ratios or retail originations; disruption of retail
originations; and changes in regulations and government policies affecting banks
and their subsidiaries, including changes in monetary policies. The
forward-looking financial information is provided to assist investors and
Company stockholders in understanding anticipated future financial operations of
the Company and are included pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Further, the Company disclaims
any intent or obligation to update this forward-looking financial information.
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - June 30, 1998 (unaudited)
and December 31, 1997
Consolidated Statements of Income (unaudited) -- Six months
ended June 30, 1998 and 1997 and the three months ended June
30, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity
(unaudited) -- Six months ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows (unaudited) -- Six
months ended June 30, 1998 and 1997
<PAGE>
Notes to Consolidated Financial Statements (unaudited) - June
30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit Index
<PAGE>
PART I. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands)
Item I.
<TABLE>
<CAPTION>
JUNE 30 DECEMBER
1998 1997
----------- --------
(unaudited)
<S> <C>
ASSETS
Cash and due from banks $ 62,111 $ 47,207
Federal funds sold 570 40,028
------------ -------------
CASH AND CASH EQUIVALENTS 62,681 87,235
Securities available for sale, at fair value 166,994 162,912
Loans:
Gross loans 936,161 787,716
Unearned income (6,889) (7,354)
Allowance for possible loan losses (8,680) (7,673)
----------- -----------
NET LOANS 920,592 772,689
Loans held for sale 194,959 134,990
Bank premises and equipment 50,371 36,635
Accrued interest receivable 10,292 8,677
Other assets 95,611 63,005
------------- ------------
TOTAL ASSETS $ 1,501,500 $ 1,266,143
=========== ===========
LIABILITIES
Deposits:
Noninterest-bearing $ 174,707 $ 136,842
Interest-bearing 957,002 801,656
------------- -------------
TOTAL DEPOSITS 1,131,709 938,498
Short-term borrowings 111,974 130,191
Long-term borrowings 81,295 68,400
Other liabilities 20,414 22,799
------------- -------------
TOTAL LIABILITIES 1,345,392 1,159,888
Corporation-obligated mandatorily redeemable
capital securities of subsidiary
trust holding solely subordinated debentures
of City Holding Company ("Trust Preferred
Securities") 30,000 0
STOCKHOLDERS' EQUITY
Preferred stock, par value $25 a share:
Authorized-500,000 shares; none issued
Common stock, par value $2.50 a share: authorized
20,000,000 shares; issued 6,749,785 shares
as of June 30, 1998 and 6,427,309 shares
as of December 31, 1997, including 17,055
and 11,130 shares in treasury at June 30, 1998
and December 31, 1997, respectively. 16,874 16,067
Capital surplus 63,734 48,769
Retained earnings 44,280 40,374
Cost of common stock in treasury (591) (310)
Accumulated other comprehensive income 1,811 1,355
----------- ---------
TOTAL STOCKHOLDERS' EQUITY 126,108 106,255
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,501,500 $ 1,266,143
=========== ===========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
JUNE 30
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C>
INTEREST INCOME
Interest and fees on loans $ 48,982 $ 40,563
Interest on investment securities:
Taxable 4,133 4,456
Tax-exempt 828 974
Other interest income 783 59
-------- --------
TOTAL INTEREST INCOME 54,726 46,052
INTEREST EXPENSE
Interest on deposits 19,374 15,851
Interest on short-term borrowings 3,475 3,479
Interest on long-term debt 3,409 1,252
---------- --------
TOTAL INTEREST EXPENSE 26,258 20,582
NET INTEREST INCOME 28,468 25,470
PROVISION FOR POSSIBLE LOAN LOSSES 1,201 828
--------- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 27,267 24,642
OTHER INCOME
Investment securities gains 16 11
Service charges 2,392 2,086
Mortgage loan servicing fees 8,009 5,352
Net origination fees on junior mortgages 6,217 0
Gain on sale of loans 7,333 993
Other 8,029 1,457
-------- ---------
TOTAL OTHER INCOME 31,996 9,899
OTHER EXPENSES
Salaries and employee benefits 19,402 13,991
Occupancy, excluding depreciation 2,644 1,753
Depreciation 3,661 2,253
Advertising 9,119 724
Other expenses 14,375 6,471
---------- ---------
TOTAL OTHER EXPENSES 49,201 25,192
INCOME BEFORE INCOME TAXES 10,062 9,349
INCOME TAXES 3,650 3,345
--------- ---------
NET INCOME $ 6,412 $ 6,004
===== =====
Basic earnings per common share $ 0.97 $ 0.99
====== =====
Diluted earnings per common share $ 0.96 $ 0.99
======= =====
Average common shares outstanding:
Basic 6,589,368 6,069,192
========== ==========
Diluted 6,640,059 6,079,500
========== ==========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
JUNE 30
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C>
INTEREST INCOME
Interest and fees on loans $ 25,796 $ 21,907
Interest on investment securities:
Taxable 2,033 2,289
Tax-exempt 416 488
Other interest income 572 3
-------- ---------
TOTAL INTEREST INCOME 28,817 24,687
INTEREST EXPENSE
Interest on deposits 10,516 8,147
Interest on short-term borrowings 1,500 2,217
Interest on long-term debt 1,934 660
---------- --------
TOTAL INTEREST EXPENSE 13,950 11,024
NET INTEREST INCOME, 14,867 13,663
PROVISION FOR POSSIBLE LOAN LOSSES 681 440
--------- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 14,186 13,223
OTHER INCOME
Investment securities gains (losses) 6 (17)
Service charges 1,267 1,138
Mortgage loan servicing fees 4,126 2,570
Net origination fees on junior mortgages 4,071 0
Gain on sale of loans 4,775 183
Other 4,855 868
-------- -------
TOTAL OTHER INCOME 19,100 4,742
OTHER EXPENSES
Salaries and employee benefits 10,394 7,324
Occupancy, excluding depreciation 1,475 900
Depreciation 1,979 1,138
Advertising 6,022 400
Other expenses 8,239 3,317
--------- ---------
TOTAL OTHER EXPENSES 28,109 13,079
INCOME BEFORE INCOME TAXES 5,177 4,886
INCOME TAXES 1,878 1,711
--------- ---------
NET INCOME $ 3,299 $ 3,175
======= ======
Basic earnings per common share $ 0.49 $ 0.52
======= ======
Diluted earnings per common share $ 0.48 $ 0.52
======= ======
Average common shares outstanding:
Basic 6,728,456 6,069,161
========== ==========
Diluted 6,833,634 6,080,173
========== ==========
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (unaudited)
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS STOCK INCOME EQUITY
-------------------------------------------------------------------
<S> <C>
Six Months Ended June 30,
1998
Balances at December 31,
1997 $ 16,067 $48,769 $ 40,374 ($310) $ 1,355 $106,255
Comprehensive Income:
Net income 6,412 6,412
Other comprehensive
income, net of tax:
Unrealized holding gain
on securities arising
during the period 466 466
Less: reclassification
adjustment for gains
realized in net income (10) (10)
Other comprehensive ------------ -------------
income 456 456
-------------
Comprehensive Income 6,868
Cash Dividends
Declared ($.38/share) (2,506) (2,506)
Purchase of 5,925 shares
of treasury stock (281) (281)
Common stock issued in
acquisitions 807 14,965 15,772
-------------------------------------------------------------------
Balances at June 30, 1998 $ 16,874 $63,734 $ 44,280 ($591) $ 1,811 $ 126,108
-------------------------------------------------------------------
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK SURPLUS EARNINGS STOCK INCOME EQUITY
-------------------------------------------------------------------
<S> <C>
Six Months Ended June 30,
1997
Balances at December 31,
1996 $13,998 $35,426 $ 30,246 ($300) $ 3 $79,373
Comprehensive Income:
Net income 6,004 6,004
Other comprehensive
income, net of tax:
Unrealized gains on
securities 555 555
-----------
Comprehensive Income 6,559
Cash Dividends (2,186) (2,186)
Declared ($.36/share)
Exercise of 2,627 stock
options 7 58 65
Sale of 2,511 shares of
treasury stock 13 67 80
Purchase of 2,300 shares
of treasury stock (77) (77)
Issuance of stock for Old
National Bank
of Huntington 1,202 298 2,150 19 3,669
-------------------------------------------------------------------
Balances at June 30, 1997 $15,207 $35,795 $36,214 ($310) $ 577 $ 87,483
-------------------------------------------------------------------
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CITY HOLDING COMPANY AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED
JUNE 30
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C>
OPERATING ACTIVITIES
Net Income $ 6,412 $ 6,004
Adjustments to reconcile net income to net cash
used in operating activities:
Net amortization 885 493
Provision for depreciation 3,661 2,261
Provision for possible loan losses 1,201 828
Loans originated for sale (225,403) (58,357)
Purchases of loans held for sale (408,047) (301,971)
Proceeds from loans sold 580,814 343,561
Realized gains on loans sold (7,333) (993)
Realized investment securities gains (16) (11)
Increase in accrued interest receivable (1,023) (517)
Increase in other assets (22,410) (2,011)
Increase (decrease) in other liabilities (5,439) 1,424
------- -----------
NET CASH USED IN OPERATING ACTIVITIES (76,698) (9,289)
INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 9,196 17,134
Proceeds from maturities of securities available for
sale 43,096 20,095
Purchases of securities available for sale (52,418) (44,425)
Proceeds from maturities and calls of investment
securities 0 1,863
Net increase in loans (40,503) (36,702)
Net cash acquired in acquisitions 2,454 9,126
Purchases of premises and equipment (16,162) (1,940)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (54,337) (34,849)
FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits 37,661 4,349
Net increase in interest-bearing deposits 52,982 23,443
Net (decrease) increase in short-term borrowings (18,273) 11,093
Proceeds from long-term debt 34,750 5,150
Repayment of long-term debt (27,010) 0
Proceeds from issuance of Trust Preferred Securities 29,158 0
Exercise of stock options 0 65
Purchases of treasury stock (281) (77)
Proceeds from sales of treasury stock 0 80
Cash dividends paid (2,506) (2,186)
---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 106,481 41,917
------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (24,554) (2,221)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 87,235 47,764
----------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 62,681 $ 45,543
========= =========
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, include all
the accounts of City Holding Company (the Parent Company) and its wholly owned
subsidiaries (collectively, the Company). All material intercompany transactions
have been eliminated. The consolidated financial statements include all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of operations and financial condition for each of
the periods presented. Such adjustments are of a normal recurring nature. The
results of operations for the three and six month periods ended June 30, 1998,
are not necessarily indicative of the results of operations that can be expected
for the year ending December 31, 1998. The Company's accounting and reporting
policies conform with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Such policies require management to make estimates and develop
assumptions that affect the amounts reported in the consolidated financial
statements and related footnotes. Actual results could differ from management's
estimates. Certain amounts in the unaudited consolidated financial statements
have been reclassified. Such reclassifications had no impact on net income or
stockholders' equity in any period presented. For further information, refer to
the consolidated financial statements and footnotes thereto included in the City
Holding Company annual report on Form 10-K for the year ended December 31, 1997.
<PAGE>
NOTE B - MERGERS AND ACQUISITIONS
On August 7, 1998, the Company announced that it had signed a definitive
agreement to merge with Horizon Bancorp, Inc. Expected to be accounted for as a
pooling of interests, the merger entails an exchange of $45.00 in City Holding
common stock, subject to adjustment, for each share of Horizon common stock. If,
based on trading prices near the closing of the transaction, the value of City
Holding stock is between $40.50 and $44.40, Horizon shareholders will receive
$45.00 in City Holding common stock. If the value of City Holding common stock
is less than $40.50, Horizon shareholders will receive 1.111 shares of City
Holding stock. If the value of City Holding common stock is greater than $44.50,
Horizon shareholders will receive 1.011 shares of City Holding stock. The merger
is subject to the approval of City Holding and Horizon shareholders and
applicable regulatory authorities and is expected to close during the first
quarter of 1999. Horizon has granted City Holding the option, exercisable under
certain circumstances, to purchase up to 19.9% of Horizon shares of common stock
outstanding and City Holding has granted Horizon a similar option on its own
shares of common stock.
Effective April 1, 1998, the Company consummated its acquisition of Del
Amo Savings Bank, FSB (Del Amo). Del Amo is a federally chartered savings bank,
headquartered in Torrance, California with total assets and total deposits of
approximately $116 million and $102 million, respectively, at March 31, 1998.
The merger involved the exchange of approximately 261,000 shares of the
Company's common stock for all of the outstanding shares of Del Amo. This
transaction was accounted for under the purchase method of accounting.
Accordingly, the results of operations have been included in the consolidated
totals from the date of acquisition. Due to the immaterial impact on the
Company's financial statements, no proforma information has been included for
the information provided herein.
In January 1998, City National Bank of West Virginia (City National), a
wholly-owned subsidiary of the Company, acquired Jarrett/Aim Communications,
Inc. (Jarrett/Aim). Jarrett/Aim is a printing and direct mail corporation. In
March 1998, City National acquired Morton Specialty Insurance Partners, Inc.
(Morton Insurance). Morton Insurance offers property and casualty insurance and
bonding programs to established commercial and industrial clients, primarily in
energy-related industries. In April 1998, City National acquired CityNet
<PAGE>
Corporation (CityNet) and MarCom, Inc. (MarCom). Both companies provide internet
access to business and individual subscribers. These transactions were accounted
for under the purchase method of accounting. Accordingly, the results of
operations attributable to these transactions have been included in the
consolidated totals from the dates of the acquisitions. The assets of
Jarrett/Aim, Morton Insurance, CityNet and MarCom represent less than 1% of the
total assets of the Company. Accordingly, no proforma information has been
included for the information provided herein.
NOTE C - STRATEGIC INVESTMENT
On June 29, 1998, the Company (through City National) completed its
strategic investment in Mego Mortgage Corporation (Mego), a specialty financial
services company that originates and purchases conventional home improvement,
high loan-to-value debt consolidation, and other similar loans. As part of the
overall recapitalization of Mego completed by several investors, the Company
invested $10 million to acquire 10,000 shares of Mego's Series A Preferred
Stock, which is convertible into 6.7 million shares of Mego common stock. The
Company also acquired an option to purchase an additional 6.7 million shares of
Mego common stock at a price of $1.50 per share. Concurrent with this
investment, City National (through its loan servicing division, City Mortgage
Services) acquired the right to service approximately $536 million of consumer
mortgage loans previously serviced by Mego and the exclusive right to service up
to an additional $ 1 billion of mortgage loans originated or acquired by Mego in
the future.
NOTE D - TRUST PREFERRED SECURITIES
During March 1998, City Holding Capital Trust (the "Trust"), a
special-purpose statutory trust subsidiary of the Company, issued $30 million of
preferred capital securities (the "Capital Securities") to qualified
institutional buyers and $928,000 of common securities (the "Common Securites")
to the Company. Distributions on the Capital Securities will be payable at an
annual rate of 9.15%, payable semi-annually, and each Capital Security has a
stated liquidation amount of $1,000. To fund the Trust, the Company sold to the
Trust Junior Subordinated Debentures (the "Debentures") with terms identical to
the Capital Securities. Cash distributions on the Capital Securities are made to
the extent interest on the Debentures is received by the Trust. The Company,
through various agreements, has irrevocably and unconditionally guaranteed all
<PAGE>
of the Trust's obligations under the Capital Securities regarding the payment of
distributions and payment on liquidation or redemption of the Capital
Securities, but only to the extent of funds held by the Trust. In the event of
certain changes or amendments to regulatory requirements or federal tax rules,
the Capital Securities are redeemable in whole at par or, if greater, a
make-whole amount. Otherwise, the Capital Securities are generally redeemable in
whole or in part on or after April 1, 2008, at a declining redemption price
ranging from 104.58% to 100% of the liquidation amount. On or after April 1,
2018, the Capital Securities may be redeemed at 100% of the liquidation amount.
After deducting expenses incurred in the issuance, the Company received proceeds
of $29.2 million from the Capital Securities offering.
The offering of the Capital Securities is classified as and is similar to
a minority interest and is presented as "Corporation-obligated mandatorily
redeemable capital securities of subsidiary trust holding subordinated
debentures of City Holding Company." The Company may include the proceeds from
the Capital Securities offering in its Tier I capital, and the Company's
payments on the Debentures are fully tax deductible.
NOTE E - NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board (FASB) Statement 130, Reporting Comprehensive Income. Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. Statement 130 requires unrealized
gains or losses on the Company's securities, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130. For the six months in the periods
ended June 30, 1998 and 1997, total comprehensive income approximated $6.9
million and $6.6 million, respectively. For the three months in the periods
ended June 30, 1998 and 1997, comprehensive income approximated $3.6 million and
$4.2 million, respectively.
<PAGE>
As of January 1, 1998, the Company adopted the provisions of SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," relating to repurchase agreements, securities lending and other
similar transactions and pledged collateral, which had been delayed until after
December 31, 1997 by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement 125, an amendment of FASB Statement 125." The
effect of adopting the additional provisions of Statement 125 as amended by
Statement 127 had no material impact on the Company's financial position or
results of operations. During 1997, the FASB issued Statement 131, "Disclosures
about Segments of an Enterprise and Related Information", which is effective for
fiscal years beginning after December 15, 1997. This statement requires public
companies to disclose certain information about reportable operating segments in
complete sets of financial statements of the company and in interim condensed
financial statements. However, the provisions of this statement do not require
the disclosure of segment information in interim financial statements in the
initial year of application; therefore no such disclosures are included herein.
These disclosure requirements will have no effect on the Company's financial
position or results of operations.
NOTE F - LONG-TERM BORROWINGS
Long-term debt consists of a $35,000,000 revolving line of credit of the
Parent Company with a variable rate based on the lesser of the adjusted LIBOR
rate plus 1.50% per annum or the lender's base rate less .25% per annum
(7.15625% at June 30, 1998) due on December 31, 1998. As of June 30, 1998, the
outstanding balance was $11,150,000. Interest on this obligation is payable
quarterly, and the Parent Company has pledged the common stock of City National
as collateral for the revolving credit loan. Management intends to refinance
this loan according to the provisions provided in the agreement. The Company
paid $27 million on the line of credit in April 1998 with proceeds received from
the issuance of the Trust Preferred Securities (See Note D).
City National maintains long-term financing from the Federal Home Loan
Bank (FHLB) in the form of Long-Term LIBOR Floaters as follows:
<PAGE>
Amount Interest Maturity
Outstanding Rate Date
---------------------------------------------------
$ 10,000,000 5.60% July 2002
25,000,000 5.61 September 2002
25,000,000 4.89 January 2008
5,000,000 5.48 February 2008
Additionally, Del Amo maintains long-term, fixed-rate financing from the
Federal Home Loan Bank (FHLB) as follows:
Amount Interest Maturity
Outstanding Rate Date
---------------------------------------------------
$ 2,000,000 6.58% June 2000
1,500,000 6.94 June 2005
1,500,000 7.14 June 2015
As of June 30, 1998, City National has maximum available credit with the FHLB of
approximately $269 million, which is collateralized by a blanket lien on all
residential and multi-family mortgage loans, and eligible government and agency
securities.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
HIGHLIGHTS
FINANCIAL POSITION
Total assets increased $235.4 million or approximately 18.59% during the
first six months of 1998. The acquisition of Del Amo (Note B) represented
approximately $116 million of the increase. Net loans increased $147.9 million
or 19.14%, $112 million of which can be attributed to Del Amo. Loans held for
sale, consisting primarily of loans purchased or originated with the intent to
sell or securitize, increased $60 million or 44.42%. See LOAN PORTFOLIO and
LOANS HELD FOR SALE for further discussion. The increase in net loans and loans
held for sale was funded primarily by an increase in deposits and long-term
borrowings of $193.2 million and $16.4 million, respectively. Other assets
increased $32.6 million during the six months ended June 30, 1998 primarily due
<PAGE>
to an additional $19.7 million in retained interest recorded as a result of two
asset-backed securitization transactions recorded during the six month period.
See LOANS HELD FOR SALE for further discussion. Total stockholders' equity
increased $19.9 million during the first six months of 1998 primarily due to the
net income recorded during the period of $6.4 million less dividends of $2.5
million and the $15.8 million increase due to common stock issued in
acquisitions.
QUARTER ENDED JUNE 30, 1998, COMPARED TO QUARTER ENDED JUNE 30, 1997.
The Company reported net income of $3,299,000 for the three months ended
June 30, 1998 compared to net income of $3,175,000 for the quarter ended June
30, 1997. This increase of $124,000, or 3.91%, was attributable to an increase
in net interest income, after provision for possible loan losses, of $963,000
and an increase in other income (excluding securities transactions) of
$14,335,000 which was offset with an increase in other expenses of $15,030,000.
The increase in non-interest income is a result of the Company's $4.1
million increase in net origination fees on junior lien mortgages and an
additional net increase of $4.6 million in gains on loans sold to third parties.
A $1.6 million increase from the mortgage servicing division also contributed to
the increase in non-interest income. In addition, the Company recognized $2.3
million in non-interest income from printing and insurance services combined,
with no income recorded for these services in the second quarter of 1997.
Non-interest expenses increased $15,030,000 or 115% during the second
quarter of 1998 as compared to the same period of 1997. This increase is
primarily associated with entities acquired by the Company during the fourth
quarter of 1997 and the first six months of 1998, and also attributable to new
divisions formed by the Company during that same time period. Non-interest
expenses incurred by these divisions approximated $12.3 million during the three
months in the period ended June 30, 1998. Of that total, approximately $5.3
million was incurred for advertising and nationwide direct mail solicitation of
junior lien mortgage loans. Also, approximately $796,000 was charged to expense
during the three month period related to expenses associated with the Company's
loan securitization program. Additionally, approximately $2.4 million was
attributable to personnel costs incurred by all of the new divisions within the
Company.
<PAGE>
Net income also benefited from an increase of $1,204,000 in the Company's
net interest income during the second quarter of 1998 as compared to the same
period of 1997. See NET INTEREST INCOME for further discussion. Basic earnings
per share were $.49 and $.52 for the second quarter of 1998 and 1997,
respectively. Diluted earnings per share were .48 and .52 for the second quarter
of 1998 and 1997, respectively.
SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
The Company reported net income of $6,412,000 for the six months ended
June 30, 1998 compared to net income of $6,004,000 for the six months ended
June 30, 1997. This increase of $408,000 or 6.8%, was primarily due to an
increase in net interest income, after provision for possible loan losses, of
$2,625,000 and an increase in other income (excluding securities transactions)
of $22,092,000 which was offset with an increase in other expenses of
$24,009,000. The increase in non-interest income is a result of the Company's
$6.2 million increase in net origination fees on junior lien mortgages, an
additional net increase of $6.3 million in gains on loans sold to third parties
and a $2.7 million increase from the mortgage servicing division. In
addition, the Company recognized $3.6 million in non-interest income from
printing and insurance services combined, with no income recorded for these
services in the first six months of 1997.
Non-interest expenses increased $24,009,000 or 95% during the first six
months of 1998 as compared to the same period of 1997. This increase is
primarily associated with entities acquired by the Company during the fourth
quarter of 1997 and the first six months of 1998, and also attributable to new
divisions formed by the Company during that same time period. Non-interest
expenses incurred by these divisions approximated $19.4 million during the six
months in the period ended June 30, 1998. Of that total, approximately $7.9
million was incurred for advertising and nationwide direct mail solicitation of
junior lien mortgage loans. Also, approximately $1.4 million was charged to
expense during the three month period related to expenses associated with the
Company's loan securitization program. Additionally, approximately $4.3 million
was attributable to personnel costs incurred by all of the new divisions within
the Company.
<PAGE>
Net income for the first six months also benefited from an increase of
$2,998,000 in the Company's net interest income during the first six months of
1998 as compared to the same period of 1997. Basic earnings per share were $.97
and $.99 for the six months ended June 30, 1998 and 1997, respectively. Diluted
earnings per share were $.96 and $.99 for the six months ended June 30, 1998 and
1997, respectively.
SELECTED RATIOS
The return on average assets (ROA) for the second quarter of 1998 was .92%
compared to 1.07% in the second quarter of 1997. The return on average
shareholder's equity (ROE) for the second quarter of 1998 was 10.86% compared to
14.79% ROE for the second quarter of 1997. For the six months of 1998, ROA was
.94% compared to 1.05% for the six months ended 1997. ROE was 11.13% and 14.10%
for the first six months of 1998 and 1997, respectively.
The dividend payout ratio of 38.80% for the quarter ended June 30, 1998
represents an increase of 12.07% from the dividend payout ratio of 34.62% for
the quarter ended June 30, 1997. The dividend payout ratio was 39.18% and 36.36%
for the six months ended June 30, 1998 and 1997, respectively. Since 1988, the
Company has paid dividends on a quarterly basis, and expects to continue to do
so in the future.
LOAN PORTFOLIO
The composition of the Company's loan portfolio is presented in the
following table:
LOAN PORTFOLIO BY TYPE
(Dollars in Thousands)
June 30 December 31
1998 1997
------- -----------
Commercial, financial and
Agricultural $ 249,681 $ 232,602
Real Estate-Mortgage 500,360 371,974
Real Estate-Construction 28,779 28,427
Installment and other 157,341 154,713
Unearned Income (6,889) (7,354)
------- -------
TOTAL $ 929,272 $ 780,362
======== =======
<PAGE>
Loans Held for Sale
Program Loans $ 176,064 $ 114,462
Loans Originated for Sale 18,895 20,528
------ ------
TOTAL $ 194,959 $ 134,990
======= =======
LOANS HELD FOR SALE
Loans held for sale generally represent mortgage loans the Company has
either purchased, through its wholesale division, or originated with the intent
to sell or securitize and are carried at the lower of aggregate cost or
estimated market value. Through its three retail loan origination platforms, the
Company originates high loan-to-value (LTV) debt consolidation and other junior
lien mortgage loans on a nationwide level. These loans are expected to either be
securitized by the Company or sold to independent third parties within 90-180
days.
The Company announced on May 11, 1998, that it had discontinued its
participation in a whole loan purchasing program with a non-affiliated seller.
The Company had participated in this program since the first quarter of 1994. As
a result of discontinuing this program, the Company's average balance of loans
held for sale is expected to be less than originally forecasted, primarily in
the third and fourth quarter, but also for the months of May and June. In
addition, servicing volume increases will not be as great as was expected. The
Company has estimated that the impact of these events on 1998 earnings per share
will be a decrease of $0.30 per share to $0.40 per share, or 11-15% of its SNL
I/B/E/S consensus estimate.
