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RULE NO. 424(b)(3)
REGISTRATION NO. 33-60589
RAILROAD FINANCIAL CORPORATION
110 South Main Street, Suite 900
Wichita, Kansas 67202
(316) 269-0300
August 10, 1995
Dear Stockholder:
You are invited to attend a special meeting of stockholders (the "Special
Meeting") of Railroad Financial Corporation ("Railroad") to be held at 110
South Main Street, 9th Floor, Wichita, Kansas, on Friday, September 22, 1995
at 1:30 p.m., local time. Notice of the Special Meeting, a Prospectus/Proxy
Statement and a Proxy Card are enclosed.
The Special Meeting has been called in connection with the proposed
acquisition of Railroad and its principal subsidiary, Railroad Savings Bank,
fsb ("Railroad Savings") by Commercial Federal Corporation ("Commercial") and
its principal subsidiary, Commercial Federal Bank, a Federal Savings Bank (the
"Bank"), respectively, in accordance with a Reorganization and Merger
Agreement by and among Commercial, the Bank, Railroad and Railroad Savings
(the "Merger Agreement"). Pursuant to the Merger Agreement (1) Railroad will
merge into Commercial and the outstanding shares of Railroad's common stock
will be converted into shares of Commercial Common Stock as set forth below
and in the accompanying Prospectus/Proxy Statement (the "Acquisition Merger")
and (2) Railroad Savings will, following the Acquisition Merger, merge into
the Bank (collectively, the "Merger"). Pursuant to the Merger Agreement, each
share of Railroad Common Stock outstanding at the time of the Acquisition
Merger will be converted into the right to receive a number of shares of
Commercial Common Stock that have a value equal to $17.25 (such number of
shares referred to as the "Exchange Ratio"), such value to be based upon the
"Average Closing Price" of Commercial Common Stock (i.e., the arithmetic
mean of the per share closing prices of Commercial Common Stock as reported on
the New York Stock Exchange ("NYSE") for the twenty-fifth through the sixth
trading day immediately preceding the effective time of the Acquisition
Merger); provided, however, that (1) if such Average Closing Price is greater
than $27.00 or less than $24.00, the Exchange Ratio shall be .6389 and .7188
shares, respectively, of Commercial Common Stock, and (2) if the Average
Closing Price of the Commercial Common Stock is less than $20.00 and the
decline in the price of Commercial Common Stock during the period beginning on
April 17, 1995 and ending on the last date utilized in the calculation of the
Average Closing Price exceeds by more than 15% any decline in the weighted
stock price of a designated group of financial institutions listed on the SNL
Midwest Thrift Index during the same period, Railroad will have the right to
terminate the Merger Agreement unless Commercial elects to adjust the Exchange
Ratio to equal $14.38 divided by the Average Closing Price. Based on the
closing price per share of Commercial Common Stock on the NYSE on August
10, 1995, of $31.625, each share of Railroad Common Stock would be exchanged
for .6389 shares of Commercial Common Stock. Such Exchange Ratio may
increase or decrease depending on the Average Closing Price of Commercial
Common Stock. Cash will be paid in lieu of fractional shares. Following the
Merger, Commercial will be the resulting holding company, and the Bank will be
the resulting savings institution. Consummation of the Merger is conditioned
upon, among other things, receipt of all required regulatory approvals and
approval by Railroad's stockholders.
At the Special Meeting, stockholders of Railroad will consider and vote
upon approval of the Acquisition Merger and the Merger Agreement. In
addition, the stockholders of Railroad may be asked to approve adjournment of
the Special Meeting if necessary to permit further solicitation of proxies in
the event that there are not sufficient votes at the time of the Special
Meeting to approve the Acquisition Merger and the Merger Agreement. The
aggregate consideration to be received by Railroad's stockholders under the
Merger Agreement was negotiated by your Board of Directors in light of various
factors, including Railroad's recent operating results, current financial
condition and future prospects. Your Board of Directors has approved the
Merger Agreement, including the Acquisition Merger, and believes that the
Acquisition Merger and the Merger Agreement are in the best interests of
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Railroad and its stockholders. Accordingly, your Board of Directors
unanimously recommends that you vote FOR approval of the Acquisition Merger
and the Merger Agreement and FOR adjournment of the Special Meeting, if
necessary.
Railroad's Board of Directors has received the opinion of its financial
advisor, Piper Jaffray Inc., that the consideration to be received by holders
of Railroad's common stock in the Acquisition Merger is fair from a financial
point of view.
You are urged to read the accompanying Prospectus/Proxy Statement, which
provides detailed information concerning the Merger and related matters.
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND
THE SPECIAL MEETING. This will not prevent you from voting in person but will
assure that your vote is counted if you are unable to attend the Special
Meeting.
Sincerely,
[SIGNATURE]
Robert D. Taylor
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
Prospectus/Proxy Statement
----------------------------------------
COMMERCIAL FEDERAL CORPORATION
Prospectus
2,244,846 Shares of Common Stock
par value $.01 per share
(subject to adjustment)
----------------------------------------
----------------------------------------
RAILROAD FINANCIAL CORPORATION
Proxy Statement
For Special Meeting of Stockholders
To Be Held on September 22, 1995
----------------------------------------
This Prospectus/Proxy Statement is being furnished to the holders of the
common stock, par value $.10 per share, of Railroad Financial Corporation
("Railroad") ("Railroad Common Stock") in connection with the solicitation of
proxies by Railroad's Board of Directors for use at a special meeting of
stockholders (the "Special Meeting") to be held at 110 South Main Street, 9th
Floor, Wichita, Kansas, on Friday, September 22, 1995 at 1:30 p.m., local
time.
The purposes of the Special Meeting and the matters to be acted upon are:
(i) to consider and vote upon the proposed merger of Railroad into Commercial
Federal Corporation ("Commercial"), with Commercial as the surviving
corporation (the "Acquisition Merger"), in accordance with a Reorganization
and Merger Agreement by and between Commercial; Commercial Federal Bank, a
Federal Savings Bank (the "Bank"), the wholly-owned savings institution
subsidiary of Commercial; Railroad; and Railroad Savings Bank, fsb ("Railroad
Savings"), the wholly-owned savings institution subsidiary of Railroad, dated
April 18, 1995 (the "Merger Agreement"), which sets forth the terms and
conditions of the Acquisition Merger and also provides for the subsequent
merger of Railroad Savings into the Bank; (ii) to consider and vote upon
adjournment of the Special Meeting if necessary to permit further solicitation
of proxies in the event that there are not sufficient votes at the time of the
Special Meeting to approve the Acquisition Merger and the Merger Agreement;
and (iii) to consider and vote upon such other business as may properly come
before the Special Meeting or any adjournments thereof.
Pursuant to the Merger Agreement, each share of Railroad Common Stock
outstanding at the effective time of the Acquisition Merger (the "Acquisition
Merger Effective Time") will be converted into the right to receive a number
of shares of Commercial common stock, par value $.01 per share ("Commercial
Common Stock") that have a value equal to $17.25 (such number of shares
referred to as the "Exchange Ratio"), such value to be based upon the "Average
Closing Price" of Commercial Common Stock (i.e., the arithmetic mean of
the per share closing prices of Commercial Common Stock as reported on the New
York Stock Exchange ("NYSE") for the twenty-fifth through the sixth trading
day immediately preceding the effective time of the Acquisition Merger (the
"Determination Period")); provided, however, that (1) if such Average Closing
Price of the Commercial Common Stock is greater than $27.00 or less than
$24.00, the Exchange Ratio shall be .6389 and .7188 shares, respectively, of
Commercial Common Stock, (2) if the Average Closing Price of the Commercial
Common Stock is less than $20.00 and the decline in the price of Commercial
Common Stock during the period beginning on April 17, 1995 and ending on the
last date utilized in the calculation of the Average Closing Price exceeds by
more than 15% any decline in the weighted price of a designated group of
financial institutions listed on the SNL Midwest Thrift Index (the "Index
Group") during the same period, Railroad will have the right to terminate the
Merger Agreement unless Commercial exercises its option to adjust the Exchange
Ratio to equal $14.38 divided by the Average Closing Price.
<PAGE>
Trading of the Commercial Common Stock on the NYSE commenced August 2, 1995.
Prior to that date, the Commercial Common Stock was traded on the Nasdaq
National Market. Any references herein to the closing price of the Commercial
Common Stock for the period up to and including August 1, 1995 shall be to the
closing price as reported on the Nasdaq National Market. Based on the closing
price per share of Commercial Common Stock on the NYSE on August 10,
1995, of $31.625, each share of Railroad Common Stock would be exchanged for
.6389 shares of Commercial Common Stock. Such Exchange Ratio may increase or
decrease depending on the Average Closing Price of Commercial Common Stock.
Cash will be paid in lieu of fractional shares.
Commercial has filed a registration statement on Form S-4 with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of its common stock, par value $.01 per share, to be issued upon
consummation of the Acquisition Merger. See "Available Information." This
Prospectus/Proxy Statement constitutes a prospectus of Commercial with respect
to the issuance of shares of Commercial Common Stock to the stockholders of
Railroad upon consummation of the Acquisition Merger.
THE BOARD OF DIRECTORS OF RAILROAD BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF RAILROAD'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR THE APPROVAL OF THE ACQUISITION MERGER, INCLUDING THE
MERGER AGREEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY STATE AGENCY, NOR HAS SUCH COMMISSION, OFFICE,
CORPORATION OR AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION.
This Prospectus/Proxy Statement and the accompanying proxy card are first
being sent to the stockholders of Railroad on or about August 15, 1995.
Railroad's principal executive office is located at 110 South Main
Street, Suite 900, Wichita, Kansas 67202, and its telephone number is (316)
269-0300.
This Prospectus/Proxy Statement does not cover any resales of the
Commercial Common Stock offered hereby to be received by the stockholders
deemed to be affiliates of Commercial or Railroad upon consummation of the
Merger. No person is authorized to make use of this Prospectus/Proxy
Statement in connection with such resales, although such securities may be
traded without the use of this Proxy Statement/Prospectus by those
stockholders of Commercial not deemed to be affiliates of Commercial or
Railroad.