The Company's origination and acquisition of loans to be securitized or
sold is expected to continue to have a positive impact on the Company's
operating results. However, this increased return is not achieved without a
degree of risk of loss to the Company. Such risks include credit risk related to
the quality of the underlying loan and the borrower's financial capability to
repay the loan, market risk related to the continued attractiveness of the loan
product to both borrowers and end-investors, and interest rate risk related to
potential changes in interest rates and the resulting repricing of both
financial assets and liabilities. The Company seeks to manage this risk by
continuously improving policies and procedures designed to reduce the risk of
loss to a level commensurate with the return being earned on the Company's
investment.
<PAGE>
In addition to continuously focusing on improving policies and procedures
in this area, management also utilizes its asset-backed securitization program
to mitigate the risk of loss. By securitizing originated and purchased junior
lien mortgage loans, the Company effectively removes these loans from its
balance sheet by creating an investment security or securities, supported by the
cash flows generated by these loans, and selling the resulting security or
securities to independent third parties. As part of this process, the Company
provides credit enhancement, in the form of overcollateralization, with respect
to the investment security or securities created. As a result, the Company does
maintain a certain level of credit risk and interest rate risk related to these
loans.
During the first two quarters of 1998, the Company originated $225
million and purchased $408 million in loans held for sale and sold $581 million
during the same period. This compares to originations of $58 million, purchases
of $302 million, and sales of $344 million during the first two quarters of
1997.
On June 12, 1998, the Company sold approximately $87.9 million of junior
lien mortgage loans held for sale through an asset-backed securitization
transaction. As a result, the Company recorded a retained interest of
approximately $11.8 million. The amount recorded as retained interest is
computed by estimating the future cash flows of the loans and giving
consideration to certain assumptions regarding the performance of the underlying
collateral loans. The three most significant assumptions used in this valuation
process include: (1) prepayment rates, the rates at which borrowers will fully
repay loan balances in advance of established amortization periods; (2) default
rates, the rates at which collateral loans will become uncollectible; and (3)
discount rates, the rates used by management to discount the estimated future
cash flows such that the present value of those cash flows can be estimated. As
of June 30, 1998, the Company has completed three asset-backed securitization
transactions resulting in approximately $24.6 million, including accrued
interest, being recorded in Other Assets representing the Company's retained
interests in these securitized loan pools. Significant assumptions used to
estimate the value of the retained interest include:
Prepayment rates Between 17-21% CPR
Default rates Approximating 10% cumulative losses
Weighted average discount
rates Between 12-14%
<PAGE>
LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. They consist primarily of FHA Title I home
improvement loans and debt consolidation loans secured by junior lien mortgages.
The unpaid principal balances of mortgage loans serviced for others was $1.264
billion and $1.253 billion at June 30, 1998 and December 31, 1997, respectively.
The unpaid principal balances of intercompany mortgage loans serviced was
$150,023,000 at June 30, 1998.
Mortgage loan servicing rights of $3,991,000 and $2,462,000 at June 30,
1998 and December 31, 1997, respectively, are included in other assets in the
accompanying balance sheets. Amortization of mortgage loan servicing rights
approximated $302,000 and $155,000 during the six months ended June 30, 1998 and
June 30, 1997, respectively.
<PAGE>
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
The following table summarizes the Company's risk elements for the
periods ending June 30, 1998 and December 31, 1997. The Company's coverage ratio
of nonperforming assets and potential problem loans continues to be strong at
90% as of June 30, 1998.
Management is of the opinion that the allowance for loan losses is
adequate to provide for probable future losses inherent in the portfolio.
RISK ELEMENTS
(in thousands)
Six Months
Ended Year Ended
June 30 December 31
1998 1997
ALLOWANCE FOR LOAN LOSSES ---- ----
Balance at beginning of period $7,673 $7,281
Charge-offs (1,193) (1,899)
Recoveries 190 419
--- -------
Net charge-offs (1,003) (1,480)
Provision for loan possible losses 1,201 1,662
Balance of acquired subsidiary 809 210
--- ----------
Balance at end of period $8,680 $7,673
====== =======
AS A PERCENT OF AVERAGE TOTAL LOANS
Net charge-offs 0.12% .20%
Provision for possible loan losses 0.14% .22%
Allowance for loan losses 1.03% 1.01%
June 30 December 31
1998 1997
NON-PERFORMING ASSETS ---- ----
Other real estate owned $1,930 $1,263
Non-accrual loans 5,041 3,758
Accruing loans past due 90 days
or more 2,223 1,858
Restructured loans 104 331
-------- --------
Total Non-performing Assets $9,298 $7,210
POTENTIAL PROBLEM LOANS $381 $204
AS A PERCENT OF NON-PERFORMING ASSETS
AND POTENTIAL PROBLEM LOANS
Allowance for loan losses 89.68% 103.49%
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
AS A PERCENT OF AVERAGE TOTAL LOANS 0.26% 0.25%
<PAGE>
INTEREST RATE SENSITIVITY AND LIQUIDITY
Interest Rate Sensitivity: The Company manages its liquidity position to
reduce interest rate risk, which is the susceptibility of assets and liabilities
to declines in value as a result of changes in general market interest rates.
The Company seeks to reduce the risk through asset and liability management,
where the goal is to optimize the balance between earnings and interest rate
risk. The Company measures interest rate risk through interest sensitivity gap
analysis as illustrated in the following table. At June 30, 1998, the one year
period shows a negative gap (liability sensitive) of $356 million. This analysis
is a "static gap" presentation and movements in deposit rates offered by City
National and Del Amo lag behind movements in the prime rate. Such time lags
affect the repricing frequency of many items on the Company's balance sheet.
Accordingly, the sensitivity of deposits to changes in market rates may differ
significantly from the related contractual terms. The table is first presented
without adjustment for expected repricing behavior. Then, as presented in the
"management adjustment" line, these balances have been notionally distributed
over the first three periods to reflect those portions of such accounts that are
expected to reprice fully with market rates over the respective periods. The
distribution of the balances over the repricing periods represents an
aggregation of such allocations by each of the banking divisions, and is based
upon historical experience with their individual markets and customers.
Management expects to continue the same pricing methodology in response to
market rate changes; however, management adjustments may change as customer
preferences, competitive market conditions, liquidity, and loan growth change.
Also presented in the management adjustment line are loan prepayment
assumptions, which may differ from the related contractual terms of the loans.
These balances have been distributed over the four periods to reflect those
loans that are expected to be repaid in full prior to their maturity date. After
management adjustments, the table shows a negative gap in the one-year period of
$90 million. A negative gap position is advantageous when interest rates are
falling because interest-bearing liabilities are being repriced at lower rates
and in greater volume, which has a positive effect on net interest income.
However, when interest rates are rising, this position produces the converse
<PAGE>
effect. Consequently, the Company has experienced a slight decline in its net
interest margin during the past two years and is somewhat vulnerable to a rapid
rise in interest rates in 1998. These declines in net interest margin did not
translate into declines in net interest income because of increases in the
volume of interest-earning assets.
INTEREST RATE SENSITIVITY GAPS
(in thousands)
1 to 3 3 to 12 1 to 5 Over 5
MO. MO. YRS. YRS. Total
----------------------------------------------------
ASSETS
Gross loans $ 227,195 $ 128,378 $443,930 $ 131,617 $ 931,120
Loans held for sale 194,959 0 0 0 194,959
Securities 23,672 24,370 93,120 25,832 166,994
Federal funds sold 570 0 0 0 570
Retained interest in
securitized loans 24,053 0 0 0 24,053
----------------------------------------------------
Total interest earning
assets $ 470,449 $ 152,748 $537,050 $ 157,449 1,317,696
----------------------------------------------------
LIABILITIES
Savings and NOW Accounts $ 412,069 $ 0 $ 0 $ 0 $ 412,069
All other interest
bearing deposits 128,841 245,120 152,776 18,196 544,933
Short term and other
borrowings 108,474 0 0 0 108,474
Long term borrowings 84,795 0 0 0 84,795
Trust preferred securities 0 0 0 30,000 30,000
----------------------------------------------------
Total interest bearing
liabilities $ 734,179 $ 245,120 $152,776 $ 48,196 $1,180,271
----------------------------------------------------
Interest sensitivity gap ($263,730) ($92,372) $384,274 $ 109,253 $ 137,425
----------------------------------------------------
Cumulative sensitivity gap ($263,730) ($356,102) $ 28,172 $ 137,425
====================================================
Management adjustments $ 336,534 ($70,455)($240,187) ($25,892)
Cumulative management
adjusted gap $ 72,804 ($90,023) $ 54,064 $ 137,425
====================================================
The table above includes various assumptions and estimates by management as to
maturity and repricing patterns. Future interest margins will be impacted by
balances and rates which are subject to change periodically throughout the year.
<PAGE>
In addition to the interest rate sensitivity gap analysis, the Company
performs an earnings sensitivity analysis to identify the impact of changes in
interest rates on its net interest income. Since the simulated gap analysis
incorporates management assumptions as noted in the previous gap analysis
discussion, actual results will differ from simulated results due to timing,
magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors.
The Company's policy objective is to avoid negative fluctuations in net
interest income of 10% within a 12-month period. As of June 30, 1998, the
Company had the following estimated earnings sensitivity profile:
Immediate Change in Rates
-------------------------
Pretax Earnings Changes + 200 bp - 200 bp
($41,000) $41,000
Based on the results of the simulation model as of June 30, 1998, the
Company would expect a decrease in net interest income of $21,000 and an
increase in net interest income of $21,000 if interest rates gradually increase
or decrease, respectively, from current rates by 100 basis points over a
12-month period.
Liquidity: Although management is comfortable with its liquidity position,
it recognizes the need to pursue additional liquidity sources in an effort to
reduce the Company's reliance on funding received from the Federal Home Loan
Bank.
In the fourth quarter of 1997, a New York investment bank committed to
issue up to $100 million of the Company's certificates of deposit. The
activation of this commitment is solely at the discretion of the Company. The
certificates of deposit could be issued in maturities up to five years at a rate
equal to a comparable treasury maturity plus a market based spread. At June 30,
1998, $2 million of the certificates of deposit had been sold under this
commitment at an average rate and term of approximately 5.70% and two years,
respectively. There can be no assurance that the Company will issue additional
certificates of deposit pursuant to this arrangement.
<PAGE>
Additionally, the Company has been successful in utilizing the capital
markets as an additional source of liquidity. Through the Company's asset-backed
securitization program and through the Company's issuance of Trust Preferred
Securities, the Company has been able to diversify its available funding
sources. Sales of the Company's junior lien mortgage loans to independent third
parties have also provided the Company with an additional source of liquidity.
Management seeks to maintain adequate liquidity to generate sufficient
cash flow to fund the Company's operations on a timely basis, to continue its
dividend distribution to shareholders, and to manage its liquidity position to
provide for continued asset growth. The Company does not have a high
concentration of volatile funds and all such funds are invested in assets of
comparable maturity. Management is not aware of any trends, demands, commitments
or uncertainties that have resulted or are reasonably likely to result in
material changes in liquidity.
The Company's cash and cash equivalents, represented by cash, due from
banks and federal funds sold, are a product of its operating, investing and
financing activities. These activities are set forth in the Company's
Consolidated Statements of Cash Flows included elsewhere herein. Cash was used
from operating activities in the first six months of 1998 and 1997 due to cash
outlays for loans originated for sale and purchases of loans held for sale. Net
cash was used in investing activities for both periods presented which is
indicative of the Company's net increases in loan volume and purchases of
securities available for sale. Cash was provided by financing activities during
each period, as a result of net increases in deposits and long-term borrowings,
and the issuance of Trust Preferred Securities in March 1998.
CAPITAL RESOURCES
As a bank holding company, City Holding Company is subject to regulation
by the Federal Reserve Board under the Bank Holding Company Act of 1956. In
January 1989, the Federal Reserve published risk-based capital guidelines in
<PAGE>
final form which are applicable to bank holding companies. Such guidelines
define items in the calculation of risk-weighted assets. At June 30, 1998, the
regulatory minimum ratio of qualified total capital to risk-weighted assets
(including certain off-balance-sheet items, such as standby letters of credit)
is 8 percent. At least half of the total capital is to be comprised of "Tier 1
capital", or the Company's common stockholders' equity, and minority interest in
consolidated subsidiary, net of intangibles. The remainder ("Tier 2 capital")
may consist of certain other prescribed instruments and a limited amount of loan
loss reserves.
In addition, the Federal Reserve Board has established minimum leverage
ratio (Tier 1 capital to quarterly average tangible assets) guidelines for bank
holding companies. These guidelines provide for a minimum ratio of 3 percent for
bank holding companies that meet certain specified criteria, including that they
have the highest regulatory rating. All other bank holding companies will be
required to maintain a leverage ratio of 3 percent plus an additional cushion of
a least 100 to 200 basis points. The guidelines also provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
The following table presents comparative capital ratios and related dollar
amounts of capital for the Company, including minimal amounts required by the
Company's regulatory authorities:
Dollars in Thousands
June 30 December 31
1998 1997
----- ----
Capital Components
Tier 1 risk-based capital $ 119,094 $ 82,842
Total risk-based capital 127,774 90,515
Capital Ratios
Tier 1 risk-based 9.37% 9.16%
Total risk-based 10.05 10.00
Leverage 8.55 6.49
Regulatory Minimum
Tier 1 risk-based (dollar/ratio) $50,863/4.00% $36,191/4.00%
Total risk-based (dollar/ratio) 101,727/8.00 72,381/8.00
Leverage (dollar/ratio) 55,712/4.00 51,094/4.00
<PAGE>
Actual capital ratios noted above reflect management's emphasis on strong
asset quality and a history of retained net income. However, the asset-backed
securitization program undertaken by the Company to generate future earnings
does, in the short-term, negatively impact the aforementioned ratios. As of June
30, 1998, the Company is required to provide equity capital against
approximately $180 million of off-balance sheet items. The unpaid principal
balance of securitized loan pools approximated $180 million at June 30, 1998.
Under the low-level recourse rules required by the Company's regulatory
authorities, the Company, as a result of maintaining a retained interest in its
securitized loan pools, is required to include the lesser of: (1) the product of
the recorded balance of its retained interests multiplied by a factor of 12.5,
or (2) the unpaid principal balance of the securitized loans in its
risk-weighted assets when computing capital ratios. Thus, actual capital ratios
are less than they would have been had the Company not maintained a retained
interest in its securitization transactions or had the Company sold those loans
to independent third parties separate from a securitization transaction.
However, as evidenced above, the Company's actual capital ratios
sufficiently exceed minimum levels of capital as required by the Company's
regulatory authorities and management is committed to maintaining its capital
ratios at such levels. Through continued improvement in operating results, in
part from future earnings to be derived from completed securitization
transactions, continued emphasis on high asset quality, and effective management
of risk, management expects that the Company will continue to maintain its
capital position. Doing so enables the Company to continue its pursuit of
strategic acquisitions and other growth opportunities which, when transacted,
further enhance the overall capital position of the Company.
As more fully discussed in Note D to the financial statements, the
Company, pursuant to rulings released by the Federal Reserve Board in October
1996, has included its Trust Preferred Securities in its Tier I capital
calculations.
IMPACT OF THE YEAR 2000
The Company's Year 2000 project plan was initiated throughout the Company
in January 1997. The project is sponsored and closely monitored by both senior
and executive level management. The Office of the Comptroller of the Currency
(OCC) and the Federal Financial Institutions Examination Council recommends
that all
<PAGE>
systems reprogramming efforts be completed by December 31, 1998 to allow for
sufficient testing and implementation. Management intends to meet or exceed this
recommendation. Plan components are being executed in accordance with guidelines
that have been mandated by the OCC. The Company's approach to Year 2000
compliance encompasses five industry standard phases:
1. Awareness Phase
2. Assessment Phase
3. Renovation Phase
4. Validation Phase
5. Implementation Phase
The Company has completed the Awareness, Assessment, and Renovation phases of
the project. Currently, the Company is approximately 70% complete in the
validation phase and has recently begun the implementation phase in certain
areas.
Having begun the implementation phase, management believes that the
risks affecting the Company associated with the Year 2000 issue should be
minimal. The majority of the critical applications affecting the Company have
been addressed and management believes that solid solutions have been
implemented to address areas of concern. The sum of the costs incurred to-date
and the estimated costs remaining to be incurred is not expected to be material
to the consolidated financial statements.
NET INTEREST INCOME
Net interest income, on a fully federal tax-equivalent basis,
improved from the second quarter of 1997 to the second quarter of 1998 by
approximately $1,176,000 due to an increase in net earning assets. Net yield on
earning assets decreased between the respective periods from 5.0% to 4.71%.
Earning asset yields increased 10 basis points (100 basis points equal one
percent) to 9.06%, and the cost of interest-bearing liabilities increased 45
basis points to 5.06%. The $2,039,000 decrease in net interest income due to a
change in the rate, as shown in the following table, was coupled with a
$3,215,000 increase in net interest income due to a change in the volume. The
major component of this favorable volume change was increased average loans held
for sale.
<PAGE>
Net interest income, on a fully federal tax-equivalent basis,
improved from the six months ended June 30, 1997 to the six months ended June
30, 1998 by approximately $2,942,000 due to an increase in net earning assets.
Net yield on earning assets decreased between periods from 4.85% to 4.69%.
Earning asset yields increased 25 basis points (100 basis points equal one
percent) to 8.95%, and the cost of interest-bearing liabilities increased 42
basis points to 4.87%. The $1,283,000 decrease in net interest income due to a
change in the rate, as shown in the following table, was coupled with a
$4,225,000 increase in net interest income due to a change in the volume. The
major component of this favorable volume change was the increased average
balance of loans held for sale.
<PAGE>
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
June 30
1998 1997
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------
<S> <C>
EARNING ASSETS:
Loans (1)
Commercial and industrial $243,965 $5,651 9.27% $235,324 $5,337 9.07%
Real estate 495,925 10,622 8.57% 365,717 7,833 8.57%
Consumer obligations 146,142 3,676 10.06% 147,059 3,663 9.96%
-------------------------------------------------------
Total loans 886,032 19,949 9.01% 748,100 16,833 9.00%
Loans held for sale 216,956 5,847 10.78% 183,026 5,074 11.09%
Securities
Taxable 129,170 2,033 6.30% 146,622 2,289 6.24%
Tax-exempt (2) 31,778 640 8.06% 35,022 740 8.45%
-------------------------------------------------------
Total securities 160,948 2,673 6.64% 181,644 3,029 6.67%
Retained interest in
securitized loans 12,644 493 15.60% 0 0 0.00%
Federal funds sold 5,997 79 5.27% 189 3 6.35%
-------------------------------------------------------
Total earning assets 1,282,577 29,041 9.06% 1,112,959 24,939 8.96%
Cash and due from banks 31,830 33,461
Bank premises and equipment 47,276 31,304
Other assets 74,667 19,087
Less: allowance for
possible loan losses (8,355) (7,665)
-------------------------------------------------------
Total assets $1,427,995 $1,189,146
=======================================================
INTEREST-BEARING LIABILITIES:
Demand deposits $162,804 $1,365 3.35% $123,982 $ 820 2.65%
Savings deposits 234,009 1,799 3.08% 221,982 1,851 3.34%
Time deposits 518,005 7,352 5.68% 410,218 5,476 5.34%
Short-term borrowings 101,117 1,500 5.93% 163,039 2,217 5.44%
Long-term debt 86,335 1,934 8.96% 36,927 660 7.15%
-------------------------------------------------------
Total interest-bearing
liabilities 1,102,207 13,950 5.06% 956,148 11,024 4.61%
Demand deposits 151,698 135,484
Other liabilities 22,540 11,631
Trust preferred securities 30,000 0
Stockholders' equity 121,487 85,883
-------------------------------------------------------
Total liabilities and
Stockholders' equity $1,427,995 $1,189,146
=======================================================
Net interest income $15,091 $13,915
=======================================================
Net yield on earning
assets 4.71% 5.00%
=======================================================
</TABLE>
(1) For purposes of this table, non-accruing loans have been included in average
balances and loan fees, which are immaterial, have been included in
interest income.
(2) Computed on a fully federal tax-equivalent basis assuming a tax rate of
approximately 35% in 1998 and 34% in 1997.
<PAGE>
RATE VOLUME ANALYSIS OF
CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
June 30
1998 VS. 1997
Increase (Decrease)
Due to Change In:
Volume Rate Net
----------------------------------------
<S> <C>
INTEREST INCOME FROM:
Loans
Commercial and Industrial $ 199 $ 115 $ 314
Real estate 2,789 0 2,789
Consumer obligations (107) 120 13
----------------------------------------
Total loans 2,881 235 3,116
Loans held for sale 1,655 (882) 773
Investment securities
Taxable (379) 123 (256)
Tax-exempt (1) (66) (34) (100)
----------------------------------------
Total investment securities (445) 89 (356)
Retained interest in securitized loans 493 0 493
Federal funds sold 80 (4) 76
----------------------------------------
Total interest-earning assets $4,664 $(562) $ 4,102
INTEREST EXPENSE ON:
Demand deposits 294 251 545
Savings deposits 452 (504) (52)
Time deposits 1,512 364 1,876
Short-term borrowings (1,880) 1,163 (717)
Long-term debt 1,071 203 1,274
----------------------------------------
Total interest-bearing liabilities $ 1,449 $ 1,477 $ 2,926
----------------------------------------
NET INTEREST INCOME $ 3,215 $ (2,039) $ 1,176
========================================
</TABLE>
(1) Fully federal taxable equivalent using a tax rate of 35% in 1998 and 34%
in 1997.
The change in interest due to both rate and volume has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
<PAGE>
<TABLE>
EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(in thousands)
<CAPTION>
<S> <C>
Six Months Ended
June 30
1998 1997
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------------------------------------------------------
EARNING ASSETS:
Loans (1)
Commercial and industrial $240,960 $11,054 9.17% $233,078 $10,454 8.97%
Real estate 455,309 19,013 8.35% 360,274 15,165 8.42%
Consumer obligations 144,098 7,221 9.95% 146,010 7,199 9.86%
-------------------------------------------------------
Total loans 841,367 37,288 8.86% 739,362 32,818 8.88%
Loans held for sale 216,978 11,694 10.78% 148,707 7,745 10.42%
Securities
Taxable 130,390 4,133 6.34% 143,922 4,456 6.19%
Tax-exempt (2) 31,684 1,274 8.04% 35,525 1,476 8.31%
-------------------------------------------------------
Total securities 162,074 5,407 6.67% 179,447 5,932 6.61%
Retained interest in
securitized loans 8,593 67 15.66% 0 0 0.00%
Federal funds sold 4,121 110 5.34% 2,969 59 3.97%
-------------------------------------------------------
Total earning assets 1,233,133 55,172 8.95% 1,070,485 46,554 8.70%
Cash and due from banks 31,297 35,699
Bank premises and equipment 44,232 30,880
Other assets 71,499 18,267
Less: allowance for
possible loan losses (8,623) (7,619)
-------------------------------------------------------
Total assets $1,371,538 $1,147,712
=======================================================
INTEREST-BEARING LIABILITIES:
Demand deposits $156,659 $2,611 3.33% $120,983 $1,717 2.84%
Savings deposits 225,992 3,390 3.00% 221,749 3,478 3.14%
Time deposits 487,876 13,373 5.48% 407,715 10,656 5.23%
Short-term borrowings 119,408 3,475 5.82% 137,448 3,479 5.06%
Long-term debt 88,313 3,409 7.72% 37,504 1,252 6.68%
-------------------------------------------------------
Total interest-bearing
liabilities 1,078,248 26,258 4.87% 925,399 20,582 4.45%
Demand deposits 140,027 126,440
Other liabilities 22,785 10,701
Trust preferred securities 15,249 0
Stockholders' equity 115,229 85,172
-------------------------------------------------------
Total liabilities and
Stockholders' equity $1,371,538 $1,147,712
=======================================================
Net interest income $ 28,914 $ 25,972
=======================================================
Net yield on earning
assets 4.69% 4.85%
=======================================================
</TABLE>
(1) For purposes of this table, non-accruing loans have been included in average
balances and loan fees, which are immaterial, have been included in
interest income.
(2) Computed on a fully federal tax-equivalent basis assuming a tax rate of
approximately 35% in 1998 and 34% in 1997.
<PAGE>
RATE VOLUME ANALYSIS OF
CHANGES IN INTEREST INCOME AND EXPENSE
(in thousands)
Six Months Ended
June 30
1998 VS. 1997
Increase (Decrease)
Due to Change In:
Volume Rate Net
----------------------------------------
INTEREST INCOME FROM:
Loans
Commercial and Industrial $ 358 $ 242 $ 600
Real estate 4,203 (355) 3,848
Consumer obligations (99) 121 22
----------------------------------------
Total loans 4,462 8 4,470
Loans held for sale 3,671 278 3,949
Investment securities
Taxable (596) 273 (323)
Tax-exempt (1) (156) (46) (202)
----------------------------------------
Total investment securities (752) 227 (525)
Retained interest in securitized loans 673 0 673
Federal funds sold 27 24 51
----------------------------------------
Total interest-earning assets $ 8,081 $ 537 $ 8,618
INTEREST EXPENSE ON:
Demand deposits 562 332 894
Savings deposits 158 (246) (88)
Time deposits 2,177 540 2,717
Short-term borrowings (975) 971 (4)
Long-term debt 1,934 223 2,157
----------------------------------------
Total interest-bearing liabilities $ 3,856 $ 1,820 $ 5,676
----------------------------------------
NET INTEREST INCOME $ 4,225 $ (1,283) $ 2,942
========================================
(2)Fully federal taxable equivalent using a tax rate of 35% in 1998 and 34% in
1997.
The change in interest due to both rate and volume has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
<PAGE>
Item 3. Quantitative and
Qualitative
Disclosures and Market
Risk Not Applicable
PART II OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior
Securities- None
Item 4. Submission of Matters to
a Vote of Security
Holders-
On April 28, 1998, the Company held its Annual Meeting of Shareholders. Two
matters were submitted to the shareholders for consideration:
1. Election of five Class III Directors to the Board of Directors.
2. Ratification of the Board of Directors' appointment of Ernst &
Young LLP as auditors for the Company for 1998.
The vote tabulation for each matter was as follows:
1. Election of five Class III Directors to the Board of Directors:
Authority
Director For With held Abstain
-------- --- --------- -------
D. K. Cales 4,412,083 13,466 0
Robert D. Fisher 4,409,163 16,386 0
Jay Goldman 4,411,214 14,335 0
C. Dallas Kayser 4,406,458 19,091 0
William M. Frazier 4,412,133 13,416 0
<PAGE>
Continuing directors whose terms did not expire at the annual meeting were:
Samuel M. Bowling, Steven J. Day, Jack E. Fruth, Otis L. O'Conner, Bob F.
Richmond, Leon K. Oxley, Carlin K. Harmon, Mark Schaul, Van R. Thorn, C. Scott
Briers, Hugh R. Clonch, David E. Haden.
2. Ratification of appointment of Ernst & Young LLP:
For Against Abstain
--- ------- -------
4,410,375 1,945 13,229
Item 5. Other Information- On June 1, 1998, the Company and SunTrust
Bank, Atlanta ("SunTrust"), executed a
second supplement (the "Supplement") to
the Amended and Restated Rights
Agreement, providing that SunTrust was to
serve as the rights agent under the
company's Amended and Restated Rights
Agreement dated as of May 7, 1991. A copy
of the Supplement is attached as an
exhibit hereto.
The Company and Horizon Bancorp, Inc.
("Horizon") signed a definitive Agreement
and Plan of Reorganization (the
"Agreement") to merge on August 7, 1998.
Upon the completion of the merger,
expected to occur during the first
quarter of 1999, Horizon's five bank
subsidiaries will be merged into City
Holding's commercial banking subsidiary.
A copy of the press release discussing
the terms of the Agreement is attached as
an exhibit hereto. Also attached are a
copy of the Agreement and a copy of a
Stock Option Agreement granting Horizon
an option, exercisable under certain
conditions, to purchase up to 19.9% of
outstanding shares of common stock
of the Company.
<PAGE>
Item 6. Exhibits and Reports on 8-K
Exhibit
Number Exhibit
------- -------
11 Computation of Earnings per Share
27 Financial Data Schedule for the six
months ended June 30, 1998
99.1 Second Supplement to Amended and
Restated Rights Agreement
99.2 Press Release issued August 7, 1998
99.3 Agreement and Plan of Reorganization
between City Holding Company and
Horizon Bancorp, Inc., dated August
7, 1998
99.4 Stock Option Agreement between City
Holding Company and Horizon Bancorp,
Inc., dated August 7, 1998
S I G N A T U R E
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.
CITY HOLDING COMPANY
August 11, 1998 By /s/ Michael D. Dean
-----------------------
Michael D. Dean
Senior Vice President - Finance
Principal Accounting Officer and
Duly Authorized Officer
<PAGE>
EXHIBIT INDEX
Exhibit Index
- -------------
11 Computation of Earnings per Share
27 Financial Data Schedule for the Six Months
Ending June 30, 1998
99.1 Second Supplement to Amended and Restated Rights
Agreement
99.2 Press Release issued August 7, 1998
99.3 Agreement and Plan of Reorganization between
City Holding Company and Horizon Bancorp, Inc.,
dated August 7, 1998
99.4 Stock Option Agreement between City Holding
Company and Horizon Bancorp, Inc., dated
August 7, 1998
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C>
Numerator:
Net income $3,299,000 $3,175,000 $6,412,000 $6,004,000
===================================================
Denominator:
Denominator for basic earnings
per share--weighted average
shares outstanding 6,728,456 6,069,161 6,589,368 6,069,192
Effect of dilutive securities:
Employee stock options 101,675 11,012 48,504 11,012
Contingent stock -
acquisition 3,503 ----------- 2,187 --------
-------------------------------------------------
Dilutive potential common shares 105,178 11,012 50,691 11,012
-------------------------------------------------
Denominator for diluted earnings
per share--Adjusted weighted-
average shares and
assumed conversions 6,833,634 6,080,173 6,640,059 6,079,500
===================================================
Basic earnings per share $0.49 $0.52 $0.97 $0.99
===================================================
Diluted earnings per share $0.48 $0.52 $0.96 $0.99
===================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 62,111
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 570
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 166,994
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 929,272
<ALLOWANCE> 8,680
<TOTAL-ASSETS> 1,501,500
<DEPOSITS> 1,131,709
<SHORT-TERM> 111,974
<LIABILITIES-OTHER> 20,414
<LONG-TERM> 81,295
0
0
<COMMON> 16,874
<OTHER-SE> 109,234
<TOTAL-LIABILITIES-AND-EQUITY> 1,501,500
<INTEREST-LOAN> 48,982
<INTEREST-INVEST> 4,961
<INTEREST-OTHER> 783
<INTEREST-TOTAL> 54,726
<INTEREST-DEPOSIT> 19,374
<INTEREST-EXPENSE> 26,258
<INTEREST-INCOME-NET> 28,468
<LOAN-LOSSES> 1,201
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 49,201
<INCOME-PRETAX> 10,062
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,412
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.96
<YIELD-ACTUAL> 4.71
<LOANS-NON> 5,041
<LOANS-PAST> 2,223
<LOANS-TROUBLED> 104
<LOANS-PROBLEM> 381
<ALLOWANCE-OPEN> 7,673
<CHARGE-OFFS> 1,193
<RECOVERIES> 190
<ALLOWANCE-CLOSE> 8,680
<ALLOWANCE-DOMESTIC> 8,680
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Exhibit 99.1
SECOND SUPPLEMENT
TO
AMENDED AND RESTATED RIGHTS AGREEMENT
THIS SECOND SUPPLEMENT dated June 1, 1998, between City Holding
Company, a West Virginia corporation (the "Company"), and SunTrust Bank,
Atlanta, a Georgia banking corporation ("SunTrust" or the "Rights Agent"), to
the AMENDED AND RESTATED RIGHTS AGREEMENT, dated as of May 7, 1991 (the
"Agreement") between the Company and Sovran Bank, N.A., a national banking
association, as supplemented by the FIRST SUPPLEMENT TO AMENDED AND RESTATED
RIGHTS AGREEMENT, dated as of August __, 1992 between the Company and The Fifth
Third Bank, Cincinnati, Ohio ("Fifth Third"), recites and provides:
A. Section 21 of the Agreement permits the Company to remove a Rights Agent
and appoint a successor Rights Agent.
B. The Company has appointed SunTrust as the Rights Agent under the
Agreement effective June 1, 1998.
C. Pursuant to Section 21 of the Agreement, the Company has notified Fifth
Third that Fifth Third is being removed as the Rights Agent under the Agreement
effective June 1, 1998.
D. SunTrust is willing to serve as the Rights Agent under the terms of the
Agreement.
E. Section 27 of the Agreement permits the Agreement to be supplemented
without the approval of any holder of the Rights prior to the earlier of the
Distribution Date or the occurrence of a Triggering Event, neither of which has
occurred.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the Company and SunTrust agree as follows:
1. Section 1(d) of the Agreement shall be restated as follows:
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the states of
New York, Virginia, West Virginia or Georgia are authorized or
obligated by law or executive order to close.
2. Section 2 of the Agreement shall be restated as follows:
Appointment of Rights Agent. The Company hereby appoints
SunTrust Bank, Atlanta, a Georgia banking corporation
("SunTrust" or the "Rights Agent"), as the Rights Agent under
the Agreement, to act as agent for the Company and the holders
of the Rights (who, subject to the provisions of Section 7(e)
of the Agreement and in accordance with Section 3 of the
Agreement, shall prior to the Distribution Date also be
holders of Common Stock) in accordance with the terms and
conditions of the Agreement and this Second Supplement, and
SunTrust hereby accepts such appointment. The Company may from
time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.
3. Section 21 of the Agreement shall be restated as follows:
Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties
under this Agreement upon 30 days' notice in writing mailed to
the Company, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail. The
Company may remove the Rights Agent or any successor Rights
Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Stock and Preferred Stock,
by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable
of acting, the Company shall appoint a successor to the Rights
Agent. If the Company shall fail to make such appointment
within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Rights Agent
or by the holder of a Rights Certificate (who shall, with such
notice, submit his Rights Certificate for inspection by the
Company), then any registered holder of any Rights Certificate
may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent,
<PAGE>
whether appointed by the Company or by such a court, shall be
a corporation organized and doing business under the laws of
the United States or of the states of New York, Virginia, West
Virginia or Georgia (or of any other state of the United
States so long as such corporation is authorized to do
business as a banking institution in New York, Virginia, West
Virginia or Georgia), in good standing, having a principal
office in New York, Virginia, West Virginia or Georgia, that
is authorized under such laws to exercise corporate trust
powers and is subject to supervision or examination by federal
or state authority and that has at the time of its appointment
as Rights Agent a combined capital and surplus of at least
$100,000,000. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent
any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date
of any such appointment, the Company shall file notice thereof
in writing with the predecessor Rights Agent and each transfer
agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the
Rights Certificates. Failure to give any notice provided for
in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal
of the Rights Agent or the appointment of the successor Rights
Agent, as the case may be.
<PAGE>
4. Section 26 of the Agreement shall be restated as follows:
Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any
Rights Certificate to or on the Company shall be sufficiently
given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the
Rights Agent) as follows:
City Holding Company
25 Gatewater Road
Cross Lanes, West Virginia 25313
Attention: Chief Financial Officer
Subject to the provisions of Section 21 of the Agreement, any
notice or demand authorized by this Agreement to be given or
made by the Company or by the holder of any Rights Certificate
to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as
follows:
SunTrust Bank, Atlanta
Post Office Box 4625
Atlanta, Georgia 30302-4625
Attention: Stock Transfer Department
Notices or demands authorized by this Agreement to be given or
made by the Company or the Rights Agent to the holder of any
Rights Certificate (or, if prior to the Distribution Date, to
the holder of certificates representing shares of Common
Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at
the address of such holder as shown on the registry books of
the Company.
5. Other Referrals to Sovran Bank, N.A. or The Fifth Third
Bank in the Agreement are deemed to be referrals to SunTrust.
<PAGE>
6. Effect of Second Supplement. The Agreement, as supplemented
and amended by the First Supplement and this Second Supplement, is in all
respects ratified and confirmed, and the Agreement, the First Supplement and
this Second Supplement shall be construed as one and the same instrument.
7. Definitions. All terms used in this Second Supplement not
otherwise defined herein that are defined in the Agreement shall have the
meanings set forth therein.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplement to be duly executed, all as of the day and year first above written.
CITY HOLDING COMPANY
By /s/ Steven J. Day
-----------------
Steven J. Day
President and Chief
Executive Officer
SUNTRUST BANK, ATLANTA
By /s/ Bryan Echols
----------------
Name: Bryan Echols
Title: Vice President
NEWS RELEASE
- --------------------------------------------------------------------------------
For Immediate Release
August 7, 1998
For Further Information Contact:
Steven J. Day, President & CEO, City Holding Company
(304) 769-1101
Philip L. McLaughlin, President & COO, Horizon Bancorp, Inc.
(304) 645-2500
CITY HOLDING COMPANY AND HORIZON BANCORP, INC.
ANNOUNCE DEFINITIVE MERGER AGREEMENT
Combined Company to Rank #3 in West Virginia
Charleston, West Virginia - City Holding Company (Nasdaq "CHCO") ("City
Holding") and Horizon Bancorp, Inc. (Nasdaq "HZWV") ("Horizon") jointly
announced today that they have signed a definitive agreement to merge. The
combined company will have total assets in excess of $2.5 billion, will rank
third in deposit market share in the State of West Virginia and will rank among
the Top 100 banks in the country in terms of market capitalization.
The merger entails an exchange of $45.00 in City Holding common stock,
subject to adjustment, for each share of Horizon common stock, or approximately
$413 million in aggregate value for Horizon's shareholders. If, based on trading
prices near the closing of the transaction, the value of City Holding stock is
between $40.50 and $44.50, Horizon shareholders will receive $45.00 in City
Holding common stock. If the value of City Holding stock is less than $40.50,
Horizon shareholders will receive 1.111 shares of City Holding common stock and
if the value is greater than $44.50, Horizon shareholders will receive 1.011
shares of City Holding stock. The transaction is intended to be tax-free to the
shareholders of Horizon and will be accounted for as a pooling of interests.
Based on the $45.00 value, the transaction is priced at 358% of Horizon's June
30, 1998 book value and 29 times its trailing twelve months earnings.
Upon the completion of the merger, Horizon's five bank subsidiaries
will be merged into City Holding's commercial banking subsidiary, City National
Bank of West Virginia. Philip L. McLaughlin, Horizon's current President and
Chief Operating Officer, will be named Chairman of the Board of Directors of
City Holding. Samuel M. Bowling, Chairman of the Board of City Holding Company,
will serve as Vice Chairman. Bernard C. McGinnis, Executive Vice President and
Director of Horizon, will also serve as Vice Chairman. Frank S. Harkins,
Chairman of the Board and Chief Executive Officer of Horizon has chosen to
retire upon the date of merger, but will remain as a consultant and director.
The City Holding Board will include 12 members to be designated by each of City
Holding and Horizon. Steven J. Day, President and Chief Executive Officer of
City Holding and City National Bank, will continue in those roles for the
combined entity.
"For us, Horizon is the ideal strategic partner," noted Mr. Day. "They
have earned a strong reputation of customer service in more than 90 years in
serving West Virginians, and this is a tradition we look forward to continuing.
Combining our companies enables us to be more competitive with our services and
further add value to our communities."
"We are quite pleased to have found in City Holding a partner whose
innovation and investment in technology will further benefit our customers,"
said Mr. Harkins. "Most importantly, these new products and services will be
delivered to our customers through the Horizon bankers that they've come to know
and trust. Finally, our shareholders will benefit from City Holding's exciting
growth into a diversified financial services company".
City Holding expects to realize cost savings by reducing the operating
expenses of the combined company through back-office and branch network
consolidation. City Holding management expects the transaction to close during
the first quarter of 1999 and to begin adding to its earnings per share during
2000.
The merger is subject to the approval of both companies' shareholders
and applicable regulatory authorities. Horizon has granted City Holding the
option, exercisable under certain circumstances, to purchase up to 19.9% of
Horizon shares outstanding and City Holding has granted Horizon a similar option
on its own shares.
Baxter Fentriss & Company is serving as Horizon's financial advisor for
the transaction. Wheat First Union is acting as City Holding's advisor.
Horizon operates 24 banking locations principally along the Interstate
64 corridor in West Virginia. As of June 30,1998, Horizon had assets of $1.0
billion, deposits of $862 million and shareholders' equity of $116 million. City
Holding, a $1.5 billion bank holding company, operates City National Bank and
its seven non-banking divisions, Del Amo Savings Bank, and City Financial
Corporation. City Holding is headquartered in Charleston, West Virginia, and has
43 financial services offices across the state of West Virginia.
This news release contains, among other things, certain forward-looking
statements, including statements relating to the merger and cost savings and
accretion to earnings that may be realized from the merger. Such forward-looking
statements involve certain risks and uncertainties, including a variety of
factors that may cause the combined company's actual results to differ
materially from the anticipated results or other expectations expressed in such
forward-looking statements. Factors that might cause such a difference include,
but are not limited to: (1) expected cost savings from the merger may not be
fully realized within the expected time frame; (2) revenues following the merger
may be lower than expected, or deposit attrition, operating costs or customer
loss and business disruption following the merger may be greater than expected;
(3) competitive pressures among depository and other financial institutions may
increase significantly; (4) costs or difficulties related to the integration of
the business of the companies may be greater than expected; (5) changes in the
interest rate environment may reduce margins; (6) general economic or business
conditions, either nationally or in the states or regions in which the companies
do business, may be less favorable than expected, resulting in, among other
things, a deterioration in credit quality or a reduced demand for credit; (7)
legislative or regulatory changes may adversely affect the businesses in which
the companies are engaged; and (8) changes may occur in the securities markets.
Exhibit 99.3
AGREEMENT AND PLAN OF REORGANIZATION
between
CITY HOLDING COMPANY
and
HORIZON BANCORP, INC.
August 7, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I GENERAL.................................................................................................2
1.1. Holding Company Merger..............................................................................2
1.2. Bank Mergers........................................................................................2
1.3. Taking of Necessary Action..........................................................................2
1.4. Tax Consequences; Accounting Treatment..............................................................2
ARTICLE II EFFECT OF TRANSACTION ON COMMON STOCK, ASSETS, LIABILITIES AND CAPITALIZATION OF CITY HOLDING, CITY
NATIONAL, AND HORIZON....................................................................................3
2.1. Conversion of Stock; Exchange Ratio.................................................................3
2.2. Manner of Exchange..................................................................................3
2.3. No Fractional Shares................................................................................5
2.4. Dissenting Shares...................................................................................5
2.5. Assets..............................................................................................5
2.6. Liabilities.........................................................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES........................................................................6
3.1. Representations and Warranties of Horizon and the Horizon Banks.....................................6
(a) Organization, Standing and Power...........................................................6
(b) Capital Structure..........................................................................7
(c) Authority..................................................................................7
(d) Investments................................................................................8
(e) Financial Statements.......................................................................8
(f) Absence of Undisclosed Liabilities.........................................................9
(g) Tax Matters................................................................................9
(h) Options, Warrants and Related Matters.....................................................11
(i) Property..................................................................................11
(j) Additional Schedules Furnished to City Holding............................................11
(k) Agreements in Force and Effect............................................................12
(l) Legal Proceedings; Compliance with Laws...................................................13
(m) Employee Benefit Plans....................................................................13
(n) Insurance.................................................................................16
(o) Loan Portfolio............................................................................16
(p) Absence of Changes........................................................................17
(q) Brokers and Finders.......................................................................17
(r) Subsidiaries; Partnerships and Joint Ventures.............................................17
(s) Reports...................................................................................18
(t) Environmental Matters.....................................................................18
(u) Disclosure................................................................................19
(v) Accounting and Tax Matters................................................................19
(w) Regulatory Approvals......................................................................20
<PAGE>
(x) Year 2000 Matters.........................................................................20
(y) Interest Rate Risk Management Instruments.................................................20
(z) Recission of Repurchases..................................................................20
3.2. Representations and Warranties of City Holding and City National...................................21
(a) Organization, Standing and Power..........................................................21
(b) Capital Structure.........................................................................21
(c) Authority.................................................................................22
(d) Investments...............................................................................22
(e) Financial Statements......................................................................23
(f) Absence of Undisclosed Liabilities........................................................24
(g) Tax Matters...............................................................................24
(h) Options, Warrants and Related Matters.....................................................25
(i) Property..................................................................................25
(j) Additional Schedules Furnished to Horizon.................................................26
(k) Agreements in Force and Effect............................................................27
(l) Legal Proceedings; Compliance with Laws...................................................27
(m) Employee Benefit Plans....................................................................28
(n) Insurance.................................................................................30
(o) Loan Portfolio............................................................................31
(p) Absence of Changes........................................................................31
(q) Brokers and Finders.......................................................................32
(r) Subsidiaries; Partnerships and Joint Ventures.............................................32
(s) Reports...................................................................................32
(t) Environmental Matters.....................................................................32
(u) Disclosure................................................................................33
(v) Accounting and Tax Matters................................................................33
(w) Regulatory Approvals......................................................................34
(x) Year 2000 Matters.........................................................................34
(y) Interest Rate Risk Management Instruments.................................................34
(z) Recission of Repurchases..................................................................34
ARTICLE IV CONDUCT AND TRANSACTIONS PRIOR TO THE EFFECTIVE TIME OF THE HOLDING COMPANY MERGER....................35
4.1. Access to Records and Properties of City Holding, City National, Other City Holding Subsidiaries,
Horizon and the Horizon Banks; Confidentiality.................................................35
4.2. Registration Statement, Proxy Statement, Shareholder Approval......................................36
4.3. Operation of the Businesses of the Parties.........................................................37
4.4. No Solicitation....................................................................................38
4.5. Dividends..........................................................................................38
4.6. Regulatory Filings; Best Efforts...................................................................39
4.7. Public Announcements...............................................................................39
4.8. Operating Synergies; Conformance to Reserve Policies, Etc..........................................39
4.9. City Holding Rights Agreement......................................................................40
<PAGE>
4.10. Agreement as to Efforts to Consummate.............................................................40
4.11. Adverse Changes in Condition......................................................................40
4.12. Nasdaq Listing....................................................................................40
4.13. Delivery and Updating of Schedules................................................................41
4.14. Transactions in City Holding Common Stock.........................................................41
4.15. Standstill Agreements; Confidentiality Agreements.................................................41
4.16. Letters from Accountants..........................................................................42
ARTICLE V MANAGEMENT AND CORPORATE GOVERNANCE....................................................................42
5.1. Board of Directors.................................................................................42
5.2. Management.........................................................................................42
ARTICLE VI CONDITIONS OF MERGER..................................................................................42
6.1. Conditions of Obligations of City Holding and City National........................................42
6.2. Conditions of Obligations of Horizon and the Horizon Banks.........................................45
ARTICLE VII CLOSING DATE; EFFECTIVE TIME.........................................................................48
7.1. Closing Date.......................................................................................48
7.2. Filings at Closing.................................................................................48
7.3. Effective Time.....................................................................................48
ARTICLE VIII TERMINATION; SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; WAIVER AND AMENDMENT............49
8.1. Termination........................................................................................49
8.2. Effect of Termination..............................................................................50
8.3. Survival of Representations, Warranties and Covenants..............................................50
8.4. Waiver and Amendment...............................................................................51
ARTICLE IX ADDITIONAL COVENANTS..................................................................................51
9.1. Indemnification of Horizon Officers and Directors; Liability Insurance.............................51
9.2. Employee Matters...................................................................................52
ARTICLE X MISCELLANEOUS..........................................................................................53
10.1. Expenses..........................................................................................53
10.2. Entire Agreement..................................................................................53
10.3. Descriptive Headings..............................................................................53
10.4. Notices...........................................................................................54
10.5. Counterparts......................................................................................55
10.6. Governing Law.....................................................................................55
</TABLE>
<PAGE>
INDEX TO EXHIBITS
A Holding Company Plan of Merger
B [RESERVED]
C City Holding Option Agreement
D Horizon Option Agreement
E Management of City Holding and City National following
the Effective Time of the Holding Company Merger
F [RESERVED]
G Opinion of Jackson & Kelly, counsel to Horizon and the
Horizon Banks
H Form of Affiliate's Undertaking
I Forms of Employment Agreements
J Opinion of Hunton & Williams, counsel to City Holding
and City National
<PAGE>
<TABLE>
<CAPTION>
INDEX TO SCHEDULES TO BE PROVIDED BY HORIZON
<S> <C>
2.2(d) Horizon Options
3.1(b)(1) Horizon Banks Outstanding Capital Stock
3.1(b)(2) Horizon Common Stock Beneficial Ownership
3.1(d) Securities Owned by Horizon
3.1(e) Horizon Financial Statements
3.1(g) Horizon Group Taxes Being Contested, Etc.
3.1(h) Horizon and Horizon Banks Options, Warrants and Related Matters
3.1(j)(1) Horizon and Horizon Banks Salary Rates, Horizon Common Stock Held by Directors of Horizon
or the Horizon Banks, Options and Restricted Stock Awards
3.1(j)(2) Notes, Bonds, Mortgages, Indentures, Licenses, Lease Agreements and Other Contracts of
Horizon or the Horizon Banks
3.1(j)(3) Employment Contracts and Related Matters of Horizon and the Horizon Banks
3.1(j)(4) Real Estate Owned or Leased by Horizon and the Horizon Banks
3.1(j)(5) Affiliates of Horizon and the Horizon Banks
3.1(1) Legal Proceedings of Horizon or the Horizon Banks
3.1(m) Employee Benefit Plans of Horizon and the Horizon Banks
3.1(n) Insurance of Horizon or the Horizon Banks
3.1(o) Horizon and the Horizon Banks Loans
3.1(p) Certain Changes
3.1(r) Horizon Subsidiaries and Joint Ventures
3.1(t) Environmental Changes
3.1(z) Horizon Share Repurchase Programs
4.3 Horizon Share Repurchases
<PAGE>
INDEX TO SCHEDULES TO BE PROVIDED BY CITY HOLDING
3.2(b)(1) City Holding Outstanding Capital Stock
3.2(b)(2) City Holding Common Stock Beneficial Ownership
3.2(d) Securities Owned by City Holding and City National
3.2(e) City Holding Financial Statements
3.2(g) City Holding Group Taxes Being Contested, Etc.
3.2(h) City Holding and City National Options, Warrants and Related Matters
3.2(j)(1) City Holding Salary Rates, City Holding Common Stock Held by Directors of City Holding or
City National, Options and Restricted Stock Awards
3.2(j)(2) Notes, Bonds, Mortgages, Indentures, Licenses, Lease Agreements and Other Contracts of
City Holding
3.2(j)(3) Employment Contracts and Related Matters of City Holding
3.2(j)(4) Real Estate Owned or Leased by City Holding
3.2(j)(5) Affiliates of City Holding
3.2(l) Legal Proceedings of City Holding or City National
3.2(m) Employee Benefit Plans of City Holding
3.2(n) Insurance of City Holding
3.2(o) City Holding and City National Loans
3.2(p) Certain Changes
3.2(r) City Holding and City National Subsidiaries and Joint Ventures
3.2(t) Environmental Changes
3.2(z) City Holding Share Repurchase Programs
4.3 City Holding Share Repurchases
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") dated as of
August 7, 1998 between CITY HOLDING COMPANY, a West Virginia corporation ("City
Holding") and HORIZON BANCORP, INC. a West Virginia corporation ("Horizon")
recites and provides:
A. The boards of directors of City Holding and Horizon deem it
advisable and in furtherance of their long-term business strategies to combine
their business operations through the merger of Horizon into City Holding, with
City Holding as the surviving company (the "Holding Company Merger"), pursuant
to this Agreement and the Plan of Merger attached as Exhibit A (the "Holding
Company Plan of Merger") whereby the holders of shares of the common stock of
Horizon ("Horizon Common Stock") will receive common stock of City Holding
("City Holding Common Stock") in exchange therefor.
B. The boards of directors of City Holding and Horizon deem it
advisable that, as soon as possible after the Holding Company Merger, City
Holding and Horizon shall cause Bank of Raleigh, a West Virginia bank
("Raleigh"), National Bank of Summers of Hinton, a national banking association
("Summers"), Greenbrier Valley National Bank, a national banking association
("Greenbrier"), The First National Bank in Marlinton, a national banking
association ("Marlinton") and The Twentieth Street Bank, a West Virginia bank
("Twentieth") (collectively, the "Horizon Banks", all of which are wholly-owned
by Horizon), to be merged into City National Bank of West Virginia, a national
banking association wholly-owned by City Holding ("City National") (the "Bank
Mergers"). The Holding Company Merger and the Bank Mergers are referred to
herein collectively as the "Transaction."
C. To effectuate the foregoing, the parties desire to adopt this
Agreement and the Holding Company Plan of Merger, which shall represent a plan
of reorganization in accordance with the provisions of Section 368(a) of the
United States Internal Revenue Code, as amended (the "Code").
D. As a condition to, and contemporaneously with, the execution of
this Agreement, the parties have entered into a stock option agreement, with
City Holding as Issuer and Horizon as grantee (the "City Holding Option
Agreement") in the form attached hereto as Exhibit C.
E. As a condition to, and contemporaneously with, the execution of
this Agreement, the parties have entered into a stock option agreement, with
Horizon as Issuer and City Holding as grantee (the "Horizon Option Agreement")
in the form attached hereto as Exhibit D.