The date of this Prospectus/Proxy Statement is August 10, 1995
<PAGE>
PROSPECTUS/PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
AVAILABLE INFORMATION................................................................................ 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................... 1
SUMMARY.............................................................................................. 3
The Special Meeting of Railroad Stockholders.................................................... 3
Commercial Federal Corporation and Commercial Federal Bank, a Federal Savings Bank.............. 3
Railroad Financial Corporation and Railroad Savings Bank, fsb................................... 3
The Merger...................................................................................... 4
Comparison of Stockholder Rights................................................................ 7
Adjournment of Special Meeting.................................................................. 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF
COMMERCIAL FEDERAL CORPORATION....................................................................... 8
Financial Condition Data and Capital Ratios..................................................... 8
Operating Data.................................................................................. 9
Operating Ratios and Other Data................................................................. 10
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
OF RAILROAD FINANCIAL CORPORATION.................................................................... 11
Financial Condition Data and Capital Ratios..................................................... 11
Operating Data.................................................................................. 12
Operating Ratios and Other Data................................................................. 13
INFORMATION CONCERNING THE SPECIAL MEETING........................................................... 14
General......................................................................................... 14
Recent Events................................................................................... 14
Solicitation, Voting and Revocability of Proxies................................................ 14
COMMERCIAL FEDERAL CORPORATION AND
COMMERCIAL FEDERAL BANK, A FEDERAL SAVINGS BANK...................................................... 15
RAILROAD FINANCIAL CORPORATION AND RAILROAD SAVINGS BANK, fsb........................................ 15
THE MERGER........................................................................................... 16
General......................................................................................... 16
Background of the Merger........................................................................ 17
Reasons for the Merger and Recommendations of the Railroad Board of Directors........................ 19
Financial Advisors and Opinions of Financial Advisors........................................... 20
Conversion of Railroad Common Stock............................................................. 24
Treatment of Railroad Stock Options............................................................. 25
No Dissenters' Appraisal Rights................................................................. 26
The Bank Merger................................................................................. 26
Management after the Merger..................................................................... 26
Representations and Warranties.................................................................. 26
Covenants Pending the Acquisition Merger........................................................ 27
Conditions to Consummation of the Merger........................................................ 29
</TABLE>
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<TABLE>
<CAPTION>
TABLE OF CONTENTS (continued) Page
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Amendment or Termination of the Merger Agreement................................................ 31
Stock Option Agreement.......................................................................... 31
Required Regulatory Approvals................................................................... 33
Expenses........................................................................................ 33
Closing; Merger Effective Times................................................................. 33
Employee Benefit Plans after the Merger......................................................... 33
Interests of Certain Persons in the Merger...................................................... 34
Indemnification of Railroad Management.......................................................... 35
Federal Income Tax Consequences................................................................. 35
Accounting Treatment............................................................................ 36
Resale of Commercial Common Stock; Restrictions on Transfer..................................... 36
New York Stock Exchange Listing................................................................. 37
Vote Required................................................................................... 37
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION................................................... 37
Unaudited Pro Forma Combined Statement of Financial Condition................................... 37
Unaudited Pro Forma Condensed Combined Statement of Operations.................................. 39
Unaudited Pro Forma Combined Earnings Per Share Data............................................ 40
Unaudited Pro Forma Combined Regulatory Capital................................................. 41
BENEFICIAL OWNERSHIP OF RAILROAD COMMON STOCK........................................................ 42
COMMON STOCK PRICES AND DIVIDENDS.................................................................... 44
Common Stock Prices............................................................................. 44
Dividends....................................................................................... 45
COMPARISON OF STOCKHOLDER RIGHTS..................................................................... 45
ADJOURNMENT OF SPECIAL MEETING....................................................................... 51
STOCKHOLDER PROPOSALS................................................................................ 51
LEGAL MATTERS........................................................................................ 51
EXPERTS.............................................................................................. 51
INDEPENDENT ACCOUNTANTS.............................................................................. 52
</TABLE>
ANNEX:
<TABLE>
<S> <C> <C>
Annex A -- Reorganization and Merger Agreement by and between Commercial Federal
Corporation and Commercial Federal Bank, a Federal Savings Bank
and Railroad Financial Corporation and Railroad Savings Bank, fsb
(excluding exhibits)......................................................... A-1
Annex B -- Opinion of Piper Jaffray Inc................................................. B-1
Annex C -- Stock Option Agreement....................................................... C-1
Annex D -- Railroad Financial Corporation 1994 Annual Reports to Stockholders........... (Provided Separately)
Annex E -- Railroad Financial Corporation Quarterly Report on Form 10-Q for
the Quarters Ended March 31, 1995 and June 30, 1995.......................... (Provided Separately)
</TABLE>
ii
<PAGE>
No person is authorized to give any information or make any
representation other than those contained or incorporated in this
Prospectus/Proxy Statement, and, if given or made, such information or
representation should not be relied upon as having been authorized. This
Prospectus/Proxy Statement does not constitute an offer to exchange or sell,
or a solicitation of an offer to exchange or purchase, the securities offered
by this Prospectus/Proxy Statement, or the solicitation of a proxy, in any
jurisdiction in which such offer or solicitation is not authorized or to or
from any person to whom it is unlawful to make such offer or solicitation.
The information contained in this Prospectus/Proxy Statement speaks as of the
date hereof unless otherwise specifically indicated. Information contained in
this Prospectus/Proxy Statement regarding Commercial has been furnished by
Commercial, and information herein regarding Railroad has been furnished by
Railroad. Neither Commercial nor Railroad warrants the accuracy or
completeness of information relating to the other party.
AVAILABLE INFORMATION
Commercial has filed with the Commission a registration statement on Form
S-4 under the Securities Act relating to the shares of Commercial Common Stock
to be issued in connection with the Acquisition Merger. This Prospectus/Proxy
Statement does not contain all the information set forth in the registration
statement, certain portions of which have been omitted pursuant to the rules
and regulations of the Commission. The information omitted may be obtained
from the public reference facilities of the Commission or inspected and copied
at the principal or regional offices of the Commission at the addresses listed
below.
Commercial and Railroad are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its regional offices at Northwestern Atrium Center, 500
West Madison, Suite 1400, Chicago, Illinois 60601, and World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials also can be
obtained from the Commission's Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by
Commercial are hereby incorporated by reference in this Prospectus/Proxy
Statement:
(i) Commercial's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994;
(ii) Commercial's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1994, December 31, 1994 and March 31, 1995;
(iii) Commercial's Current Reports on Form 8-K dated July 21, 1994,
September 13, 1994, September 20, 1994, November 1, 1994, November
18, 1994, April 28, 1995 and August 8, 1995; and
(iv) the description of Commercial's common stock set forth at Item 1
of Commercial's registration statement on Form 8-A dated July 3,
1985 (File No. 0-13082).
The following documents previously filed with the Commission by Railroad
are hereby incorporated by reference in this Prospectus/Proxy Statement:
(i) Railroad's Annual Report on Form 10-K for the year ended December
31, 1994;
(ii) Railroad's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995; and
(iii) Railroad's Current Reports on Form 8-K dated February 6, 1995,
May 10, 1995 and July 12, 1995.
1
<PAGE>
In addition, Railroad's 1994 Annual Report to Stockholders and Quarterly
Reports on Form 10-Q for the Quarters Ended March 31, 1995 and June 30, 1995
accompany this Prospectus/Proxy Statement as Appendices D and E, respectively,
and are also incorporated herein by reference.
All documents subsequently filed by Commercial and Railroad,
respectively, with the Commission pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus/Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference in this Prospectus/Proxy Statement and to be part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be incorporated herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
of this Prospectus/Proxy Statement, except as so modified or superseded.
All information contained in this Prospectus/Proxy Statement with respect
to Commercial and its subsidiaries has been supplied by Commercial, and all
information with respect to Railroad and its subsidiaries has been supplied by
Railroad.
This Prospectus/Proxy Statement incorporates by reference other documents
relating to Commercial and Railroad which are not presented herein or
delivered herewith. These documents are available upon request without
charge, in the case of documents relating to Commercial, directed to Mr. Gary
L. Matter, Commercial's Corporate Secretary, 2120 South 72nd Street, Omaha,
Nebraska 68124, telephone (402) 390-5176 or, in the case of documents relating
to Railroad, to Ms. Kari S. Schmidt, Railroad's Corporate Secretary, 110 South
Main Street, Suite 900, Wichita, Kansas 67202, telephone (316) 269-0300. In
order to ensure timely delivery of any requested documents, the request should
be made no later than the close of business on September 12, 1995.
2
<PAGE>
SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by the detailed information and definitions appearing elsewhere
herein, the annexes hereto and documents incorporated by reference herein.
The Special Meeting of Railroad Stockholders
The Special Meeting will be held on Friday, September 22, 1995 at 1:30
p.m. at 110 South Main Street, 9th Floor, Wichita, Kansas. At the Special
Meeting, stockholders of Railroad will consider and vote upon proposals (1) to
approve the Acquisition Merger and the Merger Agreement; (2) to adjourn the
Special Meeting if necessary to permit further solicitation of proxies in the
event that there are not sufficient votes at the time of the Special Meeting
to approve the Acquisition Merger and the Merger Agreement; and (3) to vote
upon any other business which may be properly brought before the Special
Meeting. Stockholders of record at the close of business on August 9, 1995
will be entitled to one vote for each share then so held. The presence, in
person or by proxy, of a majority of the total number of outstanding shares of
Railroad Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. The affirmative vote of at least a
majority of the outstanding shares of Railroad Common Stock is required to
approve the Acquisition Merger and the Merger Agreement. The affirmative vote
of a majority of the shares represented and voting at the Special Meeting is
required to approve an adjournment of the Special Meeting. Railroad's
directors and officers, and their affiliates, are expected to vote
substantially all of the 651,969 shares, or 30.6%, of Railroad's outstanding
common stock (excluding stock options) beneficially owned by them as of the
record date for approval of the Acquisition Merger and the Merger Agreement.
For additional information, see "Information Concerning the Special
Meeting" herein.
Commercial Federal Corporation and Commercial Federal Bank, a Federal Savings
Bank
Commercial is a unitary non-diversified savings and loan holding company
whose primary asset is the Bank. The Bank is a consumer-oriented financial
institution that emphasizes traditional savings and loan operations, including
single-family residential real estate lending, retail deposit activities and
mortgage banking. The Bank conducts loan origination activities through its
72 branch office network, loan offices of its wholly-owned mortgage banking
subsidiary and a nationwide correspondent network consisting of approximately
370 loan originators. The Bank also provides insurance and securities
brokerage and other retail financial services.
For additional information, see "Commercial Federal Corporation and
Commercial Federal Bank, a Federal Savings Bank" herein.
Railroad Financial Corporation and Railroad Savings Bank, fsb
Railroad is the holding company of Railroad Savings, the second largest
savings institution headquartered in Wichita, Kansas and the third largest
savings institution headquartered in the State of Kansas. Railroad's principal
business, which is conducted through Railroad Savings, is the acceptance of
deposits from the general public and the origination, purchase, sale and
servicing of mortgage loans for the purpose of constructing, financing or
refinancing one- to four-family dwellings, and other residential and
commercial real estate. In addition to its direct investment in mortgage
loans, Railroad invests in mortgage-backed, money market, and other investment
securities. Railroad serves deposit and loan customers through its 18 full-
service branch offices and 71 agency offices in the State of Kansas and serves
loan customers in California, Nevada, Colorado, Oklahoma and Missouri.
Railroad Savings entered into an agreement to acquire seven additional Kansas
branches with $90.7 million in deposits from First Bank, fsb. This transaction
closed on June 23, 1995. As consideration for the assumption of the deposits
and other obligations associated with the branches, Railroad Savings received
a payment equal to the aggregate deposits at the branches reduced by an amount
equal to the value of the assets transferred and by a deposit premium equal to
3.13% of total deposits. The agency offices of Railroad Savings were reduced
from 74 to 71 after the acquisition of these seven additional branches.
For additional information, see "Railroad Financial Corporation and
Railroad Savings Bank, fsb" herein.
3
<PAGE>
The Merger
General. The Merger Agreement provides for the acquisition of Railroad
by Commercial, and the subsequent merger of Railroad Savings into the Bank, as
follows: (i) Railroad will merge into Commercial, with Commercial as the
surviving corporation, pursuant to which the outstanding shares of Railroad
Common Stock will be converted into shares of Commercial Common Stock as set
forth below under " -- Conversion of Railroad Common Stock" (the Acquisition
Merger); and (ii) Railroad Savings will, following the Acquisition Merger,
merge into the Bank, with the Bank as the surviving savings institution (the
"Bank Merger") (collectively, the "Merger"). At the Acquisition Merger
Effective Time, Railroad will have merged into Commercial. Upon the
consummation of the Bank Merger (the "Bank Merger Effective Time"), Railroad
Savings will have merged into the Bank, Commercial will be the resulting
savings institution holding company, and the Bank will be the resulting
subsidiary savings institution. It is anticipated that the Bank Merger
Effective Time will occur immediately following the Acquisition Merger
Effective Time.
The Board of Directors of Railroad considered the Merger and the terms of
the Merger Agreement, including the Exchange Ratio, in light of economic,
financial, legal and market factors and concluded that the Merger is in the
best interests of Railroad and its stockholders. The Board of Directors
believes that the Merger will afford Railroad's stockholders the benefit of,
among other things, the greater potential for long term growth and will offer
enhanced abilities to meet the needs of the communities served by Railroad
Savings.
The Board of Directors of Railroad believes that the Merger is in the
best interests of Railroad and its stockholders and recommends that Railroad's
stockholders vote FOR approval of the Merger Agreement and the Acquisition
Merger.
For additional information, see "The Merger -- General," "-- Background
of the Merger" and "-- Reasons for the Merger and Recommendations of the
Railroad Board of Directors" herein and the Merger Agreement attached as Annex
A hereto.
Financial Advisors and Opinions of Financial Advisors. The Board of
Directors of Railroad has received written opinions of Piper Jaffray Inc.
("Piper Jaffray") that, as of the date of such opinions, based upon and
subject to the assumptions, factors and limitations set forth therein, the
consideration to be received by holders of Railroad Common Stock in the
Acquisition Merger is fair from a financial point of view. The Piper Jaffray
opinion was updated and confirmed on August 9, 1995. A copy of the Piper
Jaffray opinion dated August 9, 1995, is attached as Annex B hereto, and the
description set forth herein is qualified in its entirety by reference to this
opinion.
Commercial has retained Merrill Lynch & Co. ("Merrill Lynch") to render
its opinion with respect to the fairness to Commercial of the Exchange Ratio
negotiated by Commercial and Railroad. Merrill Lynch rendered its oral
opinion to Commercial's Board of Directors on April 18, 1995, which it
subsequently confirmed in writing, that as of the date of such opinion, the
Exchange Ratio was fair to Commercial from a financial point of view. The
opinion sets forth a description of the assumptions made and matters
considered by Merrill Lynch and contains certain limitations and
qualifications. The Merrill Lynch opinion was updated and confirmed on August
11, 1995. A copy of the Merrill Lynch opinion is available for inspection
and copying at the principal executive offices of Commercial during its
regular business hours by any interested stockholder of Commercial or Railroad
or his authorized representative.
Conversion of Railroad Common Stock. Pursuant to the Merger Agreement,
each share of Railroad Common Stock outstanding at the Acquisition Merger
Effective Time (other than shares owned or held by Commercial) will be
converted into the right to receive a number of shares of Commercial Common
Stock (the Exchange Ratio) that have a value equal to $17.25, such value to be
based upon the Average Closing Price of Commercial Common Stock (i.e., the
arithmetic mean of the per share closing prices of Commercial Common Stock as
reported on the NYSE for the Determination Period); provided, however, that
(1) if such Average Closing Price of the Commercial Common Stock is greater
than $27.00 or less than $24.00, the Exchange Ratio shall be .6389 and .7188
shares, respectively, of Commercial Common Stock, (2) if the Average Closing
Price of the
4
<PAGE>
Commercial Common Stock is less than $20.00 and the decline in the price of
Commercial Common Stock during the period beginning on April 17, 1995 and
ending on the last date utilized in the calculation of the Average Closing
Price exceeds by more than 15% any decline in the weighted stock price of the
Index Group during the same period, Railroad will have the right to terminate
the Merger Agreement unless Commercial exercises its option to adjust the
Exchange Ratio to equal $14.38 divided by the Average Closing Price. Based on
the closing price per share of Commercial Common Stock on the NYSE on
August 10, 1995, of $31.625, each share of Railroad Common Stock would be
exchanged for .6389 shares of Commercial Common Stock. Such Exchange Ratio
may increase or decrease depending on the Average Closing Price of Commercial
Common Stock. Cash will be paid in lieu of fractional shares. Shares of
Railroad Common Stock owned or held by Commercial or a subsidiary (other than
in a fiduciary capacity) would be cancelled. For additional information, see
"The Merger --Conversion of Railroad Common Stock" herein.
Treatment of Railroad Stock Options. At the Acquisition Merger Effective
Time, each outstanding option under Railroad's 1994 Stock Option and Incentive
Plan, 1986 Stock Option and Incentive Plan and 1991 Director's Stock Option
Plan (collectively, the "Railroad Option Plans") will continue outstanding as
an option to purchase the number of shares of Commercial Common Stock that
would have been received by the optionee in the Merger had the option been
exercised in full (without regard to any limitations contained therein on
exercise) for shares of Railroad Common Stock immediately prior to the
Acquisition Merger. Such options shall remain outstanding on the same terms
and conditions under the relevant option as were applicable immediately prior
to the Acquisition Merger Effective Time, except for appropriate pro rata
adjustments as to the option price for shares of Commercial Common Stock
substituted therefor so that the aggregate option exercise price of shares
subject to an option immediately following the assumption and substitution
shall be the same as the aggregate option exercise price for such shares
immediately prior to such assumption and substitution. In addition, under the
terms of Railroad's 1994 Stock Option and Incentive Plan, all options will
become fully vested upon consummation of the Merger. For additional
information, see "The Merger --Treatment of Railroad Stock Options" herein.
Dissenters' Appraisal Rights. Under Delaware law, stockholders of
Railroad will not have any dissenters' rights of appraisal as a result of the
matters to be voted upon at the Special Meeting. See "The Merger -- No
Dissenters' Appraisal Rights."
Stock Option Agreement. As a condition to Commercial's entry into the
Merger Agreement, Railroad and Commercial entered into a Stock Option
Agreement dated April 18, 1995 (the "Stock Option Agreement"), pursuant to
which Railroad granted to Commercial an option to purchase shares of
authorized and unissued or treasury shares of Railroad Common Stock in an
amount up to 13.0% of the outstanding shares of such stock upon or after the
occurrence of a "purchase event" (as defined therein). The exercise price is
$11.875 per share payable in cash. The Stock Option Agreement is intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms of the Merger Agreement. Consequently, certain aspects of the Stock
Option Agreement may have the effect of discouraging persons who otherwise
might be interested in acquiring all of or a significant interest in Railroad
from considering or proposing such an acquisition, even if such persons were
prepared to pay for the Railroad Common Stock a price in excess of that being
paid by Commercial in the Merger. For additional information, see "The Merger
-- Stock Option Agreement" herein and the Stock Option Agreement, which is
attached hereto as Annex C.