F. For accounting purposes, the parties intend that the Transaction
shall be accounted for as a "pooling of interests."
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement, and of the representations, warranties, conditions and
promises herein contained, City Holding and Horizon hereby adopt this Agreement
whereby at the "Effective Time of the Holding Company Merger" (as defined in
Article VII hereof) Horizon shall be merged with City Holding in accordance with
the Holding Company Plan of Merger. As soon as possible after the Holding
Company Merger, the Horizon Banks will merge directly into City National. The
outstanding shares of Horizon Common Stock shall be converted into shares of
City Holding Common Stock as provided in this Agreement on the basis, terms and
conditions contained herein and in the Holding Company Plan of Merger.
<PAGE>
In connection therewith, the parties hereto agree as follows:
ARTICLE I
GENERAL
1.1. Holding Company Merger.
Subject to the provisions of this Agreement and the Holding
Company Plan of Merger, at the Effective Time of the Holding Company Merger,
Horizon shall be merged with and into City Holding (the "Surviving Company"),
the separate existence of Horizon shall cease, the outstanding shares of Horizon
Common Stock, other than Dissenting Shares (as defined in Section 2.4) and
shares held directly by City Holding, shall be converted into the right to
receive shares of City Holding Common Stock.
1.2. Bank Mergers.
As soon as possible following the Effective Time of the
Holding Company Merger, City Holding shall cause the Horizon Banks to merge into
City National.
1.3. Taking of Necessary Action.
In case at any time after the Effective Time of the Holding
Company Merger any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest City Holding with full title to all
properties, assets, rights, approvals, immunities and franchises of Horizon, the
officers and directors of City Holding and Horizon shall take all such necessary
action.
1.4. Tax Consequences; Accounting Treatment.
The parties intend that each of the Holding Company Merger and
the Bank Mergers shall (i) constitute a reorganization within the meaning of
Section 368(a) of the Code and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code, and (ii) be
accounted for as a "pooling of interests."
<PAGE>
ARTICLE II
EFFECT OF TRANSACTION ON COMMON STOCK, ASSETS, LIABILITIES AND CAPITALIZATION
OF CITY HOLDING, CITY NATIONAL, AND HORIZON
2.1. Conversion of Stock; Exchange Ratio.
At the Effective Time of the Holding Company Merger:
(a)Conversion of Stock. Each share of Horizon Common Stock
which is issued and outstanding at the Effective Time of the Holding
Company Merger (other than shares held directly by City Holding, which
shall be canceled without payment therefore, and Dissenting Shares)
shall, and without any action by the holder thereof, be converted into
the number of shares of City Holding Common Stock determined in
accordance with Section 2.1(b). All such shares shall be validly
issued, fully paid and nonassessable.
(b) Exchange Ratio. Each share of Horizon Common Stock (other
than shares held directly by City Holding and shares to be exchanged
for cash) shall be converted into the number of shares of City Holding
Common Stock determined by dividing $45.00 per share of Horizon Common
Stock (the "Common Stock Price Per Share") by the average closing price
of City Holding Common Stock as reported on the Nasdaq National Market
for each of the 10 trading days ending on the 10th day prior to the day
of the Effective Time of the Holding Company Merger (the "Average
Closing Price"), such quotient to be rounded to the nearest one
one-thousandth (the "Exchange Ratio"), provided, that if the Average
Closing Price is $44.50 or greater, then the Exchange Ratio shall be
1.011 and if the Average Closing Price is $40.50 or less, then the
Exchange Ratio shall be 1.111.
The Exchange Ratio at the Effective Time of the Holding
Company Merger shall be adjusted to reflect any consolidation,
split-up, other subdivisions or combinations of City Holding Common
Stock, any dividend payable in City Holding Common Stock, or any
capital reorganization involving the reclassification of City Holding
Common Stock subsequent to the date of this Agreement.
2.2. Manner of Exchange.
(a) After the Effective Time of the Holding Company Merger,
each holder of a certificate for theretofore outstanding shares of
Horizon Common Stock, upon surrender of such certificate to SunTrust
Bank, Atlanta (which shall act as exchange agent), and a Letter of
Transmittal, which shall be mailed to each holder of a certificate for
theretofore outstanding shares of Horizon Common Stock by City National
promptly following the Effective Time of the Holding Company Merger,
shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of full shares of City Holding
Common Stock for which shares of Horizon Common Stock theretofore
represented by the certificate or certificates so surrendered shall
have been exchanged as provided in this Article II. Until so
surrendered, each outstanding certificate which, prior to the Effective
Time of the Holding Company Merger, represented Horizon Common Stock
will be deemed to evidence the right to receive the number of full
shares of City Holding Common Stock into which the shares of Horizon
Common Stock represented thereby may be converted in accordance with
the Exchange Ratio and, after the Effective Time of the Holding Company
Merger will be deemed for all corporate purposes of City Holding to
evidence ownership of the number of full shares of City Holding Common
Stock into which the shares of Horizon Common Stock represented thereby
were converted.
<PAGE>
(b) Until outstanding certificates formerly representing
Horizon Common Stock are surrendered, no dividend payable to holders of
record of City Holding Common Stock for any period as of any date
subsequent to the Effective Time of the Holding Company Merger shall be
paid to the holder of such outstanding certificates in respect thereof.
After the Effective Time of the Holding Company Merger, there shall be
no further registry of transfer on the records of Horizon of shares of
Horizon Common Stock. If a certificate representing such shares is
presented to City Holding, it shall be canceled and exchanged for a
certificate representing shares of City Holding Common Stock and cash
representing fractional shares as herein provided. Upon surrender of
certificates of Horizon Common Stock in exchange for City Holding
Common Stock, there shall be paid to the recordholder of the
certificates of City Holding Common Stock issued in exchange therefor
(i) the amount of dividends theretofore paid for such full shares of
City Holding Common Stock as of any date subsequent to the Effective
Time of the Holding Company Merger which have not yet been paid to a
public official pursuant to abandoned property laws and (ii) at the
appropriate payment date the amount of dividends with a record date
after the Effective Time of the Holding Company Merger but prior to
surrender and a payment date subsequent to surrender. No interest shall
be payable on such dividends upon surrender of outstanding
certificates.
(c) At the Effective Time of the Holding Company Merger, each
share of Horizon Common Stock held by City Holding shall be canceled,
retired and cease to exist and each Dissenting Share shall be treated
in accordance with Section 31-1-123 of the West Virginia Code ("WVC").
(d) At the Effective Time of the Holding Company Merger and as
provided in the Holding Company Plan of Merger, outstanding options to
acquire Horizon Common Stock that were granted under Horizon's employee
benefit plans ("Horizon Options," as defined in Section 3.1(j)(1)
hereof), and which are identified on Schedule 2.2(d), shall be
converted, based on the Exchange Ratio, into options to acquire City
Holding Common Stock ("City Holding Options"). The exercise price per
share of City Holding Common Stock under a City Holding Option shall be
equal to the exercise price per share of Horizon Common Stock under the
Horizon Option divided by the Exchange Ratio (rounded up to the nearest
cent). The number of shares of City Holding Common Stock subject to a
City Holding Option shall be equal to the number of shares of Horizon
Common Stock subject to the Horizon Option multiplied by the Exchange
Ratio (rounded down to the nearest whole share). Except as provided in
the preceding sentences regarding the price of, and number of shares of
City Holding Common Stock subject to, the City Holding Option, the
terms of the City Holding Option shall be the same as the terms of the
Horizon Option.
<PAGE>
2.3. No Fractional Shares.
No certificates or scrip for fractional shares of City Holding
Common Stock will be issued. In lieu thereof, City Holding will pay the value of
such fractional shares in cash on the basis of the Average Closing Price.
2.4. Dissenting Shares.
Notwithstanding anything in this Agreement to the contrary,
shares of Horizon Common Stock which are issued and outstanding immediately
prior to the Effective Time of the Holding Company Merger and which are held by
a shareholder (other than City Holding and its subsidiaries, which waive such
right to dissent) who has the right (to the extent such right is available by
law) to demand and receive payment of the fair value of his shares of Horizon
Common Stock pursuant to Section 31-1-122 of the WVC (the "Dissenting Shares")
shall not be converted into or be exchangeable for the right to receive the
consideration provided in Section 2.1 of this Agreement, unless and until such
holder shall fail to perfect his or her right to dissent or shall have
effectively withdrawn or lost such right under the WVC, as the case may be. If
such holder shall have so failed to perfect his right to dissent or shall have
effectively withdrawn or lost such right, each of his shares of Horizon Common
Stock shall thereupon be deemed to have been converted into, at the Effective
Time of the Holding Company Merger, the right to receive shares of City Holding
Common Stock as provided in Section 2.1 of this Agreement.
2.5. Assets.
At the Effective Time of the Holding Company Merger, the
corporate existence of Horizon shall be merged into and continued in City
Holding as the Surviving Company. All rights, franchises and interests of
Horizon and of the Horizon Banks in and to any type of property and choses in
action shall be transferred to and vested in the Surviving Company by virtue of
the Holding Company Merger. The Surviving Company, without any order or other
action on the part of any court or otherwise, shall hold and enjoy all rights of
property, franchises and interests, including appointments, designations and
nominations, and all other rights and interests as trustee, executor,
administrator, transfer agent or registrar of stocks and bonds, guardian of
estates, assignee, receiver and committee, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises
and interests were held or enjoyed by Horizon at the Effective Time of the
Holding Company Merger as provided in Section 31-1-37 of the WVC.
<PAGE>
2.6. Liabilities.
At the Effective Time of the Holding Company Merger, the
Surviving Company shall be liable for all liabilities of Horizon, as provided in
Section 31-1-37 of the WVC. All deposits, debts, liabilities and obligations of
Horizon, accrued, absolute, contingent or otherwise, and whether or not
reflected or reserved against on balance sheets, books of accounts, or records
of Horizon shall be those of the Surviving Company, and shall not be released or
impaired by the Holding Company Merger. All rights of creditors and other
obligees and all liens on property of Horizon shall be preserved unimpaired.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Horizon and the Horizon Banks.
Horizon represents and warrants to City Holding as follows
(subject to Section 4.13(a) with respect to the delivery of the Schedules
referred to herein):
(a) Organization, Standing and Power. Horizon is a corporation
duly organized, validly existing and in good standing under the laws of
West Virginia and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as
now being conducted and to perform this Agreement and the Holding
Company Plan of Merger and to effect the transactions contemplated
hereby and thereby, subject to the approval of its shareholders as
contemplated by Section 4.2 and federal and state regulatory approvals
provided for herein. Horizon will deliver to City Holding complete and
correct copies of its Articles of Incorporation and its By-laws as
amended to the date hereof.
Each of the Horizon Banks is a bank duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as
now being conducted and to perform this Agreement and to effect the
transactions contemplated hereby. Each of the Banks' deposits are
insured by the Federal Deposit Insurance Corporation (the "FDIC") to
the maximum extent permitted by law. Horizon will deliver to City
Holding complete and correct copies of each of the Horizon Banks'
(i) Charter and (ii) By-laws as amended to the date hereof.
<PAGE>
(b) Capital Structure. The authorized capital stock of Horizon
consists of 20,000,000 shares of Horizon Common Stock, par value $1.00.
On the date hereof, 9,312,876 shares of Horizon Common Stock were
outstanding. All of the outstanding shares of Horizon Common Stock are
validly issued, fully paid and nonassessable.
The authorized capital stock of each of the Horizon Banks and
the title and number of each class of such capital stock outstanding on
the date hereof is set forth on Schedule 3.1(b)(1). All of such
outstanding shares of capital stock are validly issued, fully paid and
nonassessable. Horizon owns all of the issued and outstanding capital
stock of the Horizon Banks free and clear of any liens, claims,
encumbrances, charges or rights of third parties of any kind
whatsoever.
Horizon knows of no person who beneficially owns 5% or more of
the outstanding Horizon Common Stock as of the date hereof, except as
disclosed on Schedule 3.1(b)(2).
(c) Authority. Subject to the approval of this Agreement and
the Holding Company Plan of Merger by the shareholders of Horizon as
contemplated by Section 4.2, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
and by the Holding Company Plan of Merger have been duly and validly
authorized by all necessary action on the part of Horizon, and this
Agreement is a valid and binding obligation of Horizon, enforceable in
accordance with its terms. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and
by the Holding Company Plan of Merger and compliance by Horizon with
any of the provisions hereof or thereof will not (i) conflict with
or result in a breach of any provision of its Articles of Incorporation
or By-laws or a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, debenture, mortgage, indenture, license,
material agreement or other material instrument or obligation to which
Horizon is a party, or by which it or any of its properties or assets
may be bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Horizon or any of its
properties or assets. No consent or approval by any governmental
authority, other than compliance with applicable federal and state
securities and banking laws, the rules of the Nasdaq Stock Market and
regulations of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), the Office of the Comptroller of the
Currency (the "OCC"), the FDIC, and the West Virginia Board of Banking
and Financial Institutions ("WVBOB"), is required in connection with
the execution and delivery by Horizon of this Agreement or the
consummation by Horizon of the transactions contemplated hereby or by
the Holding Company Plan of Merger. Horizon's Board of Directors has
taken all action necessary to ensure that the Transaction is exempted
from any West Virginia statute that purports to limit or restrict
business combinations or the ability to acquire or vote shares and any
change of control or anti-takeover provisions of Horizon's Articles or
By-laws.
<PAGE>
The consummation by the Horizon Banks of the transactions
contemplated hereby, including the Bank Mergers, will not (i)
conflict with or result in a breach of any provision of their
respective charters or by-laws or a default (or give rise to any right
of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, debenture, mortgage,
indenture, license, material agreement or other material instrument or
obligation to which any of the Horizon Banks is a party, or by which
any of them or any of their properties or assets may be bound, or
(ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to any of the Horizon Banks or any of their
properties or assets. No consent or approval by any governmental
authority, other than compliance with applicable federal and state
banking laws, the rules of the Nasdaq Stock Market and regulations of
the Federal Reserve Board, the OCC, the FDIC and the WVBOB, is required
in connection with the consummation by the Horizon Banks of the
transactions contemplated hereby.
(d) Investments. All securities owned by Horizon and the
Horizon Banks of record and beneficially are free and clear of all
mortgages, liens, pledges, encumbrances or any other restriction,
whether contractual or statutory, which would materially impair the
ability of Horizon or the Horizon Banks freely to dispose of any such
security at any time, except as noted on Schedule 3.1(d). Any
securities owned of record by Horizon and the Horizon Banks in an
amount equal to 5% or more of the issued and outstanding voting
securities of the issuer thereof have been noted on such Schedule
3.1(d). There are no voting trusts or other agreements or undertakings
of which Horizon or any of the Horizon Banks is a party with respect to
the voting of such securities. With respect to all repurchase
agreements to which Horizon or any of the Horizon Banks is a party, as
an investor, Horizon or the Horizon Banks has a valid, perfected first
lien or security interest in the government securities or other
collateral securing the repurchase agreement, and the value of the
collateral securing each such repurchase agreement equals or exceeds
the amount of the debt secured by such collateral under such agreement.
(e) Financial Statements. Schedule 3.1(e) contains copies of
the following consolidated financial statements of Horizon and each of
the Horizon Banks (the "Horizon Financial Statements"):
(i) Consolidated Balance Sheets as of December 31,
1997 and 1996 (audited), and as of June 30, 1998 and 1997
(unaudited);
<PAGE>
(ii) Consolidated Statements of Income for each of
the three years ended December 31, 1997, 1996, and 1995
(audited) and for each of the three and six month periods
ended June 30, 1998 and 1997 (unaudited);
(iii) Consolidated Statements of Shareholders' Equity
for each of the three years ended December 31, 1997, 1996 and
1995 (audited) and for each of the three and six month periods
ended June 30, 1998 and 1997 (unaudited); and
(iv) Consolidated Statements of Cash Flows for each
of the three years ended December 31, 1997, 1996 and 1995
(audited) and for each of the three and six month periods
ended June 30, 1998 and 1997 (unaudited).
Such financial statements and the notes thereto have been prepared in
accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods indicated unless
otherwise noted in the Horizon Financial Statements. Each of such
consolidated statements of financial condition, together with the notes
thereto, presents fairly as of its date the consolidated financial
condition and assets and liabilities of Horizon or the applicable
Horizon Bank. The consolidated income statements, shareholders' equity
and cash flows, together with the notes thereto, present fairly the
results of operations, changes in shareholders' equity and cash flows
of Horizon or the applicable Horizon Bank for the periods indicated in
accordance with GAAP.
Except as disclosed in the Horizon Financial Statements, and
in the case of the Horizon Banks, compliance with and subject to
regulatory requirements of general applicability, there are no
restrictions precluding Horizon or any of the Horizon Banks from paying
dividends when, as and if declared by their respective Boards of
Directors.
(f) Absence of Undisclosed Liabilities. At June 30, 1998,
neither Horizon nor any of its consolidated subsidiaries had any
material obligations or liabilities (contingent or otherwise) of any
nature which were not reflected in the Horizon Financial Statements as
of such dates, or disclosed in the notes thereto, or in the Horizon
periodic reports filed with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934 (the "1934 Act") as
of such dates, or disclosed in the notes thereto, except for those
which are appropriately disclosed in Schedules specifically referred to
herein or which in the aggregate are immaterial.
(g) Tax Matters. The Horizon Banks and all other subsidiaries
of Horizon are members of the same "affiliated group," as defined in
Section 1504(a)(1) of the Code, as Horizon (collectively, the "Horizon
Group"). Each member of the Horizon Group has filed or caused to be
filed or (in the case of returns or reports not yet due) will file all
tax returns and reports required to have been filed by or for them
before the Effective Time of the Holding Company Merger, and all
<PAGE>
information set forth in such returns or reports is or (in the case of
such returns or reports not yet due) will be accurate and complete in
all material respects. Each member of the Horizon Group has paid or
made adequate provision for, or (with respect to returns or reports not
yet filed) before the Effective Time of the Holding Company Merger will
pay or make adequate provision for, all taxes, additions to tax,
penalties, and interest for all periods covered by those returns or
reports. There are, and at the Effective Time of the Holding Company
Merger will be, no unpaid taxes, additions to tax, penalties, or
interest due and payable by any member of the Horizon Group that are or
could become a lien on any asset, or otherwise materially adversely
affect the business, property or financial condition, of any member of
the Horizon Group except for taxes and any such related liability (a)
incurred in the ordinary course of business for which adequate
provision has been made by any member of the Horizon Group or (b) being
contested in good faith and disclosed in Schedule 3.1(g). Each member
of the Horizon Group has collected or withheld, or will collect or
withhold before the Effective Time of the Holding Company Merger, all
amounts required to be collected or withheld by it for any taxes, and
all such amounts have been, or before the Effective Time of the Holding
Company Merger will have been, paid to the appropriate governmental
agencies or set aside in appropriate accounts for future payment when
due. Each member of the Horizon Group is in material compliance with,
and its records contain all information and documents (including,
without limitation, properly completed IRS Forms W-9) necessary to
comply in all material respects with, all applicable information
reporting and tax withholding requirements under federal, state, and
local laws, rules, and regulations, and such records identify with
specificity all accounts subject to backup withholding under Section
3406 of the Code. The consolidated statements of financial condition
contained in the Horizon Financial Statements fully and properly
reflect, as of the dates thereof, the aggregate liabilities of the
members of the Horizon Group for all accrued taxes, additions to tax,
penalties and interest in accordance with GAAP. For periods ending
after June 30, 1998, the books and records of each member of the
Horizon Group fully and properly reflect their liability for all
accrued taxes, additions to tax, penalties and interest in accordance
with GAAP. Except as disclosed in Schedule 3.1(g), no member of the
Horizon Group has granted (nor is it subject to) any waiver of the
period of limitations for the assessment of tax for any currently open
taxable period, and no unpaid tax deficiency has been asserted in
writing against or with respect to any member of the Horizon Group by
any taxing authority. No member of the Horizon Group has made or
entered into, or holds any asset subject to, a consent filed pursuant
to Section 341(f) of the Code and the regulations thereunder or a "safe
harbor lease" subject to former Section 168(f)(8) of the Code and the
regulations thereunder. Schedule 3.1(g) describes all tax elections,
consents and agreements affecting any member of the Horizon Group. To
the Knowledge of Horizon, no Horizon shareholder is a "foreign person"
for purposes of Section 1445 of the Code.
<PAGE>
(h) Options, Warrants and Related Matters. There are no
outstanding unexercised options, warrants, calls, commitments or
agreements of any character to which Horizon or any of the Horizon
Banks is a party or by which it is bound, calling for the issuance of
securities of Horizon or the Horizon Banks or any security representing
the right to purchase or otherwise receive any such security, except
(i) as set forth on Schedule 3.1(h) and (ii) the Horizon Stock
Option Agreement.
(i) Property. Horizon and the Horizon Banks own (or enjoy use
of under capital leases) all property reflected on the Horizon
Financial Statements as of June 30, 1998 as being owned by them (except
property sold or otherwise disposed of in the ordinary course of
business after such date). All material property shown as being owned
is owned free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except those referred to in such
Horizon Financial Statements or the notes thereto, liens for current
taxes not yet due and payable, any unfiled mechanics' liens and such
encumbrances and imperfections of title, if any, as are not substantial
in character or amount or otherwise would materially impair Horizon's
consolidated business operations. The leases relating to leased
property are fairly reflected in such Horizon Financial Statements.
Except for Other Real Estate Owned ("OREO"), all property and
assets material to the business or operations of Horizon and the
Horizon Banks are in substantially good operating condition and repair
and such property and assets are adequate for the business and
operations of Horizon and the Horizon Banks as currently conducted.
(j) Additional Schedules Furnished to City Holding. In
addition to any Schedules furnished to City Holding pursuant to other
provisions of this Agreement, Horizon has furnished to City Holding the
following Schedules which are correct and complete as of the date
hereof:
(1) Employees. Schedule 3.1(j)(1) lists as of the
date hereof (A) the names of and current annual salary
rates for all present employees of Horizon and the Horizon
Banks who received, respectively, $75,000 or more in aggregate
compensation, whether in salary or otherwise as reported or
would be reported on Form W-2, during the year ended December
31, 1997, or are presently scheduled to receive salary in
excess of $75,000 during the year ending December 31, 1998,
(B) the number of shares of Horizon Common Stock owned
beneficially by each director of Horizon or the Horizon Banks
as of the date hereof, (C) the names of and the number of
shares of Horizon Common Stock owned by each person known to
Horizon who beneficially owns 5% or more of the outstanding
Horizon Common Stock as of the date hereof, and (D) the
names of, the number of outstanding options of, and the
exercise price of, each agreement to make stock-based awards
granted to each person under Horizon's incentive stock option
plan (the "Horizon Stock Option Plan") or any other option
granted by Horizon or any the Horizon Banks to any director,
officer, employee, consultant or advisor (collectively,
"Horizon Options") and the exercise price of each such Horizon
Option. Horizon has no stock-based employee benefit plan or
arrangement other than the Horizon Stock Option Plan, and the
Horizon Employee Stock Option Plan.
<PAGE>
(2) Certain Contracts. Schedule 3.1(j)(2) lists all
notes, bonds, mortgages, indentures, licenses, lease
agreements and other contracts and obligations to which
Horizon or any of the Horizon Banks is an indebted party or a
lessee, licensee or obligee as of the date hereof except for
those entered into by Horizon or the Horizon Banks in the
ordinary course of its business consistent with its prior
practice and that do not involve an amount remaining greater
than $100,000.
(3) Employment Contracts and Related Matters. Except
in all cases as set forth on Schedule 3.1(j)(3), neither
Horizon nor any of the Horizon Banks is a party to any
employment contract not terminable at the option of Horizon or
the Horizon Banks without liability. Except in all cases as
set forth on Schedule 3.1(j)(3), neither Horizon nor any of
the Horizon Banks is a party to (A) any retirement, profit
sharing or pension plan or thrift plan or agreement or
employee benefit plan (as defined in Section 3 of the Employee
Retirement Income Security Act of 1974 ("ERISA")), (B) any
management or consulting agreement not terminable at the
option of Horizon or the Horizon Banks without liability or
(C) any union or labor agreement.
(4) Real Estate. Schedule 3.1(j)(4) describes, as of
the date hereof, all interests in real property owned, leased
or otherwise claimed by Horizon and the Horizon Banks,
including OREO.
(5) Affiliates. Schedule 3.1(j)(5) sets forth the
names and number of shares of Horizon Common Stock owned as of
the date hereof beneficially or of record by any persons
Horizon considers to be affiliates of Horizon ("Horizon
Affiliates") as that term is defined for purposes of Rule 145
under the Securities Act of 1933 (the "1933 Act").
(k) Agreements in Force and Effect. All material contracts,
agreements, plans, leases, policies and licenses referred to in any
Schedule of Horizon or the Horizon Banks referred to herein are valid
and in full force and effect, and neither Horizon nor any of the
Horizon Banks has breached any provision of, nor is in default in any
respect under the terms of, any such contract, agreement, lease, policy
or license, the effect of which breach or default would have a material
adverse effect upon the financial condition, results of operations, or
business of Horizon on a consolidated basis.
<PAGE>
(l) Legal Proceedings; Compliance with Laws. Schedule 3.1(l)
describes all legal, administrative, arbitration or other proceedings
or governmental investigations known to Horizon pending or, to the
Knowledge of Horizon, threatened or probable of assertion against
Horizon or any of the Horizon Banks. Except as set forth on Schedule
3.1(l), no such proceeding or investigation, if decided adversely,
would have a material adverse effect on the financial condition,
results of operations, business or prospects of Horizon on a
consolidated basis. Except as set forth in Schedule 3.1(l), Horizon and
the Horizon Banks have complied with any laws, ordinances,
requirements, regulations or orders applicable to their respective
businesses, except where noncompliance would not have a material
adverse effect on the financial condition, results of operations or
business of Horizon on a consolidated basis. Horizon and the Horizon
Banks have all licenses, permits, orders or approvals (collectively,
the "Permits") of any federal, state, local or foreign governmental or
regulatory body that are necessary for the conduct of the respective
businesses of Horizon and the Horizon Banks and the absence of which
would have a material adverse effect on the financial condition,
results of operations or business of Horizon on a consolidated basis;
the Permits are in full force and effect; no material violations are or
have been recorded in respect of any Permits nor has Horizon or any of
the Horizon Banks received written notice of any violations; and no
proceeding is pending or, to the Knowledge of Horizon, threatened to
revoke or limit any Permit. Except as set forth in Schedule 3.1(l),
neither Horizon nor any of the Horizon Banks has entered into any
agreements or written understandings with the OCC, the Federal Reserve
Board, the FDIC, the WVBOB or any other regulatory agency having
authority over it. Neither Horizon nor any of the Horizon Banks is
subject to any judgment, order, writ, injunction or decree which
materially adversely affects, or might reasonably be expected
materially adversely to affect, the financial condition, results of
operations, or business of Horizon on a consolidated basis. "Knowledge
of Horizon," and phrases of similar meaning, shall mean the actual
knowledge, after due inquiry, of Frank S. Harkins, Jr., B. C. McGinnis,
III and Philip L. McLaughlin.