Conditions to the Merger. The obligations of Commercial and Railroad to
effect the Merger are jointly subject to a number of conditions regarding,
among other things, stockholder and regulatory approval of the Merger and
receipt of an opinion with respect to the tax effects of the Merger. The
obligations of Commercial and the Bank to effect the Merger are subject to a
number of additional conditions regarding, among other things, (i) receipt of
a customary legal opinion from Railroad's legal counsel; (ii) receipt by
Railroad and Railroad Savings of certain third party consents and approvals;
(iii) receipt of a letter from Railroad's independent public accountants
regarding certain financial information included in this Prospectus/Proxy
Statement and other matters; (iv) the absence of material adverse changes in
the financial condition, business or results of operations of Railroad and its
subsidiaries; (v) the accuracy of Railroad's and Railroad Savings'
representations and their performance of obligations and compliance with
covenants and conditions under the Merger Agreement; (vi) receipt of a letter
from Commercial's independent public accountants stating its opinion that the
Merger should be accounted for by Commercial as a pooling of
5
<PAGE>
interests for financial statement purposes and that such accounting treatment
is in accordance with generally accepted accounting principles; (vii) the
receipt by Commercial of an updated written opinion from its financial advisor
to the effect that the Exchange Ratio is fair to Commercial from a financial
point of view; (viii) the receipt by Commercial of a Phase I Environmental
Risk Report on certain properties owned by, and securing loans made by,
Railroad and Railroad Savings; and (ix) the receipt of all required
governmental approvals without the imposition of any conditions which
Commercial and the Bank determine to be unduly burdensome on the conduct of
the business of Commercial or the Bank (including the receipt of written
confirmation from the Office of Thrift Supervision ("OTS") that the Bank, as
the surviving institution of the Bank Merger, is lawfully authorized (and such
authorization shall be subject to no time or other restriction not in effect
as of the date of the Merger Agreement) to operate, maintain and replace the
Railroad Savings agency offices to the same extent as Railroad Savings
currently operates, maintains and replaces such agency offices). The
obligations of Railroad and Railroad Savings to effect the Acquisition Merger
and the transactions contemplated in the Merger Agreement are subject to a
number of additional conditions regarding, among other things, (i) receipt of
a customary legal opinion from Commercial's legal counsel; (ii) the accuracy
of Commercial's and the Bank's representations and warranties and their
performance of obligations and compliance with covenants and conditions under
the Merger Agreement; (iii) the receipt by Railroad of an updated written
opinion from its financial advisor to the effect that the consideration to be
received by Railroad shareholders in the Acquisition Merger is fair from a
financial point of view; and (iv) receipt by Commercial and the Bank of
certain third party consents and approvals. For additional information, see
"The Merger -- Conditions to Consummation of the Merger" herein.
Required Regulatory Approvals. The Merger is subject to the approval of
the OTS. Following OTS approval of the Merger, the U.S. Department of Justice
may review the Merger and raise objections on antitrust grounds, though
objections on such grounds are not expected. For additional information, see
"The Merger --Required Regulatory Approvals" herein.
Termination of the Merger. The Merger Agreement may be terminated at any
time before the Acquisition Merger Effective Time, whether before or after
approval by Railroad stockholders, in a number of circumstances, including, by
mutual consent of the parties; at the election of either party, if the closing
of the Merger shall not have occurred on or before March 31, 1996; by either
party upon the occurrence of an event which renders satisfaction of one or
more of the conditions to the obligations of the other party impossible; by
Railroad at any time during the two business days commencing on the business
day immediately following the end of the Determination Period, if the Average
Closing Price of Commercial Common Stock is less than $20.00 and the
decline in the price of Commercial Common Stock during the period beginning on
April 17, 1995 and ending on the last date utilized in the calculation of the
Average NMS Closing Price exceeds by more than 15% any decline in the weighted
stock price of the Index Group during the same period; provided, however, that
Railroad shall not be entitled to terminate the Merger Agreement on this basis
if Commercial exercises its option to adjust the Exchange Ratio so that it
equals the number obtained by dividing $14.38 by the Average Closing Price
of Commercial Common Stock. For additional information, see "The Merger --
Amendment or Termination of the Merger Agreement" herein.
Interests of Certain Persons in the Merger. Shares of Railroad Common
Stock held by directors, officers and employees of Railroad will be converted
into Commercial Common Stock under the Merger Agreement on the same basis as
shares held by other Railroad stockholders. Directors, officers and employees
of Railroad who hold unexercised options to purchase Railroad Common Stock
under the Railroad Option Plans at the Acquisition Merger Effective Time will
have their stock options converted into options to purchase Commercial Common
Stock.
At August 9, 1995, officers and directors of Railroad held options to
purchase 120,509 shares of Railroad Common Stock at prices ranging between
$2.43 and $9.63 per share. The weighted average price of such options was
approximately $7.12 per share.
In addition, Commercial has agreed to provide indemnification for a
period of six years to Railroad's employees, agents, directors or officers
arising by virtue of Railroad's certificate of incorporation or bylaws in the
form in effect at the date of the Merger Agreement or arising by operation of
law.
6
<PAGE>
For additional information, see "The Merger -- Management after the
Merger," "-- Employee Benefit Plans after the Merger" and "-- Interests of
Certain Persons in the Merger" herein.
Federal Income Tax Consequences. Commercial and Railroad will rely upon
an opinion of Deloitte & Touche LLP, tax advisor to Commercial, to the effect
that, among other things, (i) no gain or loss will be recognized by
Commercial, the Bank, Railroad or Railroad Savings by reason of the
Acquisition Merger or the Bank Merger; (ii) no gain or loss will be recognized
by Railroad stockholders (except in connection with the receipt of cash in
lieu of fractional share interests in Commercial Common Stock) upon the
exchange of Railroad Common Stock for Commercial Common Stock in the
Acquisition Merger; and (iii) cash received by Railroad stockholders in lieu
of fractional share interests in Commercial Common Stock will be treated as
having been received as distributions in full payment in exchange for the
fractional share interests in Commercial Common Stock which they would
otherwise be entitled to receive and will qualify as capital gain or loss if
the stockholders held the Railroad Common Stock as a capital asset at the
Acquisition Merger Effective Time. For additional information, see "The
Merger -- Federal Income Tax Consequences" herein.
Accounting Treatment. The Merger is expected to be accounted for as a
pooling of interests. The consummation of the Merger is conditioned upon the
receipt by Commercial from the independent public accountants for Commercial,
of a letter dated the Acquisition Merger Effective Time stating their opinion
that the Merger should be accounted for by Commercial as a pooling of
interests for financial statement purposes and that such accounting treatment
is in accordance with generally accepted accounting principles. For
additional information, see "The Merger -- Accounting Treatment" herein.
Comparison of Stockholder Rights
Upon consummation of the Merger, holders of Railroad Common Stock, whose
rights are presently governed by Delaware law and Railroad's certificate of
incorporation and bylaws, and indirectly Railroad Savings' charter and bylaws,
will become stockholders of Commercial, a Nebraska corporation. Accordingly,
their rights will be governed by the Nebraska Business Corporation Act and the
articles of incorporation and bylaws of Commercial and indirectly by the
Bank's charter and bylaws. Certain differences arise from the change in
governing law, as well as from differences between the certificate of
incorporation and bylaws of Railroad and the articles of incorporation and
bylaws of Commercial and between the charter and bylaws of Railroad Savings
and the Bank, including, among other things, the number of authorized shares
of capital stock, the payment of dividends, the calling of special meetings of
stockholders, the number and term of directors, advance notice requirements
for nominations of directors and presentation of new business at annual
meetings of stockholders, limitations on acquisitions of capital stock,
approval requirements for mergers, consolidations, sale of substantially all
assets and dissolution, rights of stockholders to dissent, limitations on
directors' liability and amendment of corporate governing documents. In
addition, Commercial has in effect a shareholder rights plan, while Railroad
has not adopted any similar plan. For additional information, see "Comparison
of Stockholder Rights" herein.
Adjournment of Special Meeting
In the event that there are not sufficient votes to approve the
Acquisition Merger and the Merger Agreement at the time of the Special
Meeting, stockholders of Railroad will consider and vote upon a proposal to
adjourn the Special Meeting for the solicitation of additional votes in favor
of the Acquisition Merger and the Merger Agreement. A majority of the shares
represented and voting at the Special Meeting is required in order to approve
any such adjournment. Railroad's Board of Directors unanimously recommends
that stockholders vote FOR the proposal to adjourn the Special Meeting if
necessary to permit further solicitation of proxies.
For additional information, see "Adjournment of Special Meeting" herein.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION OF
COMMERCIAL FEDERAL CORPORATION
The following tables set forth certain consolidated financial information
for Commercial at or for the dates indicated. This information is derived
from and should be read in conjunction with Commercial's consolidated
financial statements and the notes thereto contained in Commercial's 1994
Annual Report to Stockholders and Quarterly Reports on Form 10-Q for the
quarters ended September 30, 1994, December 31, 1994 and March 31, 1995, which
are incorporated herein by reference.
Financial Condition Data and Capital Ratios:
<TABLE>
<CAPTION>
At At June 30,
March 31, --------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
----------- --------------- --------------- -------------- ----------- -----------
(Unaudited) (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Total assets...................... $5,813,575 $5,521,340 $4,871,362 $4,640,996 $5,077,940 $5,618,785
Investment securities............. 284,923 280,600 247,846 312,231 240,505 202,265
Mortgage-backed securities (1).... 1,358,638 1,305,434 892,361 764,547 975,025 2,746,465
Loans receivable, net (2)......... 3,840,649 3,592,938 3,354,679 3,109,473 2,686,507 1,912,587
Excess of cost over net assets
acquired and core value of
deposits........................ 32,442 67,185 87,782 98,290 109,642 122,107
Deposits.......................... 3,522,546 3,355,597 2,391,433 2,300,641 2,249,245 2,404,873
Advances from Federal Home
Loan Bank....................... 1,691,215 1,524,516 1,853,779 1,455,062 1,325,087 1,205,216
Securities sold under agreements
to repurchase................... 120,000 157,432 154,862 445,479 1,101,583 1,621,656
Other borrowings.................. 56,223 59,740 70,066 53,514 89,300 111,329
Stockholders' equity.............. 296,677 279,451 278,011 236,933 165,630 141,176
Book value per common share....... 23.04 21.86 21.95 22.02 22.98 20.36
Tangible book value per
common share (3)................ 20.52 16.60 15.02 12.89 7.77 2.75
Regulatory capital ratios
of the Bank:
Tangible capital................ 5.09% 4.54% 4.46% 2.85% 1.15% .40%
Core capital (Tier 1 capital)... 5.46% 5.45% 5.88% 4.67% 3.18% 2.27%
Risk-based capital (Total
capital)...................... 13.52% 13.13% 12.75% 8.92% 6.62% 6.28%
</TABLE>
-----------------
(1) Includes mortgage-backed securities available for sale amounting to $10.6
million, $12.2 million, $15.6 million, $20.8 million and $500.9 million,
respectively, at March 31, 1995, June 30, 1994, 1993, 1992 and 1991. No
mortgage-backed securities were deemed available for sale at June 30, 1990.