(m) Employee Benefit Plans.
(1) Schedule 3.1(m) includes a correct and complete
list of, and City Holding has been furnished a true and
correct copy of (or an accurate written description thereof in
the case of oral agreements or arrangements) (A) all
qualified pension and profit-sharing plans, all deferred
compensation, consultant, severance, thrift, option, bonus and
group insurance contracts and all other incentive, welfare and
employee benefit plans, trust, annuity or other funding
agreements, and all other agreements (including oral
<PAGE>
agreements) that are presently in effect, or have been
approved prior to the date hereof, maintained for the benefit
of employees or former employees of Horizon or the Horizon
Banks or the dependents or beneficiaries of any employee or
former employee of Horizon or the Horizon Banks, whether or
not subject to ERISA (the "Employee Plans"), (B) the most
recent actuarial and financial reports prepared or required to
be prepared with respect to any Employee Plan and (C) the
most recent annual reports filed with any governmental agency,
the most recent favorable determination letter issued by the
Internal Revenue Service, and any open requests for rulings or
determination letters, that pertain to any such qualified
Employee Plan. Schedule 3.1(m) identifies each Employee Plan
that is intended to be qualified under Section 401(a) of the
Code and each such plan is qualified.
(2) Neither Horizon, the Horizon Banks nor any
employee pension benefit plan (as defined in Section 3(2) of
ERISA (a "Pension Plan")) maintained or previously maintained
by it, has incurred any material liability to the Pension
Benefit Guaranty Corporation ("PBGC") or to the Internal
Revenue Service with respect to any Pension Plan, deferred
compensation, consultant, severance, thrift, option, bonus and
group insurance contract or any other incentive, welfare and
employee benefit plan and agreement presently in effect, or
approved prior to the date hereof, for the benefit of
employees or former employees of Horizon and the Horizon Banks
or the dependents or beneficiaries of any employee or former
employee of Horizon or any Horizon Bank (the "Horizon Employee
Plans"). There is not currently pending with the PBGC any
filing with respect to any reportable event under Section 4043
of ERISA nor has any reportable event occurred as to which a
filing is required and has not been made.
(3) Full payment has been made (or proper accruals
have been established) of all contributions which are required
for periods prior to the Closing Date, as defined in Section
7.1 hereof, under the terms of each Horizon Employee Plan,
ERISA, or a collective bargaining agreement, no accumulated
funding deficiency (as defined in Section 302 of ERISA or
Section 412 of the Code) whether or not waived, exists with
respect to any Pension Plan (including any Pension Plan
previously maintained by Horizon or the Horizon Banks), and
except as set forth on Schedule 3.1(m), there is no "unfunded
current liability" (as defined in Section 412 of the Code)
with respect to any Horizon Employee Plan or Pension Plan.
(4) No Horizon Employee Plan is a "multiemployer
plan" (as defined in Section 3(37) of ERISA). Neither Horizon
nor any of the Horizon Banks has incurred any material
liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multiemployer plan (as defined in
Section 3(37) of ERISA). Neither Horizon nor any of the
Horizon Banks has participated in or agreed to participate in,
a multiemployer plan (as defined in Section 3(37) of ERISA).
<PAGE>
(5) All Employee Plans that are "employee benefit
plans," as defined in Section 3(3) of ERISA, that are
maintained by Horizon or any of the Horizon Banks or
previously maintained by Horizon or any of the Horizon Banks
comply and have been administered in compliance in all
material respects with ERISA and all other applicable legal
requirements, including the terms of such plans, collective
bargaining agreements and securities laws. Neither Horizon nor
any of the Horizon Banks has any material liability under any
such plan that is not reflected in the Horizon Financial
Statements or on Schedule 3.1(m) hereto.
(6) Except as set forth on Schedule 3.1(m), no
prohibited transaction has occurred with respect to any
Employee Plan that is an "employee benefit plan" (as defined
in Section 3(3) of ERISA) maintained by Horizon or any of the
Horizon Banks or previously maintained by Horizon or any of
the Horizon Banks that would result, directly or indirectly,
in material liability under ERISA or in the imposition of a
material excise tax under Section 4975 of the Code.
(7) Schedule 3.1(m) identifies each Horizon Employee
Plan that is an "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA) and which is funded. The funding under
each such plan does not exceed the limitations under Section
419A(b) or 419A(c) of the Code. Neither Horizon nor any of the
Horizon Banks is subject to taxation on the income of any such
plan or any such plan previously maintained by Horizon or any
of the Horizon Banks.
(8) Schedule 3.1(m) identifies the method of funding
(including any individual accounting) for all post-retirement
medical or life insurance benefits for the employees of
Horizon and the Horizon Banks. Schedule 3.1(m) also discloses
the funded status of these Horizon Employee Plans.
(9) Schedule 3.1(m) identifies each corporate owned
life insurance policy, including any key man insurance policy
and policy insuring the life of any director or employee of
Horizon or the Horizon Banks, and indicates for each such
policy, the face amount of coverage, cash surrender value, if
any, and annual premiums.
(10) No trade or business is, or has ever been,
treated as a single employer with Horizon or any of the
Horizon Banks for employee benefit purposes under ERISA and
the Code.
<PAGE>
(n) Insurance. All policies or binders of fire, liability,
product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of Horizon or any of the Horizon Banks
are described on Schedule 3.1(n) and are valid and enforceable in
accordance with their terms, are in full force and effect, and insure
against risks and liabilities to the extent and in the manner customary
for the industry and are deemed appropriate and sufficient by Horizon
and the Horizon Banks. Neither Horizon nor any of the Horizon Banks is
in default with respect to any provision contained in any such policy
or binder and has not failed to give any notice or present any claim
under any such policy or binder in due and timely fashion. Neither
Horizon nor any of the Horizon Banks has received notice of
cancellation or non-renewal of any such policy or binder. Horizon has
no knowledge of any inaccuracy in any application for such policies or
binders, any failure to pay premiums when due or any similar state of
facts that might form the basis for termination of any such insurance.
Horizon has no knowledge of any state of facts or of the occurrence of
any event that is reasonably likely to form the basis for any material
claim against it not fully covered (except to the extent of any
applicable deductible) by the policies or binders referred to above.
Neither Horizon nor any of the Horizon Banks has received notice from
any of its insurance carriers that any insurance premiums will be
materially increased in the future or that any such insurance coverage
will not be available in the future on substantially the same terms as
now in effect.
(o) Loan Portfolio. Each loan outstanding on the books of
Horizon and the Horizon Banks is in all respects what it purports to
be, was made in the ordinary course of business, was not known to be
uncollectible at the time it was made, accrues interest (except for
loans recorded on the Horizon Banks' books as non-accrual) in
accordance with the terms of the loan, and with respect to loans
originated by the Horizon Banks was made in accordance with the
applicable Horizon Bank's standard loan policies as in effect at the
time the loan was negotiated except for loans to facilitate the sale of
OREO or loans with renegotiated terms and conditions. The records of
the Horizon Banks regarding all loans outstanding and OREO by the
Horizon Banks on their respective books are accurate in all material
respects and the risk classifications for the loans outstanding are, in
the best judgment of the management of Horizon and the applicable
Horizon Bank, appropriate. The reserves for possible loan losses on the
outstanding loans of the Horizon Banks, as reflected in the Horizon
Financial Statements, have been established in accordance with GAAP and
with the requirements of the Federal Reserve Board, the OCC and the
FDIC. In the best judgment of the management of Horizon and the
applicable Horizon Bank such reserves are adequate as of the date
hereof and will be adequate as of the Effective Time of the Holding
Company Merger to absorb all known and anticipated loan losses in the
loan portfolio of the Horizon Banks. Except as identified on Schedule
3.1(o), no loan in excess of $50,000 has been classified by examiners
(regulatory or internal) as "Special Mention", "Substandard",
"Doubtful", "Loss", or words of similar import. Except as disclosed on
Schedule 3.1(j)(4), the OREO included in any nonperforming asset of the
Horizon Banks is recorded at the lower of cost or fair value less
<PAGE>
estimated costs to sell based on independent appraisals that comply
with the requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 and Uniform Standards of Professional
Appraisal Practice. Except as identified on Schedule 3.1(o), to the
Knowledge of Horizon and the applicable Horizon Banks, each loan
reflected as an asset on the Horizon Financial Statements is the legal,
valid and binding obligation of the obligor and any guarantor, subject
to bankruptcy, insolvency, fraudulent conveyance and other laws of
general applicability relating to or affecting creditors' rights and to
general principles of equity, and no defense, offset or counterclaim
has been asserted with respect to any such loan, which if successful
would have a material adverse effect on the financial condition,
results of operation or business of Horizon on a consolidated basis.
(p) Absence of Changes. Except as identified on Schedule
3.1(p), since June 30, 1998, there has not been any material adverse
change in the condition (financial or otherwise), aggregate assets or
liabilities, earnings or business of Horizon, other than changes
resulting from or attributable to (i) changes since such date in
laws or regulations, GAAP or interpretations of either thereof that
affect the banking industry generally, (ii) changes since such
date in the general level of interest rates, (iii) expenses since
such date incurred in connection with the transactions contemplated by
this Agreement, (iv) accruals and reserves by Horizon or the
Horizon Banks since such date pursuant to the terms of Section 4.8
hereof, or (v) any other accruals, reserves or expenses incurred by
Horizon or the Horizon Banks since such date with City Holding's prior
written consent. Since June 30, 1998, the business of Horizon has been
conducted only in the ordinary course.
(q) Brokers and Finders. Neither Horizon, the Horizon Banks
nor any of their officers, directors or employees have employed any
broker or finder or incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions
contemplated herein, except for the engagement of Baxter, Fentriss &
Co., whose total compensation for its engagement shall not exceed one
half of one percent (.5%) of the aggregate consideration of the Holding
Company Merger, plus out-of-pocket expenses, as set forth in the
engagement letter of Baxter, Fentriss & Co., dated as of May 1, 1998.
(r) Subsidiaries; Partnerships and Joint Ventures. Horizon has
no subsidiaries, direct or indirect, other than the Horizon Banks.
Horizon owns, directly or indirectly, all of the issued and outstanding
capital stock of its subsidiaries free and clear of any liens, claims,
encumbrances, charges or rights of third parties of any kind whatsoever
and is not a party to any joint venture agreement or partnership except
as set forth in Schedule 3.1(r).
<PAGE>
(s) Reports. Since January 1, 1995, Horizon and the Horizon
Banks have filed all material reports and statements, together with any
amendments required to be made with respect thereto, that were required
to be filed with (i) the Federal Reserve Board, (ii) the FDIC,
(iii) the OCC, (iv) the SEC, (v) the WVBOB, and (vi) any other
governmental or regulatory authority or agency having jurisdiction over
their operations. Each of such reports and documents, including the
financial statements, exhibits and schedules thereto, filed with the
SEC pursuant to the 1934 Act was in form and substance in compliance in
all material respects with the 1934 Act. No such report or statement,
or any amendments thereto, contains any statement which, at the time
and in light of the circumstances under which it was made, was false or
misleading with respect to any material fact necessary in order to make
the statements contained therein not false or misleading. Horizon is a
reporting company under Section 12(g) or 15(d) of the 1934 Act and the
regulations of the SEC.
(t) Environmental Matters. For purposes of this subsection,
the following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction
or agreement with any governmental entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The
term "Environmental Law" includes without limitation (i) the
Comprehensive Environmental Response, Compensation and Liability Act,
as amended, 42 U.S.C. Section 9601, et seq; the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. Section 6901, et seq; the Clean
Air Act, as amended, 42 U.S.C. Section 7401, et seq; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq; the
Toxic Substances Control Act, as amended, 15 U.S.C. Section 9601, et
seq; the Emergency Planning and Community Right to Know Act, 42 U.S.C.
Section 11001, et seq; the Safe Drinking Water Act, 42 U.S.C. Section
300f, et seq; and all comparable state and local laws, and (ii)
any common law (including without limitation common law that may impose
strict liability) that may impose liability or obligations for injuries
or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether
by type or by quantity, including any material containing any such
substance as a component. Hazardous Substances include without
limitation petroleum or any derivative or by-product thereof, asbestos,
radioactive material, and polychlorinated biphenyls.
<PAGE>
"Loan Portfolio Properties and Other Properties Owned" means
those properties owned or operated by Horizon or the Horizon Banks or
any of their subsidiaries, including those properties serving as
collateral for any loans made and retained by Horizon or the Horizon
Banks or for which Horizon or the Horizon Banks serves in a trust
relationship for the loans retained in portfolio.
Except as disclosed in Schedule 3.1(t), to the Knowledge of
Horizon:
(i) neither Horizon nor any of the Horizon Banks
has been or is in violation of or liable under any
Environmental Law;
(ii) none of the Loan Portfolio Properties and
Other Properties Owned has been or is in violation of or
liable under any Environmental Law; and
(iii) there are no actions, suits, demands, notices,
claims, investigations or proceedings pending or threatened
relating to the liability of the Loan Portfolio Properties and
Other Properties Owned under any Environmental Law, including
without limitation any notices, demand letters or requests for
information from any federal or state environmental agency
relating to any such liabilities under or violations of
Environmental Law.
(u) Disclosure. Except to the extent of any subsequent
correction or supplement with respect thereto furnished prior to the
date hereof, no written statement, certificate, schedule, list or other
written information furnished by or on behalf of Horizon at any time to
City Holding, in connection with this Agreement, when considered as a
whole, contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary in order to
make the statements herein or therein, in light of the circumstances
under which they were made, not misleading. Each document delivered or
to be delivered by Horizon to City Holding is or will be a true and
complete copy of such document, unmodified except by another document
delivered by Horizon.
(v) Accounting and Tax Matters. Neither Horizon nor any of the
Horizon Banks has taken or agreed to take any action nor do any of them
have any knowledge of any fact or circumstance that would prevent the
Holding Company Merger from qualifying as a reorganization within the
meaning of Section 368 of the Code or from being eligible for
"pooling-of-interests" accounting.
<PAGE>
(w) Regulatory Approvals. Neither Horizon nor any of the
Horizon Banks knows of any reason why the approvals, consents and
waivers of governmental authorities referred to in Sections 6.1(f) and
6.2(f) hereof should not be obtained on a timely basis without the
imposition of any condition of the type referred to in Section 6.1(f)
hereof and none of them has taken or agreed to take any action that
would materially impede or delay the receipt of such approvals,
consents and waivers or would be reasonably likely to result in the
imposition of any such condition.
(x) Year 2000 Matters. The computer software operated by
Horizon which is material to the conduct of its business is capable of
providing or is being adapted to provide (pursuant to plans approved by
the Board of Directors, copies of which have been provided to City
Holding, the expense of which has been reserved against or otherwise
provided for), in all material respects, uninterrupted millennium
functionality to record, store, process and present calendar dates
falling on or after January 1, 2000 in substantially the same manner
and with the same functionality as such software records, stores
processes and presents such calendar dates falling on or before
December 31, 1999. None of Horizon or any of the Horizon Banks has
received, or reasonably expects to receive, a "Year 2000 Deficiency
Notification Letter" (as such term is employed in the Federal Reserve
Board's Supervision and Regulation Letter No. SR 98-3(SUP), dated March
4, 1998).
(y) Interest Rate Risk Management Instruments. All interest
rate swaps, caps, floors and option agreements and other interest rate
risk management arrangements, whether entered into for the account of
Horizon or any of its subsidiaries, were entered into in the ordinary
course of business and, to the Knowledge of Horizon, in accordance with
prudent banking practices and applicable rules, regulations and
policies of any regulatory authority of competent jurisdiction and with
counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations of Horizon or one of its
subsidiaries enforceable in accordance with their terms except as
enforceability may be limited by laws affecting insured depository
institutions and similar laws affecting the enforcement of creditors'
rights generally and subject to any equitable principles limiting the
right to obtain specific performance. Horizon and each of Horizon's
subsidiaries have duly performed all of their obligations thereunder to
the extent that such obligations to perform have accrued, and, to the
Knowledge of Horizon, there are no breaches, violations or defaults or
allegations or assertions of such by any party thereunder.
(z) Recission of Repurchases. Except as set forth on Schedule
3.1(z), all share repurchase programs previously authorized by the
Board of Directors of Horizon have either expired or been revoked by
resolution duly adopted on or prior to the date hereof.
<PAGE>
3.2. Representations and Warranties of City Holding and City
National.
City Holding and City National represent and warrant to
Horizon and the Horizon Banks as follows (subject to Section 4.13(b) with
respect to the provision of the schedules referred to herein):
(a) Organization, Standing and Power. City Holding is a
corporation duly organized, validly existing and in good standing under
the laws of West Virginia and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted and to perform this Agreement and the
Holding Company Plan of Merger and to effect the transactions
contemplated hereby and thereby, subject to the approval of its
shareholders as contemplated by Section 4.2 and federal and state
regulatory approvals provided for herein. City Holding will deliver to
Horizon complete and correct copies of its Articles of Incorporation
and its By-laws as amended to the date hereof.
City National is a national banking association duly
organized, validly existing and in good standing under the laws of the
United States and has all requisite corporate power and authority to
own, lease and operate its properties and carry on its business as now
being conducted and to perform this Agreement and to effect the
transactions contemplated hereby. City National's deposits are insured
by the FDIC to the maximum extent permitted by law. City National will
deliver to Horizon a complete and correct copy of its Charter and
By-laws as amended to the date hereof.
(b) Capital Structure. The authorized capital stock of City
Holding consists of 20,000,000 shares of Common Stock and 500,000
shares of Preferred Stock, of which 6,732,732 shares of Common Stock
and no shares of Preferred Stock were issued and outstanding as of June
30, 1998. All of such issued and outstanding shares of City Holding
Common Stock were validly issued, fully paid and nonassessable at such
date.
The authorized capital stock of City National consists of
131,250 shares of common stock, $5.00 par value, of which 123,701
shares were issued and outstanding as of June 30, 1998, all of which
shares are owned by City Holding free and clear of any liens, claims,
encumbrances, charges or rights of third parties of any kind
whatsoever, except as disclosed on Schedule 3.2(b)(1). All such issued
and outstanding shares of common stock of City National were validly
issued, fully paid and nonassessable at such date.
City Holding knows of no person who beneficially owns 5% or
more of the outstanding City Holding Common Stock as of the date
hereof, except as described on Schedule 3.2(b)(2).
<PAGE>
(c) Authority. Subject to the approval of this Agreement and
the Holding Company Plan of Merger by the shareholders of City Holding
as contemplated by Section 4.2, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
and by the Holding Company Plan of Merger have been duly and validly
authorized by all necessary action on the part of City Holding; and
this Agreement is a valid and binding obligation of City Holding,
enforceable in accordance with its terms. The execution and delivery of
this Agreement, the consummation of the transactions contemplated
hereby and by the Holding Company Plan of Merger and compliance by City
Holding with any of the provisions hereof or thereof will not (i)
conflict with or result in a breach of any provision of its Articles of
Incorporation or By-laws or a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, debenture, mortgage,
indenture, license, material agreement or other material instrument or
obligation to which City Holding is a party, or by which it or any of
its properties or assets may be bound or (ii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
City Holding or any of its properties or assets. No consent or approval
by any governmental authority, other than compliance with applicable
federal and state securities and banking laws, the rules of the Nasdaq
Stock Market and regulations of the Federal Reserve Board, the OCC, the
FDIC and the WVBOB is required in connection with the execution and
delivery by City Holding of this Agreement or the consummation by City
Holding of the transactions contemplated hereby or by the Holding
Company Plan of Merger. City Holding's Board of Directors has taken all
action necessary to ensure that the Transaction is exempted from any
West Virginia statute that purports to limit or restrict business
combinations or the ability to acquire or vote shares and any change of
control or anti-takeover provisions of City Holding's Articles or
By-laws.
The consummation of the transactions contemplated hereby,
including the Bank Mergers, and compliance by City National with any of
the provisions hereof will not (i) conflict with or result in a breach
of any provision of its Articles of Incorporation or By-laws or a
default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any
note, bond, debenture, mortgage, indenture, license, material agreement
or other material instrument or obligation to which City National is a
party, or by which it or any of its properties or assets may be bound,
or (ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to City National or any of its properties or
assets. No consent or approval by any government authority, other than
compliance with applicable federal and state securities and banking
laws, and regulations of the OCC, the FDIC, and the WVBOB, is required
in connection with the consummation by City National of the
transactions contemplated hereby.
(d) Investments. All securities owned by City Holding and City
National of record and beneficially are free and clear of all
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mortgages, liens, pledges, encumbrances or any other restriction,
whether contractual or statutory, which would materially impair the
ability of City Holding or City National freely to dispose of any such
security at any time, except as noted on Schedule 3.2(d). Any
securities owned of record by City Holding and City National in an
amount equal to 5% or more of the issued and outstanding voting
securities of the issuer thereof have been noted on such Schedule
3.2(d). There are no voting trusts or other agreements or undertakings
of which City Holding or City National is a party, as an investor, with
respect to the voting of such securities. With respect to all
repurchase agreements to which City Holding or City National is a
party, City Holding or City National has a valid, perfected first lien
or security interest in the government securities or other collateral
securing the repurchase agreement, and the value of the collateral
securing each such repurchase agreement equals or exceeds the amount of
the debt secured by such collateral under such agreement.
(e) Financial Statements. Schedule 3.2(e) contains copies of
the following consolidated financial statements of City Holding and
City National (the "City Holding Financial Statements"):
(i) Consolidated Balance Sheets as of December 31,
1997 and 1996 (audited), and as of June 30, 1998 and 1997
(unaudited);
(ii) Consolidated Statements of Income for each of
the three years ended December 31, 1997, 1996, and 1995
(audited) and for each of the three and six month periods
ended June 30, 1998 and 1997 (unaudited);
(iii) Consolidated Statements of Changes in
Stockholders' Equity for each of the three years ended
December 31, 1997, 1996 and 1995 (audited) and for each of the
three and six month periods ended June 30, 1998 and 1997
(unaudited); and
(iv) Consolidated Statements of Cash Flows for each
of the three years ended December 31, 1997, 1996 and 1995
(audited) and for each of the three and six month periods
ended June 30, 1998 and 1997 (unaudited).
Such financial statements and the notes thereto have been prepared in
accordance with GAAP applied on a consistent basis throughout the
periods indicated unless otherwise noted in the City Holding Financial
Statements. Each of such consolidated balance sheets, together with the
notes thereto, presents fairly as of its date the consolidated
financial condition and assets and liabilities of City Holding and City
National, as applicable. The consolidated income statements, statements
of changes in shareholders' equity and statements of cash flows,
together with the notes thereto, present fairly the results of
operations, shareholders' equity and cash flows of City Holding or City
National, as applicable, for the periods indicated, in accordance with
GAAP.
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Except as disclosed in the City Holding Financial Statements,
and in the case of City National, compliance with and subject to
regulatory requirements of general applicability, there are no
restrictions precluding City Holding or City National from paying
dividends when, as and if declared by their respective Boards of
Directors.
(f) Absence of Undisclosed Liabilities. At June 30, 1998 and
December 31, 1997, City Holding and its consolidated subsidiaries had
no material obligations or liabilities, (contingent or otherwise) of
any nature which were not reflected in the City Holding Financial
Statements as of such dates, or disclosed in the notes thereto or in
the City Holding periodic reports filed with the SEC under the 1934 Act
as of such dates, or disclosed in the notes thereto, except for those
which are appropriately disclosed in Schedules specifically referred to
herein or which in the aggregate are immaterial.
(g) Tax Matters. Each of City Holding, City National, and all
other subsidiaries of City Holding are members of the same "affiliated
group," as defined in Section 1504(a)(1) of the Code, as City Holding
(collectively, the "City Holding Group"). Each member of the City
Holding Group has filed or caused to be filed or (in the case of
returns or reports not yet due) will file all tax returns and reports
required to have been filed by or for them before the Effective Time of
the Holding Company Merger, and all information set forth in such
returns or reports is or (in the case of such returns or reports not
yet due) will be accurate and complete in all material respects. Each
member of the City Holding Group has paid or made adequate provision
for, or (with respect to returns or reports not yet filed) before the
Effective Time of the Holding Company Merger will pay or make adequate
provision for, all taxes, additions to tax, penalties, and interest for
all periods covered by those returns or reports. There are, and at the
Effective Time of the Holding Company Merger will be, no unpaid taxes,
additions to tax, penalties, or interest due and payable by any member
of the City Holding Group that are or could become a lien on any asset,
or otherwise materially adversely affect the business, property or
financial condition, of any member of the City Holding Group except for
taxes and any such related liability (a) incurred in the ordinary
course of business for which adequate provision has been made by any
member of the City Holding Group or (b) being contested in good faith
and disclosed in Schedule 3.2(g). Each member of the City Holding Group
has collected or withheld, or will collect or withhold before the
Effective Time of the Holding Company Merger, all amounts required to
be collected or withheld by it for any taxes, and all such amounts have
been, or before the Effective Time of the Holding Company Merger will
have been, paid to the appropriate governmental agencies or set aside
in appropriate accounts for future payment when due. Each member of the
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City Holding Group is in material compliance with, and its records
contain all information and documents (including, without limitation,
properly completed IRS Forms W-9) necessary to comply in all material
respects with, all applicable information reporting and tax withholding
requirements under federal, state, and local laws, rules, and
regulations, and such records identify with specificity all accounts
subject to backup withholding under Section 3406 of the Code. The
consolidated statements of financial condition contained in the City
Holding Financial Statements fully and properly reflect, as of the
dates thereof, the aggregate liabilities of the members of the City
Holding Group for all accrued taxes, additions to tax, penalties and
interest in accordance with GAAP. For periods ending after June 30,
1998, the books and records of each member of the City Holding Group
fully and properly reflect their liability for all accrued taxes,
additions to tax, penalties and interest in accordance with GAAP.
Except as disclosed in Schedule 3.2(g), no member of the City Holding
Group has granted (nor is it subject to) any waiver of the period of
limitations for the assessment of tax for any currently open taxable
period, and no unpaid tax deficiency has been asserted in writing
against or with respect to any member of the City Holding Group by any
taxing authority. No member of the City Holding Group has made or
entered into, or holds any asset subject to, a consent filed pursuant
to Section 341(f) of the Code and the regulations thereunder or a "safe
harbor lease" subject to former Section 168(f)(8) of the Code and the
regulations thereunder. Schedule 3.2(g) describes all tax elections,
consents and agreements affecting any member of the City Holding Group.