(2) Includes loans held for sale amounting to $32.6 million, $74.3 million,
$98.2 million, $39.5 million, $112.7 million and $125.4 million,
respectively, at March 31, 1995, June 30, 1994, 1993, 1992, 1991 and 1990.
(3) Calculated by dividing stockholders' equity, reduced by the amount of excess
of cost over net assets acquired and core value of deposits, by the number
of shares of common stock outstanding at the respective dates.
8
<PAGE>
COMMERCIAL FEDERAL CORPORATION
Operating Data:
<TABLE>
<CAPTION>
For the
Nine Months Ended
March 31, For the Year Ended June 30,
----------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
(Unaudited) (Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income......................... $303,771 $272,048 $365,474 $372,778 $412,239 $482,552 $535,586
Interest expense........................ 202,981 178,684 239,950 256,468 327,190 427,419 474,635
-------- -------- -------- -------- -------- -------- --------
Net interest income..................... 100,790 93,364 125,524 116,310 85,049 55,133 60,951
Provision for loan losses............... (4,525) (4,525) (6,033) (5,735) (7,381) (9,137) (27,566)
Loan servicing fees..................... 16,554 15,268 20,426 17,070 15,010 12,738 11,984
Retail fees and charges................. 6,517 5,966 7,992 7,199 6,949 6,396 7,941
Real estate operations.................. (573) (1,746) (2,324) (5,232) (9,288) (20,150) (29,359)
Gain (loss) on sales of loans........... (549) (609) (392) (352) 1,655 930 2,125
Loss on disposition/sales of
investment securities.................. -- -- -- (295) (452) (2,230) (7,529)
Gain on sale of mortgage-backed
securities............................. -- -- -- -- 37,188 47,496 11,389
Gain on sale of loan servicing rights... -- -- -- -- 8,376 -- --
Other operating income.................. 5,454 4,519 6,638 4,887 9,061 7,610 5,836
Gain on sale of credit card portfolio... -- -- -- -- -- -- 17,816
General and administrative expenses
and minority interest of subsidiary.... 63,806 56,724 76,458 72,725 67,427 61,971 69,661
Amortization of goodwill and core
value of deposits...................... 7,969 10,088 14,084 10,508 11,352 12,465 13,574
Accelerated amortization of goodwill.... 21,357 -- -- -- -- -- --
Intangible assets valuation adjustment.. -- -- 52,703 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary items and cumulative
effects of changes in accounting
principles............................. 30,536 45,425 8,586 50,619 67,388 24,350 (29,647)
Provision for income taxes.............. 15,252 18,259 14,231 19,841 25,103 15,222 2,236
-------- -------- -------- -------- -------- -------- --------
</TABLE>
(Table continued on following page)
9
<PAGE>
COMMERCIAL FEDERAL CORPORATION
Operating Data (continued):
<TABLE>
<CAPTION>
For the
Nine Months Ended
March 31, For the Year Ended June 30,
--------------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------------ ------------- --------- ---------- --------- -------- ----------
(Unaudited) (Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
extraordinary items and cumulative
effects of changes in accounting
principles......................... 15,284 27,166 (5,645) 30,778 42,285 9,128 (31,883)
Extraordinary items (1)............. -- -- -- -- (5,046) 11,699 --
Cumulative effects of changes in
accounting principles (2)......... -- 5,803 5,803 -- -- -- --
------- ------- ------- ------- ------- ------- --------
Net income (loss)................... $15,284 $32,969 $ 158 $30,778 $37,239 $20,827 $(31,883)
======= ======= ======= ======= ======= ======= ========
Earnings (loss) per share
(fully diluted):
Income (loss) before extraordinary
items and cumulative effects of
changes in accounting
principles...................... $ 1.17 $ 2.10 $ (.44) $ 2.43 $ 5.03 $ 1.19 $ (4.61)
Extraordinary items (1)........... -- -- -- -- (.60) 1.52 --
Cumulative effects of changes in
accounting principles (2)...... -- .45 .45 -- -- -- --
------- ------- ------- ------- ------- ------- --------
Net income (loss)................. $ 1.17 $ 2.55 $ .01 $ 2.43 $ 4.43 $ 2.71 $ (4.61)
======= ======= ======= ======= ======= ======= ========
-----------------------------------------------------------------------------------------------------------------------------
Operating Ratios and Other Data:
Net interest rate spread during
period.......................... 2.26% 2.43% 2.39% 2.53% 1.98% 1.42% 1.50%
Net annualized yield on interest-
earning assets.................. 2.44% 2.58% 2.55% 2.61% 1.94% 1.11% 1.13%
Interest rate spread at end of
period.......................... 2.14% 2.42% 2.30% 2.55% 2.18% 1.76% 1.17%
Return on average assets
(annualized) (3)................ .36% .83% -- % .65% .78% .38% (.54%)
Return on average equity
(annualized) (3)................ 7.22% 14.16% .05% 11.97% 19.75% 14.25% (25.54%)
Total number of branches at end
of period (4)................... 68 61 65 49 49 50 50
</TABLE>
-------------
(1) For fiscal year 1992, represents the loss on early extinguishment of
debt, net of income tax benefits, less the effect of the utilization of
net operating losses carried forward; and for fiscal year 1991,
represents the utilization of net operating losses carried forward that
were not previously recognized for financial reporting purposes.
(2) Represents the cumulative effect of the change in the method of
accounting for income taxes less the cumulative effect of the change in
accounting for postretirement benefits, net of income tax benefit.
(3) Based on daily average balances during the nine months ended March 31,
1995 and 1994 and during fiscal year 1994, and on average monthly
balances for fiscal years 1993, 1992, 1991 and 1990. Return on average
assets and return on average equity for fiscal year 1994 is .73% and
12.77%, respectively, excluding the cumulative effects of changes in
accounting principles and the after-tax effect of the intangible assets
valuation adjustment totaling $5,803,000 and $43,938,000, respectively.
(4) As of July 17, 1995, the Bank operated 72 branch offices.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
OF RAILROAD FINANCIAL CORPORATION
The following tables set forth certain consolidated financial information
for Railroad at or for the dates indicated. This information is derived from
and should be read in conjunction with Railroad's consolidated financial
statements and the notes thereto contained in Railroad's 1994 Annual Report to
Stockholders and Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995, and June 30, 1995, which accompany this Prospectus/Proxy Statement
as Appendices D and E, respectively, and are incorporated herein by reference.
Financial Condition Data and Capital Ratios:
<TABLE>
<CAPTION>
At At December 31,
March 31, ------------------------------------------------------------
1995 1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- ---------- ---------
(Unaudited) (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Total assets..................... $571,547 $561,496 $460,967 $390,974 $394,917 $379,801
Loans receivable, net............ 453,411 435,776 264,330 227,459 231,843 263,989
Loans held for sale.............. 49,568 47,154 113,358 73,602 118,978 41,660
Mortgage-backed securities....... 37,429 38,003 44,968 60,178 15,422 42,334
Investment securities............ 16,666 17,199 15,389 10,633 7,434 11,719
Real estate owned and in
judgment....................... 650 7,865 8,363 8,437 9,128 5,103
Deposits......................... 329,510 320,297 320,483 339,979 360,362 360,292
Advances from Federal Home Loan
Bank and other borrowings...... 203,709 208,722 107,840 21,900 10,797 2,504
Stockholders' equity............. 27,174 25,173 25,117 20,631 16,595 12,912
Stockholders' equity
per share (1).................. 12.84 11.90 11.66 9.90 7.91 6.31
Regulatory capital ratios
of Railroad Savings:
Tangible capital............... 6.41% 5.56% 6.47% 6.61% 4.16% 3.32%
Core capital (Tier 1 capital).. 6.41% 5.56% 6.47% 6.61% 4.16% 3.32%
Risk-based capital (Total
capital)..................... 12.52% 11.75% 13.49% 13.43% 8.25% 7.25%
</TABLE>
-------------
(1) Reflects effect of 3-for-2 stock split to stockholders of record as of
February 11, 1994.
11
<PAGE>
RAILROAD FINANCIAL CORPORATION
Operating Data:
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31, For the Year Ended December 31,
----------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited) (Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................... $10,881 $7,348 $34,597 $28,380 $31,850 $35,644 $37,601
Interest expense.......................... 7,159 4,042 20,022 16,152 20,116 25,337 29,232
------- ------ ------- ------- ------- ------- -------
Net interest income....................... 3,722 3,306 14,575 12,228 11,734 10,307 8,369
Provision for loan losses................. 75 75 375 215 450 600 800
------- ------ ------- ------- ------- ------- -------
Net interest income after provision
for loan losses......................... 3,647 3,231 14,200 12,013 11,284 9,707 7,569
------- ------ ------- ------- ------- ------- -------
Other income:
Fees and service charges................ 655 755 2,967 2,964 2,381 1,489 1,232
Gain on sale of loans and
loan servicing........................ 888 1,102 2,066 7,754 8,449 6,497 3,082
Gain (loss) on sale of mortgage-backed
securities and investment securities.. -- -- (127) 220 (231) 992 --
Other operating income.................. 56 66 209 540 577 425 600
------- ------ ------- ------- ------- ------- -------
Total other income........................ 1,599 1,923 5,115 11,478 11,176 9,403 4,914
------- ------ ------- ------- ------- ------- -------
</TABLE>
(Table continued on following page)
12
<PAGE>
RAILROAD FINANCIAL CORPORATION
Operating Data (continued):
<TABLE>
<CAPTION>
For the
Three Months Ended
March 31, For the Year Ended December 31,
----------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited) (Dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Other expenses:
Compensation and
employee benefits....... 2,442 2,857 9,882 10,066 9,723 8,017 4,668
Loss (gain) on real
estate operations....... (1,437) (171) (1,143) (875) 11 85 355
Federal insurance
premiums................ 186 184 737 754 812 820 792
Provision for loss on
future loan repurchases. 109 75 139 242 905 -- --
Advertising, occupancy
and other expense....... 1,446 1,745 6,603 6,642 5,431 4,087 3,889
------- ------ ------- ------- ------- ------- ------
Total other expenses....... 2,746 4,690 16,218 16,829 16,882 13,009 9,704
------- ------ ------- ------- ------- ------- ------
Income before income taxes. 2,500 464 3,097 6,662 5,578 6,101 2,779
Provision for income taxes. 994 182 1,220 2,644 2,240 2,549 1,057
------- ------ ------- ------- ------- ------- ------
Net income before
accounting change......... 1,506 282 1,877 4,018 3,338 3,552 1,722
Cumulative effect of
accounting change......... -- -- -- -- 794 -- --
------- ------ ------- ------- ------- ------- ------
Net income................. $ 1,506 $ 282 $ 1,877 $ 4,018 $ 4,132 $ 3,552 $1,722
======= ====== ======= ======= ======= ======= ======
Average common stock and
equivalents (1)........... 2,166 2,232 2,193 2,218 2,190 2,081 1,724
Income per common share
and common equivalent
share (1)................. $ .70 $ .13 $ 0.86 $ 1.81 $ 1.89 $ 1.71 $ 1.00
======= ====== ======= ======= ======= ======= ======
------------------------------------------------------------------------------------------------------------------------------------
Operating Ratios and Other
Data:
Interest rate spread..... 2.40% 2.91% 2.88% 2.90% 2.90% 2.66% 1.97%
Net interest margin...... 2.66% 3.12% 3.06% 3.08% 3.06% 2.74% 2.17%
Average equity divided
by average assets....... 4.56% 5.72% 5.02% 5.53% 4.58% 3.62% 2.94%
Return on average assets
(annualized) (2)....... 1.05% .26% .38% .97% .84% .91% .44%
Return on average equity
(annualized) (2)....... 23.07% 4.47% 7.59% 17.60% 18.30% 25.17% 14.83%
</TABLE>
----------
(1) Reflects effect of 3-for-2 stock split payable to stockholders of record
as of February 11, 1994.