To the Knowledge of City Holding, no City Holding shareholder is a
"foreign person" for purposes of Section 1445 of the Code.
(h) Options, Warrants and Related Matters. There are no
outstanding unexercised options, warrants, calls, commitments or
agreements of any character to which City Holding or City National is a
party or by which it is bound, calling for the issuance of securities
of City Holding or City National or any security representing the right
to purchase or otherwise receive any such security, except (i) as
set forth on Schedule 3.2(h) and (ii) the City Holding Option
Agreement.
(i) Property. City Holding and City National own (or enjoy use
of under capital leases) all property reflected on the City Holding
Financial Statements as of June 30, 1998 as being owned by them (except
property sold or otherwise disposed of in the ordinary course of
business after such date). All material property shown as being owned
is owned free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except those referred to in such
City Holding Financial Statements or the notes thereto, liens for
current taxes not yet due and payable, any unfiled mechanics' liens and
such encumbrances and imperfections of title, if any, as are not
substantial in character or amount or otherwise would materially impair
City Holding's consolidated business operations. The leases relating to
leased property are fairly reflected in such City Holding Financial
Statements.
<PAGE>
All property and assets material to the business or operations
of City Holding and City National, other than OREO, are in
substantially good operating condition and repair, and such property
and assets are adequate for the business and operations of City Holding
and City National as currently conducted.
(j) Additional Schedules Furnished to Horizon. In addition to
any Schedules furnished to Horizon pursuant to other provisions of this
Agreement, City Holding has furnished to Horizon the following
Schedules which are correct and complete as of the date hereof:
(1) Employees. Schedule 3.2(j)(1) lists as of the
date hereof (A) the names of and current annual salary
rates for all present employees of City Holding and its
subsidiaries who received, respectively, $75,000 or more in
aggregate compensation, whether in salary or otherwise as
reported or would be reported on Form W-2, during the year
ended December 31, 1997, or are presently scheduled to receive
salary in excess of $75,000 during the year ending December
31, 1998, (B) the number of shares of City Holding Common
Stock owned beneficially by each director of City Holding or
City National as of the date hereof, (C) the names of and
the number of shares of City Holding Common Stock owned by
each person known to City Holding who beneficially owns 5% or
more of the outstanding City Holding Common Stock as of the
date hereof, and (D) the names of, the number of
outstanding options of, and the exercise price of, each
agreement to make stock-based awards granted to each person
under City Holding's incentive stock option plan (the "City
Holding Stock Option Plan") or any other option granted by
City Holding or any subsidiary to any director, officer,
employee, consultant or advisor (collectively, "City Holding
Options") and the exercise price of each such City Holding
Option. City Holding has no stock-based employee benefit plan
or arrangement other than the City Holding Option Agreement,
the City Holding Incentive Plan, the City Holding Stock
Incentive Plan, the City Holding Profit Sharing and 401(k)
Plan, and the City Holding Employees' Stock Ownership Plan.
(2) Certain Contracts. Schedule 3.2(j)(2) lists all
notes, bonds, mortgages, indentures, licenses, lease
agreements and other contracts and obligations to which City
Holding or any of its subsidiaries is an indebted party or a
lessee, licensee or obligee as of the date hereof except for
those entered into by City Holding or its subsidiaries in the
ordinary course of business consistent with prior practice and
that do not involve an amount remaining greater than $100,000.
(3) Employment Contracts and Related Matters. Except
in all cases as set forth on Schedule 3.2(j)(3), neither City
<PAGE>
Holding nor any of its subsidiaries is a party to any
employment contract not terminable at the option of such party
without liability. Except in all cases as set forth on
Schedule 3.2(j)(3), neither City Holding nor any of its
subsidiaries is a party to (A) any retirement, profit
sharing or pension plan or thrift plan or agreement or
employee benefit plan (as defined in Section 3 of ERISA),
(B) any management or consulting agreement not terminable at
the option of such party without liability or (C) any
union or labor agreement.
(4) Real Estate. Schedule 3.2(j)(4) describes, as of
the date hereof, all interests in real property owned, leased
or otherwise claimed by City Holding and its subsidiaries,
including OREO.
(5) Affiliates. Schedule 3.2(j)(5) sets forth the
names and number of shares of City Holding Common Stock owned
as of the date hereof beneficially or of record by any persons
City Holding considers to be affiliates of City Holding ("City
Holding Affiliates") as that term is defined for purposes of
Rule 145 under the 1933 Act.
(k) Agreements in Force and Effect. All material contracts,
agreements, plans, leases, policies and licenses referred to in any
Schedule of City Holding referred to herein are valid and in full force
and effect; and neither City Holding nor City National have breached
any provision of, or are in default in any respect under the terms of,
any such contract, agreement, lease, policy or license, the effect of
which breach or default would have a material adverse effect upon the
financial condition, results of operations or business of City Holding
and its subsidiaries taken as a whole.
(l) Legal Proceedings; Compliance with Laws. Schedule 3.2(l)
describes all legal, administrative, arbitration or other proceedings
or governmental investigations known to City Holding pending, or, to
the Knowledge of City Holding, threatened or probable of assertion
against City Holding or City National. Except as set forth on Schedule
3.2(l), no such proceeding or investigation, if decided adversely,
would have a material adverse effect on the financial condition,
results of operations, business or prospects of City Holding on a
consolidated basis. Except as set forth in Schedule 3.2(l), City
Holding and City National have complied with any laws, ordinances,
requirements, regulations or orders applicable to their respective
businesses, except where noncompliance would not have a material
adverse effect on the financial condition, results of operations or
business of City Holding on a consolidated basis. City Holding and City
National have all licenses, permits, orders or approvals (collectively,
the "City Permits") of any federal, state, local or foreign
governmental or regulatory body that are necessary for the conduct of
the respective businesses of City Holding and City National and the
absence of which would have a material adverse effect on the financial
<PAGE>
condition, results of operations, or business of City Holding on a
consolidated basis; the City Permits are in full force and effect; no
material violations are or have been recorded in respect of any City
Permits nor has City Holding or City National received written notice
of any violations; and no proceeding is pending or, to the Knowledge of
City Holding, threatened to revoke or limit any City Permits. Neither
City Holding nor City National is subject to any judgment, order, writ,
injunction or decree which materially adversely affects, or might
reasonably be expected to materially adversely affect, the financial
condition, results of operations or business of City Holding on a
consolidated basis. Except as set forth in Schedule 3.2(l), neither
City Holding, nor City National, nor any other subsidiary of either has
entered into any agreements or written understandings with the OCC, the
Federal Reserve Board, the FDIC, the WVBOB or any regulatory agency
having authority over it. "Knowledge of City Holding," and phrases of
similar meaning, shall mean the actual knowledge, after due inquiry, of
Steven J. Day, Robert A. Henson and John W. Alderman III.
(m) Employee Benefit Plans.
(1) Schedule 3.2(m) includes a correct and complete
list of, and Horizon has been furnished a true and correct
copy of (or an accurate written description thereof in the
case of oral agreements or arrangements) (A) all qualified
pension and profit-sharing plans, all deferred compensation,
consultant, severance, thrift, option, bonus and group
insurance contracts and all other incentive, welfare and
employee benefit plans, trust, annuity or other funding
agreements, and all other agreements (including oral
agreements) that are presently in effect, or have been
approved prior to the date hereof, maintained for the benefit
of employees or former employees of City Holding or its
subsidiaries or the dependents or beneficiaries of any
employee or former employee of City Holding or its
subsidiaries, whether or not subject to ERISA (the "Employee
Plans"), (B) the most recent actuarial and financial
reports prepared or required to be prepared with respect to
any Employee Plan and (C) the most recent annual reports
filed with any governmental agency, the most recent favorable
determination letter issued by the Internal Revenue Service,
and any open requests for rulings or determination letters,
that pertain to any such qualified Employee Plan. Schedule
3.2(m) identifies each Employee Plan that is intended to be
qualified under Section 401(a) of the Code and each such plan
is qualified.
(2) Neither City Holding nor any of its subsidiaries,
nor any Pension Plan maintained or previously maintained by
it, has incurred any material liability to the PBGC or to the
Internal Revenue Service with respect to any Pension Plan,
deferred compensation, consultant, severance, thrift, option,
bonus and group insurance contract or any other incentive,
welfare and employee benefit plan and agreement presently in
effect, or approved prior to the date hereof, for the benefit
of employees or former employees of City Holding and its
subsidiaries or the dependents or beneficiaries of any
employee or former employee of City Holding or any subsidiary
(the "City Holding Employee Plans"). There is not currently
pending with the PBGC any filing with respect to any
reportable event under Section 4043 of ERISA nor has any
reportable event occurred as to which a filing is required and
has not been made.
<PAGE>
(3) Full payment has been made (or proper accruals
have been established) of all contributions which are required
for periods prior to the Closing Date, as defined in Section
7.1 hereof, under the terms of each City Holding Employee
Plan, ERISA, or a collective bargaining agreement, no
accumulated funding deficiency (as defined in Section 302 of
ERISA or Section 412 of the Code) whether or not waived,
exists with respect to any Pension Plan, (including any
Pension Plan previously maintained by City Holding, City
National or any other subsidiary of either), and except as set
forth in Schedule 3.2(m), there is no "unfunded current
liability" (as defined in Section 412 of the Code) with
respect to any City Holding Employee Plan or Pension Plan.
(4) No City Holding Employee Plan is a "multiemployer
plan" (as defined in Section 3(37) of ERISA). Neither City
Holding nor City National nor any subsidiary of either has
incurred any material liability under Section 4201 of ERISA
for a complete or partial withdrawal from a multiemployer plan
(as defined in Section 3(37) of ERISA). Neither City Holding
nor City National has participated in or agreed to participate
in, a multiemployer plan (as defined in Section 3(37) of
ERISA).
(5) All "employee benefit plans," as defined in
Section 3(3) of ERISA, that are maintained by City Holding,
City National or any subsidiary of either or previously
maintained by City Holding, City National or any subsidiary of
either comply and have been administered in compliance in all
material respects with ERISA and all other applicable legal
requirements, including the terms of such plans, collective
bargaining agreements and securities laws. Neither City
Holding nor any of its subsidiaries has any material liability
under any such plan that is not reflected in the City Holding
Financial Statements or on Schedule 3.2(m) hereto.
(6) Except as set forth on Schedule 3.2(m), no
prohibited transaction has occurred with respect to any
"employee benefit plan" (as defined in Section 3(3) of ERISA)
maintained by City Holding or any of its subsidiaries or
previously maintained by City Holding or any of its
subsidiaries that would result, directly or indirectly, in
material liability under ERISA or in the imposition of a
material excise tax under Section 4975 of the Code.
<PAGE>
(7) Schedule 3.2(m) identifies each City Holding
Employee Plan that is an "employee welfare benefit plan" (as
defined in Section 3(1) of ERISA) and which is funded. The
funding under each such plan does not exceed the limitations
under Section 419A(b) or 419A(c) of the Code. Neither City
Holding nor any of its subsidiaries is subject to taxation on
the income of any such plan or any such plan previously
maintained by City Holding or any of its subsidiaries.
(8) Schedule 3.2(m) identifies the method of funding
(including any individual accounting) for all post-retirement
medical or life insurance benefits for the employees of City
Holding and its subsidiaries. Schedule 3.2(m) also discloses
the funded status of these City Holding Employee Plans.
(9) Schedule 3.2(m) identifies each corporate owned
life insurance policy, including any key man insurance policy
and policy insuring the life of any director or employee of
City Holding and its subsidiaries, and indicates for each such
policy, the face amount of coverage, cash surrender value, if
any, and annual premiums.
(10) No trade or business is, or has ever been,
treated as a single employer with City Holding and its
subsidiaries for employee benefit purposes under ERISA and the
Code.
(n) Insurance. All policies or binders of fire, liability,
product liability, workmen's compensation, vehicular and other
insurance held by or on behalf of City Holding or any of its
subsidiaries are described on Schedule 3.2(n) and are valid and
enforceable in accordance with their terms, are in full force and
effect, and insure against risks and liabilities to the extent and in
the manner customary for the industry and are deemed appropriate and
sufficient by City Holding or any of its subsidiaries. Neither City
Holding nor any of its subsidiaries is in default with respect to any
provision contained in any such policy or binder and has not failed to
give any notice or present any claim under any such policy or binder in
due and timely fashion. Neither City Holding nor any of its
subsidiaries has received notice of cancellation or non-renewal of any
such policy or binder. City Holding has no knowledge of any inaccuracy
in any application for such policies or binders, any failure to pay
premiums when due or any similar state of facts that might form the
basis for termination of any such insurance. City Holding has no
knowledge of any state of facts or of the occurrence of any event that
is reasonably likely to form the basis for any material claim against
it not fully covered (except to the extent of any applicable
deductible) by the policies or binders referred to above. Neither City
Holding nor any of its subsidiaries has received notice from any of its
insurance carriers that any insurance premiums will be materially
increased in the future or that any such insurance coverage will not be
available in the future on substantially the same terms as now in
effect.
<PAGE>
(o) Loan Portfolio. Each loan outstanding on the books of City
Holding and City National is in all respects what it purports to be,
was made in the ordinary course of business, was not known to be
uncollectible at the time it was made, accrues interest (except for
loans recorded on such books as non-accrual) in accordance with the
terms of the loan, and with respect to loans originated by City
National was made in accordance with City National's standard loan
policies as in effect at the time the loan was negotiated except for
loans to facilitate the sale of OREO or loans with renegotiated terms
and conditions. The records of City National regarding all loans
outstanding and OREO by City National on its books are accurate in all
material respects and the risk classifications for the loans
outstanding are, in the best judgment of the management of City Holding
and City National, appropriate. The reserves for possible loan losses
on the outstanding loans of City National, as reflected in the City
Holding Financial Statements, have been established in accordance with
GAAP and with the requirements of the OCC, the Federal Reserve Board,
and the FDIC. In the best judgment of the management of City Holding
and City National such reserves are adequate as of the date hereof and
will be adequate as of the Effective Time of the Holding Company Merger
to absorb all known and anticipated loan losses in the loan portfolio
of City National. Except as identified on Schedule 3.2(o), no loan in
excess of $50,000 has been classified by examiners (regulatory or
internal) as "Special Mention", "Substandard", "Doubtful", "Loss", or
words of similar import. Except as disclosed on Schedule 3.2(o), the
OREO included in any nonperforming asset of City National is recorded
at the lower of cost or fair value less estimated costs to sell based
on independent appraisals that comply with the requirements of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
Uniform Standards of Professional Appraisal Practice. Except as
identified on Schedule 3.2(o), to the Knowledge of City Holding and
City National, each loan reflected as an asset on the City Holding
Financial Statements is the legal, valid and binding obligation of the
obligor and any guarantor, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating
to or affecting creditors' rights and to general principles of equity,
and no defense, offset or counterclaim has been asserted with respect
to any such loan, which if successful would have a material adverse
effect on the financial condition, results of operation or business of
City Holding on a consolidated basis.
(p) Absence of Changes. Except as identified on Schedule
3.2(p), since June 30, 1998 there has not been any material adverse
change in the condition (financial or otherwise), aggregate assets or
liabilities, earnings or business of City Holding, other than changes
<PAGE>
resulting from or attributable to (i) changes since such date in
laws or regulations, GAAP or interpretations of either thereof that
affect the banking or savings and loan industries generally, (ii)
changes since such date in the general level of interest rates,
(iii) expenses since such date incurred in connection with the
transactions contemplated by this Agreement, or (iv) any other
accruals, reserves or expenses incurred by City Holding or its
subsidiaries since such date with Horizon's prior written consent.
Since June 30, 1998, the business of City Holding has been conducted
only in the ordinary course.
(q) Brokers and Finders. Neither City Holding, City National
nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the
transactions contemplated herein, except for the engagement of Wheat
First Securities, Inc., whose total compensation for its engagement
shall not exceed $2,000,000.
(r) Subsidiaries; Partnerships and Joint Ventures. City
Holding's only subsidiaries, direct or indirect, are set forth in
Schedule 3.2(r). Such corporations are duly organized, validly existing
and in good standing under the laws of their jurisdiction of
incorporation and have all requisite corporate power and authority to
own, lease and operate their properties and to carry on their business
as now being conducted in all material respects. City Holding owns,
directly or indirectly, all of the issued and outstanding capital stock
of its subsidiaries free and clear of any liens, claims, encumbrances,
charges or rights of third parties of any kind whatsoever and is not a
party to any joint venture agreement or partnership except as set forth
in Schedule 3.2(r).
(s) Reports. Since January 1, 1995, City Holding and City
National have filed all material reports and statements, together with
any amendments required to be made with respect thereto, that were
required to be filed with (i) the Federal Reserve Board, (ii)
the FDIC, (iii) the OCC, (iv) the WVBOB, (v) the SEC and
(vi) any other governmental or regulatory authority or agency
having jurisdiction over their operations. Each of such reports and
documents, including the financial statements, exhibits and schedules
thereto, filed with the SEC pursuant to the 1934 Act was in form and
substance in compliance in all material respects with the 1934 Act. No
such report or statement, or any amendments thereto, contains any
statement which, at the time and in light of the circumstances under
which it was made, was false or misleading with respect to any material
fact necessary in order to make the statements contained therein not
false or misleading. City Holding is a reporting company under Section
12(g) or 15(d) of the 1934 Act and the regulations of the SEC.
(t) Environmental Matters. For purposes of this subsection,
the following terms shall have the indicated meaning:
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"Environmental Law" and "Hazardous Substance" shall have the
meanings ascribed to those terms in Section 3.1(t) of this Agreement.
"Loan Portfolio Properties and Other Properties Owned" means
those properties owned or operated by City Holding or any of its
subsidiaries, including those properties serving as collateral for any
loans made and retained by City Holding or City National or for which
City Holding or City National serves in a trust relationship for the
loans retained in portfolio.
Except as disclosed in Schedule 3.2(t), to the Knowledge of
City Holding,
(i) neither City Holding nor City National has
been or is in violation of or liable under any Environmental
Law;
(ii) none of the Loan Portfolio Properties and
Other Properties Owned has been or is in violation of or
liable under any Environmental Law; and
(iii) there are no actions, suits, demands, notices,
claims, investigations or proceedings pending or threatened
relating to the liability of the Loan Portfolio Properties and
Other Properties Owned under any Environmental Law, including
without limitation any notices, demand letters or requests for
information from any federal or state environmental agency
relating to any such liabilities under or violations of
Environmental Law.
(u) Disclosure. Except to the extent of any subsequent
correction or supplement with respect thereto furnished prior to the
date hereof, no written statement, certificate, schedule, list or other
written information furnished by or on behalf of City Holding at any
time to Horizon, in connection with this Agreement, when considered as
a whole, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading. Each document delivered or
to be delivered by City Holding to Horizon is or will be a true and
complete copy of such document, unmodified except by another document
delivered by City Holding.
(v) Accounting and Tax Matters. Neither City Holding nor City
National nor any subsidiary of either has taken or agreed to take any
action or has any knowledge of any fact or circumstance that would
prevent the Holding Company Merger from qualifying as a reorganization
within the meaning of Section 368 of the Code, or from being eligible
for "pooling-of-interests" accounting.
<PAGE>
(w) Regulatory Approvals. Neither City Holding nor City
National nor any subsidiary of either knows of any reason why the
approvals, consents and waivers of governmental authorities referred to
in Sections 6.1(f) and 6.2(f) hereof should not be obtained on a timely
basis without the imposition of any condition of the type referred to
in Section 6.1(f) hereof and neither of them has taken or agreed to
take any action that would materially impede or delay the receipt of
such approvals, consents and waivers or would be reasonably likely to
result in the imposition of any such condition.
(x) Year 2000 Matters. The computer software operated by City
Holding which is material to the conduct of its business is capable of
providing or is being adapted to provide (pursuant to plans approved by
the Board of Directors, copies of which have been provided to Horizon,
the expense of which has been reserved against or otherwise provided
for), in all material respects, uninterrupted millennium functionality
to record, store, process and present calendar dates falling on or
after January 1, 2000 in substantially the same manner and with the
same functionality as such software records, stores processes and
presents such calendar dates falling on or before December 31, 1999.
Neither City Holding or City National has received, or reasonably
expects to receive, a "Year 2000 Deficiency Notification Letter" (as
such term is employed in the Federal Reserve Board's Supervision and
Regulation Letter No. SR 98-3(SUP), dated March 4, 1998).
(y) Interest Rate Risk Management Instruments. All interest
rate swaps, caps, floors and option agreements and other interest rate
risk management arrangements, whether entered into for the account of
City Holding or any of its subsidiaries, were entered into in the
ordinary course of business and, to the Knowledge of City Holding, in
accordance with prudent banking practices and applicable rules,
regulations and policies of any regulatory authority of competent
jurisdiction and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations of
City Holding or one of its subsidiaries enforceable in accordance with
their terms except as enforceability may be limited by laws affecting
insured depository institutions and similar laws affecting the
enforcement of creditors' rights generally and subject to any equitable
principles limiting the right to obtain specific performance. City
Holding and each of City Holding's subsidiaries have duly performed all
of their obligations thereunder to the extent that such obligations to
perform have accrued, and, to the Knowledge of City Holding, there are
no breaches, violations or defaults or allegations or assertions of
such by any party thereunder.
(z) Recission of Repurchases. Except as set forth on Schedule
3.2(z), all share repurchase programs previously authorized by the
Board of Directors of City Holding have either expired or been revoked
by resolution duly adopted on or prior to the date hereof.
<PAGE>
ARTICLE IV
CONDUCT AND TRANSACTIONS PRIOR TO
THE EFFECTIVE TIME OF THE HOLDING COMPANY MERGER
4.1. Access to Records and Properties of City Holding, City National,
Other City Holding Subsidiaries, Horizon and the Horizon Banks; Confidentiality.
Between the date of this Agreement and the Effective Time of
the Holding Company Merger, each of City Holding and City National and the
subsidiaries of each on the one hand, and each of Horizon and the Horizon Banks
on the other, agree to give to the other reasonable access to all the premises
and books and records (including tax returns filed and those in preparation) of
it and its subsidiaries and to cause its officers to furnish the other with such
financial and operating data and other information with respect to the business
and properties as the other shall from time to time request for the purposes of
verifying the representations and warranties set forth herein, preparing the
Registration Statement (as defined in Section 4.2) and applicable regulatory
filings (as set forth in Section 4.6), to facilitate the parties in performing
their due diligence reviews of the affairs of one another, and otherwise as
reasonably requested in connection with the Transaction and the parties' various
regulatory reporting obligations, provided, however, that any such investigation
shall be conducted in such manner as not to interfere unreasonably with the
operation of the respective business of the other. City Holding and Horizon
shall each maintain the confidentiality of all confidential information
furnished to it by the other party hereto concerning the business, operations,
and financial condition of the party furnishing such information, and shall not
use any such information except in furtherance of the Transaction. If this
Agreement is terminated, each party hereto shall promptly return all documents
and copies of, and all workpapers containing, confidential information received
from the other party hereto. The obligations of confidentiality under this
Section 4.1 shall survive any such termination of this Agreement and shall
remain in effect, except to the extent that (a) one party shall have directly or
indirectly acquired the assets and business of the other party; (b) as to any
particular confidential information with respect to one party, such information
(i) shall become generally available to the public other than as a result of an
unauthorized disclosure by the other party or (ii) was available to the other
party on a nonconfidential basis prior to its disclosure by the first party; (c)
disclosure by any party is required by subpoena or order of a court of competent
jurisdiction or by order of a regulatory authority of competent jurisdiction; or
(d) disclosure is required by the SEC or bank or other regulatory authorities in
connection with the transactions contemplated by this Agreement, provided that
the disclosing party has, prior to such disclosure, advised the other party of
the circumstances necessitating such disclosure and have reached mutually
agreeable arrangements relating to such disclosure.
<PAGE>
4.2. Registration Statement, Proxy Statement, Shareholder Approval.
Horizon and City Holding will duly call and will hold meetings
of their shareholders as soon as practicable for the purpose of approving the
Holding Company Merger and the related transactions and will comply fully with
the provisions of the 1933 Act and the 1934 Act and the rules and regulations of
the SEC under such acts to the extent applicable, and the Articles of
Incorporation and By-laws of Horizon and City Holding relating to the call and
holding of a meeting of shareholders for such purpose. The Boards of Directors
of Horizon and City Holding will recommend to and actively encourage
shareholders that they vote in favor of the Holding Company Merger, to the
maximum extent permissible in light of their fiduciary duties. City Holding and
Horizon will jointly prepare the proxy statement-prospectus to be used in
connection with such meeting (the "Proxy Statement-Prospectus") and City Holding
will prepare and file with the SEC a Registration Statement on Form S-4 (the
"Registration Statement"), of which such Proxy Statement-Prospectus shall be a
part, and use its best efforts promptly to have the Registration Statement
declared effective. In connection with the foregoing, City Holding will comply
with the requirements of the 1933 Act, the 1934 Act, the Nasdaq Stock Market and
the rules and regulations of the SEC under such acts with respect to the
offering and sale of City Holding Common Stock in connection with the
Transaction and with all applicable state Blue Sky and securities laws. The
notices of such meetings and the Proxy Statement-Prospectus shall not be mailed
to Horizon or City Holding shareholders until the Registration Statement shall
have become effective under the 1933 Act. Horizon covenants that none of the
information supplied by Horizon and City Holding covenants that none of the
information supplied by City Holding in the Proxy Statement-Prospectus will, at
the time of the mailing of the Proxy Statement-Prospectus to Horizon and City
Holding shareholders, contain any untrue statement of a material fact nor will
any such information omit any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading; and at all times subsequent to the time
of the mailing of the Proxy Statement-Prospectus, up to and including the date
of the meetings of Horizon and City Holding shareholders, as applicable, to
which the Proxy Statement-Prospectus relates, none of such information in the
Proxy Statement-Prospectus, as amended or supplemented, will contain an untrue
statement of a material fact or omit any material fact required to be stated
therein in order to make the statements therein, in light of the circumstances
in which they were made, not misleading.
Horizon, as the sole shareholder of the Horizon Banks, and
City Holding, as the sole shareholder of City National, hereby approve this
Agreement and the transactions contemplated herein.
<PAGE>
4.3. Operation of the Businesses of the Parties.
Each of Horizon, the Horizon Banks, City Holding and City
National agrees that from June 30, 1998 to the Effective Time of the Holding
Company Merger, they and their subsidiaries have operated, and they and their
subsidiaries will operate, their respective businesses substantially as
presently operated and only in the ordinary course and in general conformity
with applicable laws and regulations, and, consistent with such operation, they
will use their best efforts to preserve intact its present business
organizations and its relationships with persons having business dealings with
it. Without limiting the generality of the foregoing, Horizon, the Horizon
Banks, City Holding and City National agree that they will not, without the
prior written consent of Horizon or City Holding, as applicable, (i) make
any change in the salaries, bonuses or title of any executive officer, subject
to bonus or compensation plans already adopted by the Board of Directors or the
Compensation Committee thereof prior to the date of this Agreement; (ii)
make any change in the title, salaries or bonuses of any other employee, other
than those permitted by current employment policies in the ordinary course of
business, any of which changes shall be reported promptly to the other parties;
(iii) enter into any bonus, incentive compensation, deferred compensation,
profit sharing, thrift, retirement, pension, group insurance or other benefit
plan or any employment or consulting agreement or increase benefits under
existing plans subject to bonus plans already adopted by the Board of Directors
or the Compensation Committee thereof prior to the date of this Agreement;
(iv) create or otherwise become liable with respect to any indebtedness for
money borrowed or purchase money indebtedness except in the ordinary course of
business; (v) amend its Articles of Incorporation, Charter or By-laws,
except that City Holding shall amend its Articles of Incorporation immediately
preceding the Effective Time of the Holding Company Merger to authorize the
issuance of up to 100,000,000 shares of City Holding Common Stock, par value
$2.50 per share, and up to 5,000,000 shares of City Holding Preferred Stock, par
value $25.00 per share; (vi) issue or contract to issue any shares of
capital stock or securities exchangeable for or convertible into capital stock
except (t) up to 94,800 shares of Horizon Common Stock issuable to senior
executive officers pursuant to Horizon Options outstanding as of June 30, 1998,
(u) up to 1,853,262 shares of Horizon Common Stock pursuant to the Horizon
Option Agreement; (v) shares of or options to purchase Horizon Common Stock
pursuant to the Horizon 401(k) Plan, the Horizon Employee Stock Option Plan, the
Horizon Incentive Stock Option Plan and the Horizon Dividend Reinvestment Plan;
(w) up to 30,000 options to purchase shares of Horizon Common Stock issuable
pursuant to Horizon's Incentive Stock Option Plan; (x) up to 285,671 shares of
City Holding Common Stock issuable pursuant to City Holding Options outstanding
as of June 30, 1998; (y) up to 1,334,095 shares of City Holding Common Stock
pursuant to the City Holding Option Agreement; or (z) shares of City Holding
Common Stock issuable pursuant to City Holding's dividend reinvestment plan,
401(k) plan, and Employee Stock Ownership Plan; (vii) except as set forth
<PAGE>
on Schedule 4.3, repurchase any shares of Horizon or City Holding capital stock;
(viii) enter into or assume any material contract or obligation, except
in the ordinary course of business; (ix) other than as provided in (a)
below with respect to the work-out of nonperforming assets, waive, release,
compromise or assign any right or claim involving $75,000 or more; (x)
propose or take any other action which would make any representation or warranty
of such party in Article III hereof untrue; (xi) introduce any new products
or services or change the rate of interest on any deposit instrument to
above-market interest rates; (xii) make any change in policies respecting
extensions of credit or loan charge-offs; (xiii) change reserve
requirement policies; (xiv) change securities portfolio policies;
(xv) acquire a policy or enter into any new agreement, amendment or endorsement
or make any changes relating to insurance coverage, including coverage for its
directors and officers, which would result in an additional payment obligation
of $50,000 or more; (xvi) propose or take any action with respect to the
closing of any branches; (xvii) amend the terms of any outstanding stock
option or similar agreements; (xviii) amend the terms of the written
severance or employment agreements; or (xix) make any change in any tax
election or accounting method or system of internal accounting controls, except
as may be appropriate to conform to any change in regulatory accounting
requirements or GAAP. Horizon, the Horizon Banks, City Holding and City National
further agree that, between the date of this Agreement and the Effective Time of
the Holding Company Merger, they will consult and cooperate with one another
regarding (a) loan portfolio management, including management and work-out of
nonperforming assets, and credit review and approval procedures and (b)
securities portfolio and funds management, including management of interest rate
risk.
4.4. No Solicitation.
Unless and until this Agreement shall have been terminated
pursuant to its terms, neither Horizon, the Horizon Banks, City Holding or City
National nor any of their executive officers, directors, representatives, agents
or affiliates shall, directly or indirectly, encourage, solicit or initiate
discussions or negotiations (with any person other than a party to this
Agreement) concerning any merger, sale of substantial assets, tender offer, sale
of shares of stock or similar transaction involving such party or disclose,
directly or indirectly, any information not customarily disclosed to the public
concerning such party, afford to any other person access to the properties,
books or records of such party (unless required by the provisions of Section
31-1-105 of the WVC) or otherwise assist any person preparing to make or who has
made such an offer, or enter into any agreement with any third party providing
for a business combination transaction, equity investment or sale of significant
amount of assets. Horizon, the Horizon Banks, City Holding and City National
will promptly communicate to one another the terms of any proposal which any of
them may receive in respect to any of the foregoing transactions.
4.5. Dividends.
Horizon and City Holding agree that since June 30, 1998 they
have not, and prior to the Effective Time of the Holding Company Merger they
will not, declare any cash dividends without the prior written consent of the
<PAGE>
other party, except for regular quarterly cash dividends not in excess of that
most recently declared prior to June 30, 1998 except that Horizon and City
Holding may increase the dividend amount for the fourth quarter of 1998,
consistent with the relative increase of such dividend for the fourth quarter of
1997. Horizon and City Holding will coordinate with one another regarding the
declaration and payment of dividends in respect of Horizon Common Stock and City
Holding Common Stock to ensure that no holder of Horizon Common Stock will
receive two dividends, or fail to receive on dividend, for any single calendar
quarter with respect to its shares of Horizon Common Stock, including shares of
City Holding Common Stock such holder may receive in connection with the
Transaction.
4.6. Regulatory Filings; Best Efforts.
City Holding and Horizon shall jointly prepare all regulatory
filings required to consummate the transactions contemplated by this Agreement
and submit the filings for approval with the Federal Reserve Board, the OCC, the
FDIC and the WVBOB as soon as practicable after the date hereof. City Holding
and Horizon shall use their best efforts to obtain approvals of such filings.
4.7. Public Announcements.
Each party will consult with the other before issuing any
press release or otherwise making any public statements with respect to the
Transaction and shall not issue any press release or make any such public
statement prior to such consultations and approval of the other party, which
approval shall not be unreasonably withheld, except as may be required by law.
4.8. Operating Synergies; Conformance to Reserve Policies, Etc..
Between the date hereof and the Effective Time of the Holding
Company Merger, the parties will work with one another to achieve appropriate
operating efficiencies following the Closing Date. Subject to the Horizon Banks'
approval, which will not be unreasonably withheld, City Holding's notification
to the Horizon Banks' customers and City Holding's direct contact with customers
regarding the Bank Mergers will commence following receipt of Federal Reserve
Board and OCC approval but not earlier than 60 days prior to the Closing Date.
At the request of City Holding and upon receipt by Horizon and the Horizon Banks
of written confirmation from City Holding and City National that there are no
conditions to the obligations of City Holding and City National under this
Agreement set forth in Article V which they believe will not be fulfilled so as
to permit them to consummate the Transaction and the other transactions
contemplated hereby, not more than three days before the Effective Time of the
Holding Company Merger Horizon and the Horizon Banks shall establish such
additional accruals, reserves and charge-offs, through appropriate entries in
its accounting books and records, provided such adjustments are in accordance
with GAAP and applicable law and regulation as may be necessary to conform
Horizon's and the Horizon Banks' accounting and credit loss reserve practices
<PAGE>
and methods to those of City Holding and City National (as such practices and
methods are to be applied from and after the Effective Time of the Holding
Company Merger). Any such accruals, reserves and charge-offs shall not be deemed
to cause any representation and warranty of Horizon and the Horizon Banks to be
untrue or inaccurate as of the Effective Time of the Holding Company Merger.
4.9. City Holding Rights Agreement.
City Holding agrees that any rights issued pursuant to the
Rights Agreement, dated as of May 7, 1991, shall be issued with respect to each
share of City Holding Common Stock issued pursuant to the terms hereof and the
Holding Company Plan of Merger, regardless whether there has occurred a
Distribution Date under the terms of such Rights Agreement prior to the
occurrence of the Effective Time of the Holding Company Merger.
4.10. Agreement as to Efforts to Consummate.
Subject to the other terms and conditions of this Agreement,
each of City Holding, City National, Horizon and the Horizon Banks agrees to use
all reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective, as soon as practicable
after the date of this Agreement, the transactions contemplated by this
Agreement, including, without limitation, using reasonable effort to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated herein.
Each of City Holding, City National, Horizon and the Horizon Banks shall use its
best efforts to obtain consents of all third parties and governmental bodies
necessary or desirable for the consummation of the transactions contemplated by
this Agreement.
4.11. Adverse Changes in Condition.
City Holding, City National, Horizon and the Horizon Banks
each agrees to give written notice promptly to the other concerning any event or
circumstance which would cause or constitute a breach of any of the
representations, warranties or covenants of such party contained herein. Each of
City Holding, City National, Horizon and the Horizon Banks shall use its best
efforts to prevent or promptly to remedy the same.
4.12. Nasdaq Listing.
City Holding will file with the Nasdaq Stock Market an
additional listing application for the shares of City Holding Common Stock to be
issued in the Holding Company Merger and shall use its best efforts to cause
such shares to be approved for listing on the Nasdaq Stock Market prior to the
Effective Time of the Holding Company Merger.
<PAGE>
4.13. Delivery and Updating of Schedules.
(a) Horizon shall prepare and deliver to City Holding all of
the Schedules pertaining to Horizon and the Horizon Banks referred to
in Section 3.1 not later than August 14, 1998. Such Schedules shall be
true and correct as of the date delivered or such other date provided
in Article III.
(b) City Holding shall prepare and deliver to Horizon all of
the Schedules pertaining to City Holding and City National referred to
in Section 3.2 not later than August 14, 1998. Such Schedules shall be
true and correct as of the date delivered or such other date provided
in Article III.
(c) Horizon shall notify City Holding, and City Holding shall
notify Horizon, of any changes, additions or events which may cause any
change in or addition to any Schedules delivered by it under this
Agreement, promptly after the occurrence of same and at the Closing
Date by delivery of updates of all Schedules, including future
quarterly and annual financial statements. No notification made
pursuant to this Section 4.13 shall be deemed to cure any breach of any
representation or warranty made in this Agreement or any Schedule
unless City Holding or Horizon, as the case may be, specifically agree
thereto in writing, nor shall any such notification be considered to
constitute or give rise to a waiver by Horizon or the Horizon Banks on
the one hand, or City Holding or City National on the other hand of any
condition set forth in this Agreement.
4.14. Transactions in City Holding Common Stock.
Other than the issuance or acquisition of City Holding Common
Stock pursuant to City Holding employee benefit plans, or the purchase or sale
of City Holding Common Stock by City National in its capacity as trustee under
City Holding employee benefit plans or in any other fiduciary capacity in which
it is directed to sell or purchase City Holding Common Stock, none of City
Holding, City National, Horizon or the Horizon Banks will, directly or
indirectly, purchase, publicly sell or publicly acquire any shares of City
Holding Common Stock, or take any other action intended to manipulate the price
of City Holding Common Stock, during the 10 trading days ending on the 10th day
prior to the Effective Time of the Holding Company Merger.
4.15. Standstill Agreements; Confidentiality Agreements.
During the period from the date of this Agreement through the
Effective Time of the Holding Company Merger, neither Horizon nor City Holding
shall terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which it or any of its respective subsidiaries is a
party. During such period, Horizon or City Holding, as the case may be, shall
enforce, to the fullest extent permitted under applicable law, the provisions of
any such agreement, including by obtaining injunctions to prevent any breaches
of such agreements and to enforce specifically the terms and provisions thereof
in any court having jurisdiction.
<PAGE>
4.16. Letters from Accountants.
City Holding, City National, Horizon and the Horizon Banks
shall use reasonable efforts to cause Ernst & Young, LLP, independent
accountants for City Holding and Horizon, to deliver to City Holding and City
National and Horizon and the Horizon Banks, letters dated within two business
days prior to the date the Registration Statement shall become effective and in
form and substance reasonably satisfactory to the recipient thereof to the
effect that for financial reporting purposes, the Transaction qualifies for
pooling-of-interests accounting treatment under GAAP if consummated in
accordance with this Agreement.
ARTICLE V
MANAGEMENT AND CORPORATE GOVERNANCE
5.1. Board of Directors.
Immediately following the Effective Time of the Holding
Company Merger, the Board of Directors of City Holding shall be comprised of 24
members, 12 to be designated by City Holding and 12 to be designated by Horizon
at least 10 business days prior to the mailing of the Proxy Statement-Prospectus
to the shareholders of City Holding and Horizon. If any director so designated
shall be unwilling or unable to serve as a director of City Holding, a
replacement shall be designated by the remaining persons designated by City
Holding or Horizon, as applicable. Until the 1999 annual meeting of the Board of
Directors, the Chairman of the Board shall be elected by the directors
designated by Horizon.
5.2. Management.
Immediately following the Effective Time of the Holding
Company Merger, the management of City Holding and City National shall be as set
forth on Exhibit E.
ARTICLE VI
CONDITIONS OF MERGER
6.1. Conditions of Obligations of City Holding and City National.
The obligations of City Holding and City National to perform
this Agreement are subject to the satisfaction at or prior to the Effective Time
of the Holding Company Merger of the following conditions unless waived by City
Holding and City National.
<PAGE>
(a) Representations and Warranties; Performance of
Obligations. The representations and warranties of Horizon and the
Horizon Banks set forth in Section 3.l hereof shall be true and correct
in all material respects as of the date of this Agreement and as of the
Effective Time of the Holding Company Merger as though made on and as
of the Effective Time of the Holding Company Merger (or on the date
when made in the case of any representation and warranty which
specifically relates to an earlier date); Horizon and the Horizon Banks
shall have in all material respects performed all obligations required
to be performed by them and satisfied all conditions required to be
satisfied by them under this Agreement prior to the Effective Time of
the Holding Company Merger; and City Holding and City National shall
have received a certificate signed by the Chief Executive Officer and
by the Chief Financial Officer of Horizon and each of the Horizon
Banks, which may be to their knowledge after due inquiry, to such
effects.
(b) Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of this Agreement by
Horizon and the Horizon Banks and the consummation of the transactions
contemplated herein (including the shareholder action referred to in
Section 4.2) shall have been duly and validly taken by the Boards of
Directors of Horizon and the Horizon Banks and by the shareholders of
Horizon and the Horizon Banks, and Horizon and the Horizon Banks shall
have full power and right to merge into City Holding and City National,
respectively, on the terms provided herein.
(c) Opinion of Counsel. City Holding and City National shall
have received an opinion of Jackson & Kelly, counsel to Horizon and the
Horizon Banks, dated the Closing Date and satisfactory in form and
substance to counsel to City Holding and City National, in the form
attached hereto as Exhibit G.
(d) The Registration Statement. The Registration Statement
shall be effective under the 1933 Act and City Holding shall have
received all state securities laws or "blue sky" permits and other
authorizations or there shall be exemptions from registration
requirements necessary to offer and issue the City Holding Common Stock
in connection with the Holding Company Merger, and neither the
Registration Statement nor any such permit, authorization or exemption
shall be subject to a stop order or threatened stop order by the SEC or
any state securities authority.
(e) Tax Opinion. City Holding and City National shall have
received, in form and substance satisfactory to them, an opinion of
Hunton & Williams to the effect that, for federal income tax purposes,
each of the Holding Company Merger and the Bank Mergers will qualify as
<PAGE>
a "reorganization" under Section 368(a) of the Code, and no taxable
gain will be recognized by City Holding, City National, Horizon or the
Horizon Banks (i) in the Holding Company Merger (a) upon the transfer
of Horizon's assets to City Holding in exchange for City Holding Common
Stock and the assumption of Horizon's liabilities or (b) upon the
distribution of such City Holding Common Stock to Horizon shareholders
or (ii) in the Bank Mergers, (a) upon the transfer of the Horizon
Banks' assets to City National in exchange for the assumption of the
Horizon Banks' liabilities and in constructive exchange for City
National common stock (but the Horizon Banks or City National may be
required to include certain amounts in income as a result of the
termination of any bad debt reserve maintained by the Horizon Banks for
federal income tax purposes and other possible required changes in tax
accounting methods) or (b) upon the constructive distribution of such
City National common stock to City Holding.
(f) Regulatory Approvals. All required approvals from federal
and state regulatory authorities having jurisdiction to permit City
Holding and City National to consummate the Transaction and to issue
City Holding Common Stock to Horizon shareholders shall have been
received and shall have contained no conditions deemed in good faith to
be materially disadvantageous by City Holding, in light of the
transaction as a whole, as to make the transition not feasible.
Notwithstanding anything to the contrary in this Agreement, in the
event that divestiture of operations is required by any regulatory
agency that affects the market of Hinton or Summers County, West
Virginia, City Holding agrees not to divest any of the operations
currently comprising Summers, but rather to divest other operations. No
temporary restraining order, preliminary or permanent injunction or
other order by any Federal or state court in the United States which
prevents the consummation of the Transaction shall have been issued and
remain in effect.
(g) Affiliate Letters. Within 60 days of the date hereof, each
shareholder of Horizon who is a Horizon Affiliate shall have executed
and delivered a commitment and undertaking in the form of Exhibit H to
the effect that (1) such shareholder will dispose of the shares of City
Holding Common Stock received by him in connection with the Holding
Company Merger only in accordance with the provisions of paragraph (d)
of Rule 145 under the 1933 Act; (2) such shareholder will not dispose
of any of such shares until City Holding has received, at its expense,
an opinion of counsel acceptable to it that such proposed disposition
will not violate the provisions of paragraph (d) of Rule 145 and any
applicable securities laws which opinion shall be rendered promptly
following counsel's receipt of such shareholder's written notice of its
intent to sell shares of City Holding Common Stock; (3) such
shareholder shall not dispose of any such shares until City Holding has
published results of at least 30 days of the combined operations of
City Holding and Horizon and (4) the certificates representing said
shares may bear a legend referring to the foregoing restrictions.
<PAGE>
(h) Nasdaq Listing. The shares of City Holding Common Stock to
be issued in the Holding Company Merger shall have been approved for
listing, upon notice of issuance, on the Nasdaq Stock Market.
(i) Acceptance by City Holding and City National Counsel. The
form and substance of all legal matters contemplated hereby and of all
papers delivered hereunder shall be reasonably acceptable to counsel
for City Holding and City National.
(j) Letters from Accountants. City Holding and City National
shall have received letters from Ernst & Young, LLP, independent
accountants for City Holding and Horizon, dated within two business
days prior to the Closing Date and in form and substance reasonably
satisfactory to City Holding and City National to the effect that for
financial reporting purposes, the Transaction qualifies for
pooling-of-interests accounting treatment under GAAP if consummated in
accordance with this Agreement.
(k) Dissenting Shares. The total amount of cash paid or
payable by City Holding for Dissenting Shares, fractional shares of
Horizon Common Stock and any shares of City Holding Common Stock with
respect to which the holder has exercised dissenters' rights shall not
exceed 9% of the aggregate value of the shares of City Holding Common
Stock and cash exchanged for the shares of Horizon Common Stock in the
Holding Company Merger.
(l) Fairness Opinion. Unless waived by City Holding, City
Holding shall have received an opinion, dated within five business days
of the date on which the Proxy Statement-Prospectus for this
transaction is mailed to City Holding Shareholders from Wheat First
Securities, Inc. that as of such date the Exchange Ratio is fair, from
a financial point of view, to the holders of City Holding Common Stock.
(m) Employment Agreement. Steven J. Day shall have waived the
application to any transaction contemplated by or discussed in this
Agreement or the Holding Company Plan of Merger of the "change of
control" provisions of any employment or severance agreement between
him and City Holding.
6.2. Conditions of Obligations of Horizon and the Horizon Banks.
The obligations of Horizon and the Horizon Banks to perform
this Agreement are subject to the satisfaction at or prior to the Effective Time
of the Holding Company Merger of the following conditions unless waived by
Horizon and the Horizon Banks:
(a) Representations and Warranties; Performance of
Obligations. The representations and warranties of City Holding and
City National set forth in Section 3.2 hereof shall be true and correct
in all
<PAGE>
material respects as of the date of this Agreement and as of the
Effective Time of the Holding Company Merger as though made on and as
of the Effective Time of the Holding Company Merger (or on the date
when made in the case of any representation and warranty which
specifically relates to an earlier date); City Holding and City
National shall have in all material respects performed all obligations
required to be performed by them and satisfied all conditions required
to be satisfied by them under this Agreement prior to the Effective
Time of the Holding Company Merger; and Horizon and the Horizon Banks
shall have received a certificate signed by the Chief Executive Officer
and by the Chief Financial Officer of City Holding and City National,
which may be to their knowledge after due inquiry, to such effects.
(b) Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of this Agreement by
City Holding and City National and the consummation of the transactions
contemplated herein (including the shareholder action referred to in
Section 4.2) shall have been duly and validly taken by the Boards of
Directors of City Holding and City National and by the shareholders of
City Holding and City National, and City Holding and City National
shall have full power and right to merge with Horizon and the Horizon
Banks, respectively, on the terms provided herein.
(c) Opinion of Counsel. Horizon and the Horizon Banks shall
have received an opinion of Hunton & Williams, counsel to City Holding
and City National, dated the Closing Date and satisfactory in form and
substance to counsel to Horizon and the Horizon Banks, in the form
attached hereto as Exhibit J.
(d) The Registration Statement. The Registration Statement
shall be effective under the 1933 Act and City Holding shall have
received all state securities laws or "blue sky" permits and other
authorizations or there shall be exemptions from registration
requirements necessary to offer and issue the City Holding Common Stock
in connection with the Holding Company Merger, and neither the
Registration Statement nor any such permit, authorization or exemption
shall be subject to a stop order or threatened stop order by the SEC or
any state securities authority.
(e) Tax Opinion. Horizon and the Horizon Banks shall have
received, in form and substance reasonably satisfactory to them, an
opinion of Jackson & Kelly to the effect that, for federal income tax
purposes, each of the Holding Company Merger and the Bank Mergers will
qualify as a "reorganization" under Section 368(a) of the Code; no
taxable gain will be recognized by City Holding, City National, Horizon
or the Horizon Banks (i) in the Holding Company Merger (a) upon the
transfer of Horizon's assets to City Holding in exchange for City
Holding Common Stock and the assumption of Horizon's liabilities or (b)
upon the distribution of such City Holding Common Stock to Horizon
<PAGE>
shareholders or (ii) in the Bank Mergers, (a) upon the transfer of the
Horizon Banks' assets to City National in exchange for the assumption
of the Horizon Banks' liabilities and in constructive exchange for City
National stock (but the Horizon Banks or City National may be required
to include certain amounts in income as a result of the termination of
any bad-debt reserve maintained by the Horizon Banks for federal income
tax purposes and other possible required changes in tax accounting
methods) or (b) upon the constructive distribution of such City
National stock to City Holding; no taxable gain will be recognized by a
Horizon shareholder on the exchange by such shareholder of shares of
Horizon Common Stock solely for shares of City Holding Common Stock
(including any fractional share interest) in the Holding Company
Merger; a Horizon common shareholder's basis in City Holding Common
Stock (including any fractional share interest) received in the Holding
Company Merger will be the same as the shareholder's basis in the
Horizon Common Stock surrendered in exchange therefor; the holding
period of such City Holding Common Stock (including any fractional
share interest) for a Horizon shareholder will include the holding
period of the Horizon Common Stock surrendered in exchange therefor, if
such Horizon Common Stock is held as a capital asset by the shareholder
at the Effective Time of the Holding Company Merger; and a Horizon
common shareholder who receives cash in lieu of a fractional share of
City Holding Common Stock will recognize gain or loss equal to any
difference between the amount of cash received and the shareholder's
basis in the fractional share interest.
(f) Regulatory Approvals. All required approvals from federal
and state regulatory authorities having jurisdiction to permit Horizon
and the Horizon Banks to consummate the Transaction and to permit City
Holding to issue City Holding Common Stock to Horizon shareholders
shall have been received. No temporary restraining order, preliminary
or permanent injunction or other order by and Federal or state court in
the United States which prevents the consummation of the Transaction
shall have been issued and remain in effect.
(g) Nasdaq Listing. The shares of City Holding Common Stock to
be issued in the Holding Company Merger shall have been approved for
listing, upon notice of issuance, on the Nasdaq Stock Market.
(h) Acceptance by Horizon Counsel. The form and substance of
all legal matters contemplated hereby and of all papers delivered
hereunder shall be reasonably acceptable to counsel for Horizon.
(i) Letters from Accountants. Horizon and the Horizon Banks
shall have received letters from Ernst & Young, LLP, independent
accountants for City Holding and Horizon, dated within two business
days of the Closing Date and in form and substance reasonably
satisfactory to Horizon and the Horizon Banks to the effect that for
financial
<PAGE>
reporting purposes, the Transaction qualifies for pooling-of-interests
accounting treatment under GAAP if consummated in accordance with this
Agreement.
(j) Fairness Opinion. Unless waived by Horizon, the Horizon
Board shall have received an opinion, dated within five business days
of the date on which the Proxy Statement-Prospectus for this
transaction is mailed to Horizon shareholders from Baxter, Fentriss &
Co. that as of such date the consideration to be received by the
holders of Horizon Common Stock in the Holding Company Merger is fair
from a financial point of view.
(k) Employment Agreement. Steven J. Day shall have waived the
application to any transaction contemplated by or discussed in this
Agreement or the Holding Company Plan of Merger of the "change of
control" provisions of any employment or severance agreement between
him and City Holding.
ARTICLE VII
CLOSING DATE; EFFECTIVE TIME
7.1. Closing Date.
Unless another date or place is agreed to in writing by the
parties, the closing of the transactions contemplated in this Agreement shall
take place at the offices of City Holding, 25 Gatewater Road, Charleston, West
Virginia, at 10:00 o'clock A.M., local time, on such date as City Holding and
Horizon shall agree upon; provided, that such date shall not be earlier than 10
days after the receipt of the last required regulatory approval, and shall not
be later than 60 days after the receipt of such approval and, in no event, shall
be later than March 31, 1999 (the "Closing Date"). The parties agree to use
their best efforts to make the Holding Company Merger effective on or before
December 31, 1998.
7.2. Filings at Closing.
Subject to the provisions of Article V, at the Closing Date,
City Holding shall cause Articles of Merger relating to the Holding Company Plan
of Merger to be filed in accordance with the WVC and City Holding, City
National, Horizon and the Horizon Banks shall take any and all lawful actions to
cause the Holding Company Merger to become effective.