(2) Reflects return from operations, exclusive of the change in accounting
for income taxes in 1992.
13
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
General
This Prospectus/Proxy Statement is being furnished to the stockholders of
Railroad as part of the solicitation of proxies by its Board of Directors from
holders of the outstanding shares of Railroad Common Stock for use at the
Special Meeting to be held on September 22, 1995, and any adjournments
thereof. This Prospectus/Proxy Statement, and the accompanying proxy card,
are first being mailed to stockholders of Railroad on or about August 15,
1995.
The principal purpose of the Special Meeting is to consider and vote upon
the approval of the Acquisition Merger, pursuant to which Railroad will merge
into Commercial, and the Merger Agreement among Commercial, the Bank, Railroad
and Railroad Savings, which sets forth the terms and conditions of the
Acquisition Merger and also provides for the Bank Merger. See "The Merger --
Conversion of Railroad Common Stock." The Merger is subject to certain
conditions, including regulatory approval of the OTS.
In addition to approval of the Acquisition Merger and the Merger
Agreement, the stockholders of Railroad may be asked to approve a proposal to
adjourn the Special Meeting if necessary to permit further solicitation of
proxies in the event that there are not sufficient votes at the time of the
Special Meeting to approve the Acquisition Merger and the Merger Agreement.
In this Prospectus/Proxy Statement, the terms "Commercial" and "Railroad"
refer to the parent corporation only or to both the parent corporation and its
subsidiaries, depending on the context.
RECENT EVENTS
Deposit Insurance Premiums. The Bank's and Railroad Savings' savings
deposits are insured by the Savings Association Insurance Fund ("SAIF"), which
is administered by the Federal Deposit Insurance Corporation ("FDIC"). The
assessment rate currently ranges from 0.23% of deposits for well capitalized
institutions to 0.31% of deposits for undercapitalized institutions.
The FDIC also administers the Bank Insurance Fund ("BIF"), which has the
same designated reserve ratio as the SAIF. On August 8, 1995, the FDIC adopted
an amendment to the BIF risk-based assessment schedule which lowered the
deposit insurance assessment rate for most commercial banks and other depository
institutions with deposits insured by the BIF to a range of from 0.31% of
insured deposits for undercapitalized BIF-insured institutions to 0.04% of
deposits for well-capitalized institutions, which constitute over 90% of
BIF-insured institutions. The FDIC amendment becomes effective September 30,
1995. The Amendment creates a substantial disparity in the deposit insurance
premiums paid by BIF and SAIF members and could place SAIF-insured savings
institutions at a significant competitive disadvantage to BIF-insured
institutions.
A number of proposals are being considered to recapitalize the SAIF in
order to eliminate the premium disparity. One proposal being considered by the
Treasury Department, the FDIC and the Congress provides for a one time
assessment of from .85% to .90% of insured deposits to be imposed on all SAIF-
insured deposits held as of March 31, 1995. Under this proposal, the BIF and
SAIF would be merged into one fund as soon as practicable after they both reach
their designated reserve ratios, but no later than January 1, 1998. It is
unknown whether this particular proposal or any other proposal will be
implemented or that premiums for either BIF or SAIF members will be adjusted in
the future by the FDIC or by legislative action. If a special assessment as
described above were to be required, it would result, on a pro forma basis as of
March 31, 1995, in a one-time charge to Commercial of up to approximately $20.4
million (assuming such charge would be tax deductible), which would have the
effect of reducing Commercial's tangible capital to $273.7 million, or 4.75% of
adjusted total assets, core capital to $296.4 million, or 5.12% of adjusted
total assets, and risk-based capital to $325.2 million, or 12.72% of risk-
weighted assets. Similarly, such an assessment would result, on a pro forma
basis as of March 31, 1995, in a one-time charge to Railroad Savings of up to
approximately $1.8 million (assuming such charge would be tax deductible), which
would have the effect of reducing Railroad Savings' tangible and core capital to
$34.8 million, or 6.10% of adjusted total assets, and risk-based capital to
$36.8 million, or 11.94% of risk-weighted assets.
If such a special assessment were required and the SAIF as a result was
fully recapitalized, it could have the effect of reducing Commercial's and
Railroad's deposit insurance premiums to the SAIF, thereby increasing net income
in future periods.
Pending Sale of Mortgage Banking Operations. On August 4, 1995, Railroad
Savings announced that it had entered into an agreement to sell its California
mortgage banking operations and its wholesale lending operations in Las Vegas,
Nevada to CUB Funding Corporation, a subsidiary of Republic Bancorp, Inc. Under
the terms of the agreement, Railroad Savings is retaining the construction and
retail loan production operations in Las Vegas, Nevada. The terms of the
agreement have been consented to by Commercial. It is anticipated that the
sale will close on August 15, 1995.
Recent Operating Results.
Commercial. For its fiscal year ended June 30, 1995 Commerical reported net
----------
income of $27.5 million, or $2.11 per share, compared to net income of $158,000,
or $.01 per share, for the fiscal year ended June 30, 1994. The results for
fiscal year 1995 include the pre-tax accelerated amortization of goodwill
totaling $21.4 million which was recorded during the six months ended December
31, 1994; and for the fiscal year 1994 the results include a pre-tax valuation
adjustment to intangible assets totaling $52.7 million, as well as the
cumulative effects of changes in accounting principles totaling $5.8 million, or
$.45 per share. Net income for the three months ended June 30, 1995 was $12.3
million, or $.94 per share, compared to a net loss for the three months ended
June 30, 1994, of $32.8 million, or a loss of $2.54 per share, which includes
the aforementioned valuation adjustment. At June 30, 1995 Commercial's total
assets were $6.0 billion.
Railroad. For the six months ended June 30, 1995, Railroad reported net
--------
income of $1,954,000, or $.90 per share, compared to net income of $185,000, or
$.08 per share, for the six months ended June 30, 1994. Net income for the three
months ended June 30, 1995 was $448,000, or $.20 per share, compared to a net
loss for the three months ended June 30, 1994 of $97,000, or $.04 per share.
Increases in net income for the three and six months ended June 30, 1995
compared to the three and six months ended June 30, 1994, are primarily due to
net increases in net interest income totaling $728,000 and $1.1 million,
respectively, net increases in gains on sale of loans and loan servicing
totaling $568,000 and $354,000, respectively, and for the year-to-date results,
a pre-tax gain of $1.2 million on the sale of an apartment and assisted care
facility. These increases in net income were partially offset by increases in
the provision for income taxes totaling $382,000 and $1.2 million, respectively.
Further information regarding Railroad's operating results for the three and
six months ended June 30, 1995 is included in Railroad's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, which is furnished herewith.
Solicitation, Voting and Revocability of Proxies
The Board of Directors of Railroad has fixed the close of business on
August 9, 1995 as the record date for the determination of the Railroad
stockholders entitled to notice of and to vote at the Special Meeting.
Accordingly, only holders of record of shares of Railroad Common Stock at the
close of business on such date will be entitled to vote at the Special
Meeting, with each such share entitling its owner to one vote on all matters
properly presented at the Special Meeting. On the record date, there were
approximately 1,205 holders of record of the 2,130,572 shares of Railroad
Common Stock then outstanding. The presence, in person or by proxy, of a
majority of the total number of outstanding shares of Railroad Common Stock
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting. Abstentions and broker non-votes will be treated as
shares present at the Special Meeting for purposes of determining the presence
of a quorum. The affirmative vote of at least a majority of the outstanding
shares of Railroad Common Stock is required to approve the Acquisition Merger
and the Merger Agreement. The affirmative vote of a majority of the shares
represented and voting at the Special Meeting is required to approve an
adjournment of the Special Meeting. It is expected that substantially all of
the 651,969 shares, or 30.6%, of outstanding Railroad Common Stock (excluding
shares subject to stock options) beneficially owned by directors and officers
of Railroad and their affiliates at August 9, 1995 will be voted for approval
of the Acquisition Merger and the Merger Agreement.