7.3. Effective Time.
Subject to the terms and conditions set forth herein,
including receipt of all required regulatory approvals, the Holding Company
Merger shall become effective at the time Articles of Merger filed with the
<PAGE>
Secretary of State of the State of West Virginia are made effective (the
"Effective Time of the Holding Company Merger") and the Bank Mergers shall
become effective at the times the respective Articles of Merger filed with the
applicable governmental authorities are made effective (the "Effective Time of
the Bank Mergers").
ARTICLE VIII
TERMINATION; SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
WAIVER AND AMENDMENT
8.1. Termination.
This Agreement shall be terminated, and the Transaction
abandoned, if the shareholders of City Holding or Horizon shall not have given
the approval required by Section 4.2. Notwithstanding such approval by such
shareholders, this Agreement may be terminated at any time prior to the
Effective Time of the Holding Company Merger, by:
(a) The mutual consent of City Holding and Horizon, as
expressed by their respective Boards of Directors;
(b) Either City Holding or Horizon, as expressed by their
respective Boards of Directors, if the Holding Company Merger has not
occurred by March 31, 1999, provided that the failure of the Holding
Company Merger to so occur shall not be due to a willful breach of any
representation, warranty, covenant or agreement by the party seeking to
terminate this Agreement;
(c) By City Holding in writing authorized by its Board of
Directors if Horizon or the Horizon Banks has, or by Horizon in writing
authorized by its Boards of Directors, if City Holding or City National
has, in any material respect, breached (i) any covenant or agreement
contained herein, or (ii) any representation or warranty contained
herein, in any case if such breach has not been cured by the earlier of
30 days after the date on which written notice of such breach is given
to the party committing such breach or the Closing Date; provided, that
it is understood and agreed that either party may terminate this
Agreement on the basis of any such material breach of any
representation or warranty which is not cured within 30 days of written
notice thereof contained herein notwithstanding any qualification
therein relating to the knowledge of the other party;
(d) Either City Holding or Horizon, as expressed by their
respective Boards of Directors, in the event that any of the conditions
precedent to the obligations of such parties to consummate the
Transaction have not been satisfied or fulfilled or waived by the party
entitled to so waive on or before the Closing Date, provided that no
party shall be entitled to terminate this Agreement pursuant to this
subparagraph (d) if the condition precedent or conditions precedent
which provide the basis for termination can reasonably be and are
satisfied within a reasonable period of time, in which case, the
Closing Date shall be appropriately postponed;
<PAGE>
(e) City Holding or Horizon if the Federal Reserve Board, the
OCC, the FDIC or the WVBOB deny approval of the Transaction and the
time period for all appeals or requests for reconsideration has run;
(f) City Holding, if Horizon fails to deliver to City Holding
as required by Section 4.13(a) the Schedules relating to Horizon and
the Horizon Banks or if City Holding notifies Horizon not later than
5:00 p.m., Charleston, West Virginia time, on August 21, 1998, that the
results of its due diligence review of the affairs of Horizon and the
Horizon Banks, including its review of such Schedules and as more
generally provided for in Section 4.1, have been, in its sole judgment,
unsatisfactory;
(g) Horizon, if City Holding fails to deliver to Horizon as
required by Section 4.13(b) the Schedules relating to City Holding and
City National or if Horizon notifies City Holding not later than 5:00
p.m., Charleston, West Virginia time, on August 21, 1998, that the
results of its due diligence review of the affairs of City Holding and
City National, including its review of such Schedules and as more
generally provided for in Section 4.1, have been, in its sole judgment,
unsatisfactory;
(h) Either Horizon or City Holding, if any stockholder
approval required by Section 4.2 herein is not obtained; or
(i) Either Horizon or City Holding, if the Board of Directors
of the other party, acting in accordance with the second sentence of
Section 4.2, shall have withdrawn, modified or changed in a manner
adverse to the terminating party its approval or recommendation of this
Agreement and the transactions contemplated hereby.
8.2. Effect of Termination.
In the event of the termination and abandonment of this
Agreement and the Transaction pursuant to Section 8.1, this Agreement, other
than the provisions of Sections 4.1 (last three sentences) and 10.1, shall
become void and have no effect, without any liability on the part of any party
or its directors, officers or shareholders, provided that nothing contained in
this Section 8.2 shall relieve any party from liability for any willful breach
of this Agreement.
8.3. Survival of Representations, Warranties and Covenants.
The respective representations and warranties, obligations,
covenants and agreements (except for those contained in Sections 1.2, 1.3, 2.1,
2.2, 2.3, 2.4, 2.5, 2.6, Article V, 7.2, 7.3, 8.1, 8.2, 8.3, 8.4, 9.1, 9.2,
10.2, 10.3, 10.4 and 10.6 which shall survive the effectiveness of the
<PAGE>
Transaction) of City Holding, City National, Horizon and the Horizon Banks
contained herein shall expire with, and be terminated and extinguished by, the
effectiveness of the Transaction and shall not survive the Effective Time of the
Holding Company Merger.
8.4. Waiver and Amendment.
Any term or provision of this Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof and this Agreement may be amended or supplemented by
written instructions duly executed by all parties hereto at any time, whether
before or after the meetings of City Holding and Horizon shareholders referred
to in Section 4.2 hereof, excepting statutory requirements and requisite
approvals of shareholders and regulatory authorities, provided that any such
amendment or waiver executed after shareholders of City Holding or Horizon have
approved this Agreement and the Holding Company Plan of Merger shall not modify
either the amount or form of the consideration to be received by such
shareholders for their shares of Horizon Common Stock or otherwise materially
adversely affect such shareholders without their approval.
ARTICLE IX
ADDITIONAL COVENANTS
9.1. Indemnification of Horizon Officers and Directors; Liability
Insurance.
After the Effective Time of the Holding Company Merger, City
Holding acknowledges its obligation to provide, and agrees to provide,
indemnification to the directors, employees and officers of Horizon and the
Horizon Banks and the subsidiaries thereof for events occurring prior to or
subsequent to the Effective Time of the Holding Company Merger as if they had
been directors, employees or officers of City Holding prior to the Effective
Time of the Holding Company Merger, to the extent permitted under the WVC and
the Articles of Incorporation and Bylaws of City Holding as in effect as of the
date of this Agreement. Such indemnification shall continue for ten years after
the Effective Time of the Holding Company Merger, provided that any right to
indemnification in respect of any claim asserted or made within such ten year
period shall continue until final disposition of such claim. City Holding will
provide officers and directors liability insurance coverage to all directors and
officers of Horizon and the Horizon Banks and their subsidiaries, whether or not
they become part of the City Holding organization after the Effective Time of
the Holding Company Merger, to the same extent provided to City Holding's
officers and directors, provided that coverage will not extend to acts as to
which notice has been given prior to the Effective Time of the Holding Company
Merger. The right to indemnification and insurance provided in this Section 9.1
is intended to be for the benefit of directors, employees and officers of
Horizon and the Horizon Banks and the subsidiaries thereof and as such may be
personally enforced by them at law or in equity.
<PAGE>
9.2. Employee Matters.
(a) Severance Benefits. City Holding or City National will pay
a severance benefit to each person, other than those persons who have
employment agreements with City Holding or City National, who is an
employee of City Holding, City National, Horizon, the Horizon Banks or
any of their subsidiaries at the Effective Time of the Holding Company
Merger and who is terminated without cause within six months after the
Effective Time of the Holding Company Merger. The amount of such
severance benefit will equal one week, in the case of hourly employees,
and two weeks, in the case of salaried employees, of such employee's
base pay (as in effect immediately before the Effective Time of the
Holding Company Merger) for each full year of service up to 52 weeks
base pay, provided, however, that the severance benefit shall not be
less than three weeks of base pay. Such severance benefit shall be in
lieu of any other severance benefit otherwise to be provided to such
employees.
(b) Employee Benefits for Transferred Employees. All employees
of Horizon or the Horizon Banks immediately prior to the Effective Time
of the Holding Company Merger who are employed by City Holding, City
National or another City Holding subsidiary immediately following the
Effective Time of the Holding Company Merger ("Transferred Employees")
will be covered by City Holding's employee benefit plans as to which
they are eligible based on their length of service, compensation, job
classification, and position, including, where applicable, any
incentive compensation plan. Notwithstanding the foregoing, City
Holding may determine to continue any of the Horizon or the Horizon
Banks benefit plans for Transferred Employees in lieu of offering
participation in City Holding's benefit plans providing similar
benefits (e.g., medical and hospitalization benefits), to terminate any
of the Horizon or the Horizon Banks benefit plans, or to merge any such
benefit plans with City Holding's benefit plans. Except as specifically
provided in this Section 9.2 and as otherwise prohibited by law,
Transferred Employees' service with Horizon or the Horizon Banks which
is recognized by the applicable benefit plan of Horizon or the Horizon
Banks at the Effective Time of the Holding Company Merger shall be
recognized as service with City Holding for purposes of eligibility to
participate and vesting, if applicable (but not for purposes of benefit
accrual) under the corresponding City Holding benefit plan, if any,
subject to applicable break-in-service rules.
(c) Advisory Directors. Following the Effective Time of the
Holding Company Merger, City Holding agrees to appoint members of the
Board of Directors of Raleigh, Summers, Greenbrier, Marlinton and
Twentieth as advisory directors of City National, but this undertaking
shall not create any obligation on City Holding's part to appoint any
particular director as an advisory director for any particular term.
City Holding agrees, for three years from the Effective Time of the
Holding Company Merger, to maintain deferred compensation plans for
directors, with similar benefits, and shall not terminate or reduce any
benefits of any person thereunder which have been accrued, funded or
vested.
<PAGE>
(d) Employment Agreements. Immediately following the Effective
Time of the Holding Company Merger, City Holding shall enter into
employment or consulting agreements, in the forms attached hereto as
Exhibit I, with the individuals named on Exhibit I.
ARTICLE X
MISCELLANEOUS
10.1. Expenses.
Each party hereto shall bear and pay the costs and expenses
incurred by it relating to the transactions contemplated hereby.
10.2. Entire Agreement.
This Agreement contains the entire agreement among City
Holding, City National, Horizon and the Horizon Banks with respect to the
Transaction and the related transactions and supersedes all prior agreements
(including the Letter Agreement), arrangements or understandings with respect
thereto.
10.3. Descriptive Headings.
Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of any provisions of this
Agreement.
<PAGE>
10.4. Notices.
All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, addressed as follows:
If to City Holding or City National:
City Holding Company
25 Gatewater Road
Charleston, West Virginia 25313
Attention: Robert A. Henson
Chief Financial Officer
Copy to:
Lathan M. Ewers, Jr.
Randall S. Parks
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
If to Horizon or the Horizon Banks:
Horizon Bancorp, Inc.
One Park Avenue
Beckley, West Virginia 25801
Attention: Frank S. Harkins, Jr. Chairman
<PAGE>
Copy to:
Louis S. Southworth, II
Charles D. Dunbar
Jackson & Kelly
1600 Laidley Tower (Zip: 25301)
P.O. Box 553
Charleston, West Virginia 25322
E. M. Payne, III
File, Payne, Scherer & File
P.O. Drawer L
130 Main Street
Beckley, West Virginia 25801
10.5. Counterparts.
This Agreement may be executed in any number of counterparts,
and each such counterpart hereof shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one agreement.
10.6. Governing Law.
Except as may otherwise be required by the laws of the United
States, this Agreement shall be governed by and construed in accordance with the
laws of West Virginia.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf and its corporate seal to be hereunto
affixed and attested by its officers thereunto duly authorized, all as of the
day and year first above written.
CITY HOLDING COMPANY
By: /s/ Robert A. Henson
--------------------
Name: Robert A. Henson
Title: Chief Financial Officer
HORIZON BANCORP, INC.
By: /s/ Frank S. Harkins, Jr.
-------------------------
Name: Frank S. Harkins, Jr.
Title: Chairman of the Board and CEO
Exhibit 99.4
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 7, 1998, between CITY
HOLDING COMPANY, a West Virginia corporation ("Issuer"), and HORIZON BANCORP,
INC., a West Virginia corporation ("Grantee").
WITNESSETH:
WHEREAS, as a condition to, and contemporaneous with the execution of
an Agreement and plan of Reorganization (together as used in this Stock Option
Agreement, the "Agreement") whereby Issuer will merge with Grantee (the
"Merger"), and in consideration therefor, the parties are entering into this
Stock Option Agreement pursuant to which Issuer has agreed to grant Grantee the
Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and Agreement set forth herein and in the Agreement, the parties
hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 1,334,095 fully paid and nonassessable shares of common stock, par value
$2.50 ("Common Stock"), of Issuer at a price of $41.25 per share (such price, as
adjusted if applicable, 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 common shares 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) If any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Stock Option Agreement
(other than pursuant to this Stock Option Agreement), the number of shares of
Common Stock subject to the Option shall be increased 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 to or issued
pursuant to the Option. Nothing contained in this Section l(b) or elsewhere in
this Stock Option Agreement shall be deemed to authorize Issuer or Grantee to
breach any provision of the Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
90 days following such Subsequent Triggering Event (or such later date as
provided in Section 10). Each of the following shall be an "Exercise Termination
<PAGE>
Event": (i) the Effective Time of the Merger; (ii) termination of the Agreement
in accordance with the provisions thereof (other than a termination resulting
from a willful breach by Issuer of a provision of the Agreement) if such
termination occurs prior to the occurrence of an Initial Triggering Event; or
(iii) the passage of eighteen months after termination of the Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.1(c) thereof resulting from a
willful breach by Issuer of a provision of the Agreement. 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 significant subsidiary of
Issuer 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
Stock Option Agreement having the meaning assigned thereto in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934 (the "1934 Act"), and the
rules and regulations thereunder) other than Grantee or any of its subsidiaries
(each a "Grantee Subsidiary") or the board of directors of Issuer shall have
recommended that the shareholders of Issuer approve or accept any Acquisition
Transaction other than as contemplated by the Agreement. For purposes of this
Stock Option Agreement, "Acquisition Transaction" shall mean (a) a merger,
consolidation or share exchange involving Issuer or any significant subsidiary
of Issuer, provided, however, that in no event shall (i) any merger,
consolidation or share exchange involving only the Issuer and one or more of the
subsidiaries of Issuer, or involving only any two or more of such subsidiaries
of Issuer be deemed to be an Acquisition Transaction, or (ii) any merger,
consolidation or share exchange (A) in which Issuer is the surviving entity, or
(B) as to which the shareholders of Issuer immediately prior thereto own in the
aggregate at least 40% of the common stock of the surviving corporation or its
publicly-held parent corporation immediately following consummation thereof be
deemed to be an Acquisition Transaction, (b) a purchase, lease or other
acquisition of all or substantially all of the assets of Issuer and its
subsidiaries taken as a whole, or (c) a purchase or other acquisition (including
by way of merger, consolidation, share exchange or otherwise) of securities
representing 20% or more of the voting power of Issuer;
(ii) The board of directors of Issuer does
not recommend that the shareholders of Issuer approve the Agreement or
publicly withdraws or modifies, or publicly announces its intention to withdraw
or modify, in any manner adverse to the Grantee, its recommendation that its
shareholders approve the Agreement;
(iii) Any person other than Grantee or any
Grantee Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 20% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Stock Option Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
<PAGE>
(iv) Any person other than Grantee or any
Grantee Subsidiary shall have made a bona fide proposal to Issuer or its
shareholders by public announcement or written communication that is or becomes
the subject of public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third
party to Issuer or its shareholders to engage in an Acquisition Transaction,
Issuer shall have breached any covenant or obligation contained in the Agreement
and such breach (x) would entitle Grantee to terminate the Agreement and (y)
shall not have been cured prior to the Notice Date (as defined below);
(vi) Any person other than Grantee or any
Grantee Subsidiary, other than in connection with a transaction to which
Grantee has given its prior written consent, shall have filed an application or
notice with The Board of Governors of the Federal Reserve System (the "FRB") or
any other federal or state bank regulatory authority, which application or
notice has been accepted for processing, for approval to engage in an
Acquisition Transaction;
(vii) The shareholders of Issuer shall have
voted and failed to approve the Agreement and the Merger at a meeting which
has been held for that purpose or any adjournment or postponement thereof, or
such meeting shall not have been held in violation of the Agreement or shall
have been canceled prior to termination of the Agreement if, prior to such
meeting (or if such meeting shall not have been held or shall have been
canceled, prior to such termination), it shall have been publicly announced that
any person (other than Grantee or any Grantee Subsidiary) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction; or
(viii) Any person other than Grantee or any
Grantee Subsidiary shall have filed with the SEC a registration statement or
tender offer materials with respect to a potential exchange or tender offer that
would constitute 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, other
than Grantee or any Grantee Subsidiary or any Issuer Subsidiary acting in a
fiduciary capacity, of beneficial ownership of 25% or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Initial
Triggering Event described in clause (i) of subsection 2(b), except that the
percentage referred to in clause (c) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of
the occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to exercise
the Option.
<PAGE>
(e) If the Holder is entitled to and wishes to exercise
the Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date not
earlier than three business days nor later than 60 business days from the Notice
Date for the closing of such purchase (the "Closing Date"); provided that if
prior notification to or approval of the FRB or any other governmental authority
or regulatory or administrative agency or commission, domestic or foreign (a
"Governmental Entity"), is required in connection with such purchase, the Holder
shall promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run from the later of (x) the date on which any
required notification periods have expired or been terminated and (y) the date
on which such approvals have been obtained and any requisite waiting period or
periods shall have passed. Any exercise of the Option shall be deemed to occur
on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer a copy of this Stock Option Agreement and a
letter agreeing that the Holder will not offer to sell or otherwise dispose of
such shares in violation of applicable law or the provisions of this Stock
Option Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder 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 Securities and Exchange Commission (the "SEC"), or an opinion of counsel,
in form and substance satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
of this Stock Option Agreement in the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the shares have been sold
or transferred in compliance with the provisions of this Stock Option Agreement
and under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
<PAGE>
(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 (A) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (B) in the event, under the Bank Holding Company Act
of 1956, as amended, or the Change in Bank Control Act of 1978, as amended, or
any state banking law, prior approval of or notice to the FRB or to any other
Governmental Entity is necessary before the Option may be exercised, cooperating
fully with the Holder in preparing such applications or notices and providing
such information to each such Governmental Entity as they may require) in order
to permit the Holder to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of the Holder against dilution.
4. This Stock Option Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Stock Option Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Stock Option Agreement" and
"Option" as used herein include any Stock Option Agreements and related options
<PAGE>
for which this Stock Option Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Stock Option Agreement, and
(in the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Stock Option
Agreement, if mutilated, Issuer will execute and deliver a new Stock Option
Agreement of like tenor and date. Any such new Stock Option Agreement executed
and delivered shall constitute an additional contractual obligation on the part
of Issuer, whether or not the Stock Option Agreement so lost, stolen, destroyed
or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Stock Option Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in Common Stock by reason of
stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and number
of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted.
(b) Whenever the number of shares of Common Stock
purchasable upon exercise hereof is adjusted as provided in this Section 5, the
Option Price shall be adjusted by multiplying the Option Price by a fraction,
the numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be equal
to the number of shares of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days (or such later date as may be provided pursuant to
Section 10) of such Subsequent Triggering Event (whether on its own behalf or on
behalf of any subsequent holder of this Option (or part thereof) or any of the
shares of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering any shares
issued and issuable pursuant to this Option and shall use its reasonable best
efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. 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. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other Agreements customarily included in such
underwriting Agreements. The foregoing notwithstanding, if, at the time of any
request by Grantee for registration of Option Shares as provided above, Issuer
is in the process of registration with respect to an underwritten public
offering of shares of Common Stock, and if in the good faith judgment of the
managing underwriter or managing underwriters, or, if none, the sole underwriter
or underwriters, of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder and Issuer in
the aggregate; provided further, however, that if such reduction occurs, then
the Issuer shall file a registration statement for the balance as promptly as
practical and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. 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.
<PAGE>
7. (a) At any time after the occurrence of a Repurchase Event
(as defined below) (i) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as may be provided pursuant to
Section 10); 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 prior to an Exercise Termination Event (or such
later period as may be provided pursuant to Section 10), Issuer (or any
successor thereto) 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 after the date hereof, (ii) the price per share of
Common Stock to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the 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
substantially all of Issuer's assets, the sum of the price paid in such sale for
such assets and the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected by the
Holder or the Owner, as the case may be, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale. In determining the
market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to the Issuer,
whose determination shall be conclusive and binding on all parties.
(b) The Holder or the Owner, as the case may be, may
exercise its right to require Issuer to repurchase the Option and any Option
Shares pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, a copy of this Stock Option Agreement or certificates for
Option Shares, as applicable, accompanied by a written notice or notices stating
<PAGE>
that the Holder or the Owner, as the case may be, elects to require Issuer to
repurchase this Option and/or the Option Shares in accordance with the
provisions of this Section 7. As promptly as practicable, and in any event
within five business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of such notice or notices relating
thereto, Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price therefor
or the portion thereof that Issuer is not then prohibited under applicable law
and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 7 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from delivering to the Holder and/or the Owner, as appropriate, the
Option Repurchase Price and the Option Share Repurchase Price, respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish such repurchase), the Holder or
Owner may revoke its notice of repurchase of the Option or the Option Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to the Holder and/or the Owner, as
appropriate, that portion of the Option Purchase Price or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the 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 upon the occurrence of any of the following
events or transactions after the date hereof:
(i) the acquisition by any person (other than
Grantee or any Grantee Subsidiary) of beneficial ownership of 50% or more of
the then outstanding Common Stock; or
(ii) the consummation of any Acquisition Transaction
described in Section 2(b) (i) hereof, except that the percentage referred to in
clause (c) shall be 50%.
<PAGE>
8. (a) If prior to an Exercise Termination Event, Issuer shall
enter into an agreement (i) to consolidate or merge with any person, other than
Grantee or one of its subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than Grantee or one of its subsidiaries, to merge into Issuer and Issuer shall
be the continuing or surviving corporation, but, in connection with such merger,
the then outstanding shares of Common Stock shall be changed into or exchanged
for stock or other securities of any other person or cash or any other property
or the then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or
(y) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or merger with Issuer
(if other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or substantially
all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the
common stock to be issued by the issuer of the Substitute Option upon exercise
of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer
price, as defined in Section 7.
(4) "Average Price" shall mean the average
closing price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of Substitute Common Stock on
the day preceding such consolidation, merger or sale; provided, that if Issuer
is the issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging into Issuer or
by any company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Stock Option Agreement,
which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned Value
<PAGE>
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 a number of shares
that is more than 19.9% of the shares of Substitute Common Stock outstanding
prior to exercise of the Substitute Option. If the Substitute Option would be
exercisable for more than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise but for this clause (e), the issuer of the
Substitute Option (the "Substitute Option Issuer") shall make a cash payment to
the Holder equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by the Holder or the Owner, as the case may be, and
reasonably acceptable to the Issuer.
(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 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, 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 the Highest Closing Price multiplied by the number of
Substitute Shares so designated. 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 or the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this Stock
Option Agreement) and certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the Substitute
Option Issuer to repurchase the Substitute Option and/or the Substitute Shares
in accordance with the provisions of this Section 9. As promptly as practicable,
and in any event within five business days after the surrender of the Substitute
Option and/or certificates representing Substitute Shares and the receipt of
such notice or notices relating thereto, the Substitute Option Issuer shall
deliver or cause to be delivered to the Substitute Option Holder the Substitute
Option Repurchase Price and/or to the Substitute Share Owner the Substitute
Share Repurchase Price therefor or the portion thereof which the Substitute
Option Issuer is not then prohibited under applicable law and regulation from so
delivering.
<PAGE>
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or caused to be delivered, from time to time, to
the Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the portion of the Substitute Share Repurchase Price, respectively, which it is
no longer prohibited from delivering, within five business days after the date
on which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from delivering to the Substitute Option Holder and/or the Substitute
Share Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the Substitute
Option Issuer shall use its best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may revoke
its notice of repurchase of the Substitute Option or the Substitute Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, the Substitute Option Issuer shall promptly (i) deliver to the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share Repurchase Price that
the Substitute Option Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the 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 Option Shares it is then so prohibited from repurchasing.
(10) The time periods for exercise of certain rights under Sections
2, 6, 7 and 12 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; (ii) during the pendency of any temporary
restraining order, injunction or other legal ban to the exercise of such rights;
and (iii) to the extent necessary to avoid liability under Section 16(b) of the
1934 Act by reason of such exercise.
<PAGE>
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Stock Option Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Stock Option Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Stock Option
Agreement or to consummate the transactions contemplated hereby. This Stock
Option 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 Stock Option Agreement in accordance with
its terms will have reserved for issuance upon the exercise of the Option, that
number of shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued, fully
paid, nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights and
obligations under this Stock Option Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 90
days following such Subsequent Triggering Event (or such later period as may be
provided pursuant to Section 10).
13. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and Governmental
Entities necessary to the consummation of the transactions contemplated by this
Stock Option Agreement, including without limitation making application to list
the shares of Common Stock issuable hereunder on the New York Stock Exchange or
such other exchange or market on which the shares of Issuer may be listed upon
official notice of issuance and making any necessary applications to the FRB
under the Bank Holding Company Act and any other Governmental Entities for
approval to acquire the shares issuable hereunder.
14. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Stock Option Agreement by either party
hereto and that the obligations of the parties shall hereto be enforceable by
either party hereto through injunctive or other equitable relief.
<PAGE>
15. If any term, provision, covenant or restriction contained in
this Stock Option Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Stock Option Agreement shall remain in full force and effect, and shall in
no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Holder is not permitted to acquire, or
Issuer is not permitted to repurchase pursuant to Section 7, the full number of
shares of Common Stock provided in Section 1(a) hereof (as adjusted pursuant to
Sections 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.
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Agreement.
17. This Stock Option Agreement shall be governed by and construed
in accordance with the laws of the State of West Virginia, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
18. This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
19. 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.
20. Except as otherwise expressly provided herein or in the
Agreement, this Stock Option Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Stock Option Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Stock Option Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors except as assigns, any rights,
remedies, obligations or liabilities under or by reason of this Stock Option
Agreement, except as expressly provided herein.
21. Terms used in this Stock Option Agreement and not defined herein
but defined in the Agreement shall have the meanings assigned thereto in the
Agreement.
[signatures follow on separate pages]
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
CITY HOLDING COMPANY, as Issuer
By: /s/ Robert A. Henson
--------------------
Name: Robert A. Henson
Title: Chief Financial Officer
HORIZON BANCORP, INC., as Grantee
By: /s/ Frank S. Harkins
--------------------
Name: Frank S. Harkins
Title: Chairman of the Board and CEO