If the accompanying proxy card is properly executed and returned to
Railroad in time to be voted at the Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted for approval of the Acquisition
Merger and the Merger Agreement and for the proposal to adjourn the Special
Meeting if necessary to permit further solicitation of proxies. Except for
procedural matters incident to the conduct of the Special Meeting, the Board
of Directors of Railroad does not know of any matters other than those
described in the Notice of Special Meeting that are to come before the Special
Meeting. If any other matters are properly brought before the Special Meeting,
the persons named in the Railroad proxy will vote the shares represented by
such proxy on such matters as determined by a majority of Railroad's Board of
Directors. Abstentions and broker non-votes will not be voted and therefore,
with respect to the proposal to approve the Acquisition Merger and the Merger
Agreement, abstentions and broker non-votes will have the same effect as votes
against approval of that proposal.
The presence of a stockholder at the Special Meeting will not
automatically revoke such stockholder's proxy. A stockholder may, however,
revoke a proxy at any time prior to its exercise by filing a written notice of
revocation with, or by delivering a duly executed proxy bearing a later date
to, the Corporate Secretary of Railroad at its headquarters address or by
attending the Special Meeting and voting in person.
14
<PAGE>
The cost of soliciting proxies for the Special Meeting will be borne by
Railroad. In addition to use of the postal system, proxies may be solicited
personally or by telephone or telegraph by directors, officers and employees
of Railroad, who will not be specially compensated for such activities.
Railroad will also request persons, firms and companies holding shares in
their names or in the name of their nominees, which are beneficially owned by
others, to send proxy materials to and obtain proxies from such beneficial
owners and will reimburse such holders for their reasonable expenses incurred
in that connection.
COMMERCIAL FEDERAL CORPORATION AND
COMMERCIAL FEDERAL BANK, A FEDERAL SAVINGS BANK
Commercial is a unitary non-diversified savings and loan holding company
whose primary asset is the Bank. The Bank is a consumer-oriented financial
institution that emphasizes traditional savings and loan operations, including
single-family residential real estate lending, retail deposit activities and
mortgage banking. The Bank conducts loan origination activities through its
71 branch office network, loan offices of its wholly-owned mortgage banking
subsidiary and a nationwide correspondent network consisting of approximately
400 loan originators. The Bank also provides insurance and securities
brokerage and other retail financial services.
At March 31, 1995, Commercial had assets of $5.8 billion and
stockholders' equity of $296.7 million and through the Bank operated 68 branch
offices. In the period from October 1993 through April 1995, Commercial
completed the acquisition of four financial institutions, adding 23 branch
offices to its four-state retail network. The Bank was the largest
depository institution headquartered in Nebraska as of March 31, 1995 and,
based upon total assets at that date, Commercial was the 17th largest
publicly held thrift institution holding company in the United States. As
of July 17, 1995, the Bank operated 72 branches located as follows: 30
offices in Nebraska, 20 offices in greater metropolitan Denver, Colorado,
17 offices in Oklahoma and five offices in Kansas.
Commercial will seek to continue its growth through expansion of the
Bank's operations in its market areas, and may seek to enter markets in other
adjoining states. The Bank will also seek to expand its operations both
through competition for market share within its market areas and through
mergers with and acquisitions of other selected financial institutions.
The Bank is a member of the Federal Home Loan Bank System and the Federal
Home Loan Bank of Topeka, and its deposits are insured up to prescribed limits
by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is subject to
comprehensive examination, supervision and regulation by the OTS and the FDIC.
For additional information regarding the Bank, see Commercial's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994 and Quarterly
Reports on Form 10-Q for the quarters ended September 30, 1994, December 31,
1994 and March 31, 1995, which are incorporated by reference herein.
RAILROAD FINANCIAL CORPORATION AND RAILROAD SAVINGS BANK, fsb
Railroad is the holding company of Railroad Savings, the second largest
savings institution headquartered in Wichita, Kansas and the third largest
savings institution headquartered in the State of Kansas. Railroad's
principal business, which is conducted through Railroad Savings, is the
acceptance of deposits from the general public and the origination, purchase,
sale and servicing of mortgage loans for the purpose of constructing,
financing or refinancing one- to four-family dwellings, and other residential
and commercial real estate. In addition to its direct investment in mortgage
loans, Railroad invests in mortgage-backed, money market, and other investment
securities. Railroad serves deposit and loan customers through its 18 full-
service branch offices and 71 agency offices in the State of Kansas and serves
loan customers in California, Nevada, Colorado, Oklahoma and Missouri.
Railroad's agency offices were established by independent contractor
arrangements with agents along rail lines, providing deposits and lending
services to remote communities. When Railroad Savings converted from a state
chartered to a federally chartered savings institution in 1989, it was granted
a permanent exemption from the
15
<PAGE>
prohibitions applicable to federal savings institutions on the receipt of
deposits by agents. The exemption allows Railroad Savings to maintain and
replace agency offices in communities already served. Railroad Savings'
agents are established by independent contractor agreements with local
insurance agents, real estate brokers and the principals of abstract and title
companies who accept deposits and loan applications from their own offices.
Agency offices accounted for approximately 61% of Railroad's deposits at
December 31, 1994 and approximately $36.7 million of Kansas loan originations
during the year ended December 31, 1994.
Railroad's income from the traditional financial services provided in
Kansas through Railroad Savings' offices and agencies have been augmented
during the past six years by the mortgage banking operations conducted
primarily in Kansas and California. During 1994, Railroad consolidated the
operations of its mortgage banking subsidiaries into Railroad Savings and
opened additional construction loan production offices in Kansas, Missouri,
Oklahoma and Nevada. Railroad has also sought to expand retail banking
operations by opening additional branches. On January 31, 1995, Railroad
Savings entered into an agreement to acquire seven additional Kansas branches
with $90.7 million in deposits from First Bank, fsb. This transaction
closed June 23, 1995. As consideration for the assumption of the deposits and
other obligations associated with the branches, Railroad Savings received a
payment equal to the aggregate deposits at the branches reduced by an amount
equal to the value of the assets transferred and by a deposit premium equal to
3.13% of total deposits. The agency offices of Railroad Savings were
reduced from 74 to 71 after the acquisition of these seven additional
branches.
For additional information regarding Railroad, including its consolidated
financial statements and related notes as of December 31, 1994, see Railroad's
Annual Report on Form 10-K for the year ended December 31, 1994, which is
incorporated by reference herein, as well as its 1994 Annual Report to
Stockholders and Quarterly Reports on Form 10-Q for the quarters ended March
31, 1995, and June 30, 1995, which are incorporated by reference herein and
delivered herewith.
THE MERGER
(Proposal 1 -- Approval of the Acquisition Merger and Merger Agreement)
The following information with respect to the Merger, insofar as it
relates to matters contained in the Merger Agreement, including the exhibits
thereto, is qualified in its entirety by reference to the full text of such
agreement, which is attached as Annex A to this Prospectus/Proxy Statement and
is incorporated by reference herein.
General
The Merger Agreement provides for the acquisition of Railroad by
Commercial, and the subsequent merger of Railroad Savings into the Bank, as
follows: (i) Railroad will merge into Commercial, with Commercial as the
surviving corporation, pursuant to which the outstanding shares of Railroad's
common stock would be converted into shares of Commercial Common Stock as set
forth below (the Acquisition Merger); and (ii) Railroad Savings will then
merge into the Bank, with the Bank as the surviving savings institution (the
Bank Merger) (collectively, the Merger). Upon the consummation of the
Acquisition Merger (the Acquisition Merger Effective Time), Railroad will have
merged into Commercial. Upon the consummation of the Bank Merger (the Bank
Merger Effective Time), Railroad Savings will have merged into the Bank,
Commercial will be the resulting savings institution holding company, and the
Bank will be the resulting subsidiary savings institution. It is anticipated
that the Bank Merger Effective Time will occur immediately following the
Acquisition Merger Effective Time. For additional information regarding the
Merger, see the Merger Agreement, which is attached as Annex A hereto.
Stockholders of Railroad are being asked to approve the Merger Agreement
and the Acquisition Merger. The affirmative vote of at least a majority of
the outstanding Railroad Common Stock is required for Railroad's stockholders
to approve the Merger Agreement and the Acquisition Merger.
16
<PAGE>
Background of the Merger
The Board of Directors of Railroad has periodically evaluated Railroad's
corporate strategy in view of its capital position and market conditions,
including the economic and regulatory environment, the potential disparity
between thrifts and banks in deposit insurance premiums and the need to
refinance the Savings Association Insurance Fund, the consolidation process in
the depository institution industry, and the sharp increase in the number of
acquisitions of thrifts including the prices paid in such acquisitions.
Over the past four years, there has been considerable consolidation in
the financial services industry, and Railroad has considered making several
possible acquisitions. Management and the Board of Directors of Railroad have
also maintained contacts with certain other financial institutions to assess
the viability of potential acquisitions or affiliations. Although continuing
to pursue a plan of remaining independent and growing the retail banking and
mortgage banking franchise, the Board of Directors of Railroad resolved to
consider any bona fide expressions of interest from interested parties that
contacted Railroad.
At the beginning of 1993, Railroad Savings' capital position had improved
dramatically and Railroad embarked on a growth plan. This plan included
opening new offices in the State of Kansas and other states. It also included
increasing assets. In the spring of 1993, Railroad acquired Ute City Mortgage
Company and its operations in Aspen and Telluride, Colorado. At this time,
Railroad began expanding in other Colorado markets, including the rapidly
growing Denver construction loan market. In late 1993, Railroad Savings
opened a loan origination office in Lawrence, Kansas.
In May 1993, the Board of Directors of Railroad began the process of
inquiring into the possible value of Railroad in light of merger activities at
that time, including recent sales of Kansas thrifts. The Board discussed the
necessity to maximize shareholder value and to determine the value of Railroad
should it be approached regarding a possible acquisition. The Board also
determined that it was advisable to employ an investment banking firm to
discuss the procedures required if a decision was made to market Railroad and
to determine the overall marketability of Railroad. In July 1993, the Board
of Directors of Railroad authorized management to invite several investment
banking firms to make presentations regarding their respective approaches to
determining the market valuation.
In September 1993, Railroad engaged an investment banking firm to review
strategic alternatives including the possibility of a sale or merger. Several
prospective purchasers were identified, including Commercial. The Board of
Directors of Railroad then authorized the preparation of a confidential
memorandum to present on a limited basis and two of the identified companies
were approached. Commercial was not contacted at this time. No prospects
developed from these inquiries and Railroad terminated its engagement with its
investment banking firm. Railroad paid a termination fee in the amount of
$50,000 to this investment banking firm. Railroad paid a termination fee in
the amount of $50,000 to this investment banking firm.
Railroad's expansion of loan origination offices continued into early
1994 with openings in Branson, Missouri, Tulsa, Oklahoma and Olathe, Kansas.
It also established a construction and permanent loan origination office in
Las Vegas, Nevada. During the same timeframe, Railroad expanded its branch
operations by converting agent offices in Wellington, Kansas and Arkansas
City, Kansas to full service branches. In May 1994, Railroad Savings entered
into contracts for the purchase of real estate in West Wichita and Derby,
Kansas, to build new full service branches.
On August 31, 1994, Railroad merged two of its wholly owned mortgage
banking subsidiaries into its Railroad Savings subsidiary. This allowed
Railroad Savings to reduce its operating expenses by consolidating certain
functions into the Wichita, Kansas corporate headquarters operations.
In late summer 1994, Railroad received a call from representatives of
Piper Jaffray indicating that Commercial might be interested in entering into
discussions with Railroad. Railroad retained Piper Jaffray, in September
1994, to initiate discussions with Commercial and, if authorized by the board
of directors, other buyers and entered into an engagement letter to such
effect on October 17, 1994. At the same time, Railroad engaged
17
<PAGE>
outside legal counsel. Preliminary discussions began with Commercial and on
October 6, 1994, Railroad and Commercial entered into a confidentiality
agreement in consideration of a possible acquisition of Railroad by
Commercial. Preliminary discussions continued through October 1994 and
included an extensive exchange of information between the two companies. The
board, together with legal counsel and Piper Jaffray, reviewed this
information and other material relating to the proposed transaction at its
regularly scheduled board meeting in October, 1994. Legal counsel reviewed the
board's fiduciary obligations and legal duties and management reviewed
Railroad Savings' 1995 Business Plan and projections, taking into account
projections from proposed accounting changes related to originated mortgage
servicing rights. Piper Jaffray presented preliminary information regarding
Commercial and its financial condition, the thrift industry and recent
acquisitions in the thrift industry and the pro forma effect of a combination
between Commercial and Railroad. After the conclusion of the presentation, the
board authorized further discussions with Commercial relating to price and
structure of a potential transaction. After a series of telephone call
discussions with Commercial, the preliminary discussions broke off primarily
due to failure of the parties to reach an agreement on price.
Because preliminary merger discussions had ceased, Railroad continued its
growth strategy by obtaining regulatory approval to accept deposits in three
new offices: East Wichita, West Wichita, and Lawrence, Kansas. Railroad
Savings also won a bid for the purchase of seven branches from First Bank, fsb
Minneapolis, Minnesota. These branches are in the following Kansas
communities: Greensburg, Larned, Colby, Oberlin, Osage City, Wamego and
Fredonia. The purchase closed June 23, 1995. As a part of this transaction,
agency offices in the Greensburg, Larned and Colby communities were
consolidated into the new branch offices.
In addition to branch expansion activities in early 1995, Railroad
entered into discussions with another publicly traded thrift and exchanged
information with a goal toward some type of business combination. These
discussions continued well into March 1995, although no agreement was reached
regarding basic terms, structure or price.
On or about March 21, 1995, representatives of Commercial contacted
Railroad and the parties agreed to meet on March 27, 1995. Representatives of
Railroad and Commercial met on that day for several hours and discussed
resuming discussions and agreed to take the matter of new discussions to their
respective boards. On March 28, 1995, the Board of Directors of Railroad
agreed to entertain merger discussions with Commercial. Because of the time
already devoted to discussions with Commercial and the commitment of time and
resources associated with such discussions, Railroad advised management that
such authorization was contingent on an agreement being reached prior to
Railroad's April 21, 1995 Annual Meeting and gave management certain
parameters as to pricing.
On March 28, 1995, Railroad contacted outside securities legal counsel in
anticipation of pursuing an agreement on structure and price with Commercial.
On April 3, 1995, Railroad amended its prior engagement letter with Piper
Jaffray and again sought its expertise in issuing a fairness opinion regarding
the proposed transaction. On April 10, 1995, the Chairmen and Presidents of
both Railroad and Commercial met for several hours and agreed, subject to
Board approval, to recommend a sale of Railroad to Commercial at $17.25 per
share, again only if a definitive agreement could be executed prior to
Railroad's Annual Meeting. The recommendation was presented to the Board at a
Special Meeting held on April 13, 1995. At the meeting the Board authorized
management to negotiate the definitive agreement and present it to the Board
at a Special Meeting to be held on April 18, 1995.
Management negotiated the definitive agreement, with assistance from
Piper Jaffray and outside counsel, and presented it to the Board at a Special
Meeting of the Board on April 18, 1995. At that meeting the Board reviewed,
with counsel, its legal responsibilities as a Board, the text of the
definitive agreement, and the fairness opinion presented by representatives of
Piper Jaffray.
18
<PAGE>
Management terminated discussions with the other thrift immediately after
execution of the definitive agreement with Commercial.
Reasons for the Merger and Recommendations of the Railroad Board of Directors
The terms of the Merger Agreement, including the consideration offered to
Railroad's shareholders, were the result of arm's-length negotiations between
Railroad and Commercial and their respective representatives. Railroad
consulted with its own financial advisor and legal counsel during the course
of negotiations. Railroad's Board of Directors believes that the Merger is
fair to and in the best interest of shareholders of Railroad. In reaching a
conclusion to approve the Merger, Railroad's Board of Directors considered a
number of factors which, taken in totality, led to a determination by the
Board of Directors that the Merger is in the best interest of Railroad and its
shareholders. Railroad's Board of Directors did not assign any relative or
specific weights to the factors considered. Among other things, the Railroad
Board of Directors considered the following:
(i) the premium represented by the consideration offered to Railroad's
shareholders in relation to the book value per share of Railroad Common Stock;
(ii) the multiple represented by the consideration offered to Railroad's
shareholders in relation to per share book value and historical and projected
earnings when compared to national and regional industry averages;
(iii) the financial terms of other recent business combinations in the
thrift industry and a comparison of the financial terms of the Merger to such
other transactions;
(iv) the fact that, over a three year period, Railroad communicated with
a number of qualified and capable financial organizations; and that it engaged
several investment bankers and entered into five confidentiality agreements
with interested parties to discuss certain business consolidations and
exchange information;
(v) that Railroad and Commercial previously engaged in preliminary merger
discussions which were terminated primarily due to a failure to agree on
price;
(vi) Commercial's favorable competitive position in its current markets
and the few overlaps in the Commercial and Railroad branch networks;
(vii) the market liquidity of Commercial Common Stock, the research
coverage of Commercial Common Stock by industry analysts, and the established
acquisition program of Commercial;
(viii) the financial condition, results of operations, current business
and expansion opportunities and constraints, and prospects of future
performance and earnings of Railroad, on a stand-alone basis;
(ix) the potential financial condition, results of operation,
expansion opportunities and prospects of future performance and earnings of
Railroad and Commercial on a combined basis;
(x) the tax-free nature of the consideration to be received by Railroad
stockholders;
(xi) the probable impact of the Merger on customers and employees of
Railroad and the communities served by Railroad; and
(xii) the opinion of Piper Jaffray that the Merger Consideration to be
received by Railroad shareholders was fair from a financial point of view as
of the date of the opinion.
THE RAILROAD BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE MERGER
AGREEMENT AND THE MERGER BE ADOPTED AND APPROVED BY ALL SHAREHOLDERS OF
RAILROAD.
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<PAGE>
Financial Advisors and Opinions of Financial Advisors
Piper Jaffray. Piper Jaffray was engaged by Railroad in September 1994
to approach Commercial and, with the consent of Railroad, other third parties
regarding the possible business combination of Railroad with Commercial or one
of such third parties, to assist in structuring and negotiating a possible
business combination transaction, and to render its opinion regarding the
fairness, from a financial point of view, of the consideration proposed to be
paid to the holders of Railroad Common Stock in such a combination. Piper
Jaffray and Railroad executed an engagement letter to such effect on October
17, 1994, and the letter was amended on April 3, 1995. Piper Jaffray
delivered to Railroad's directors on April 18, 1995 its opinion to the effect
that, as of the date of the opinion and based upon and subject to the
assumptions, factors and limitations set forth in the opinion and as described
below, the consideration proposed to be paid to the holders of Railroad Common
Stock in the Acquisition Merger was fair, from a financial point of view, to
such stockholders. This opinion was subsequently reaffirmed by issuance to
the Railroad Board of a Piper Jaffray opinion, dated August 9, 1995. A copy
of the Opinion letter dated August 9, 1995 is attached to this Proxy
Statement/Prospectus as Appendix B and is incorporated herein by reference.
The April 18, 1995 opinion is substantially identical to the opinion attached
hereto as Appendix B. Holders of Railroad Common Stock are urged to read the
attached opinion in its entirety.
Although Piper Jaffray acted as financial adviser, participated in
certain discussions and provided certain analyses to the Railroad Board of
Directors, Piper Jaffray was not requested to and did not make any
recommendations to the Railroad Board of Directors as to the form or amount of
consideration to be received by the stockholders of Railroad in the
Acquisition Merger, which was determined through arm's-length negotiations
between Commercial and Railroad. The opinion of Piper Jaffray is directed to
the Railroad Board of Directors and does not constitute a recommendation
to any Railroad stockholder as to how such stockholder should vote at the
Special Meeting. Piper Jaffray was not requested to opine as to, and the
opinion of Piper Jaffray does not address, Railroad's underlying business
decision to proceed with or effect the Acquisition Merger.
In arriving at its opinion, Piper Jaffray reviewed, among other things,
(i) the Merger Agreement, (ii) certain publicly available information relative
to the business, financial condition and operations of Railroad, (iii) certain
internal financial planning information of Railroad furnished by management of
Railroad, (iv) certain financial and securities data of Railroad and companies
deemed similar to Railroad or representative of the business sector in which
Railroad operates, (v) to the extent publicly available, the financial terms
of certain acquisition transactions, (vi) certain publicly available
information relative to Commercial, (vii) certain internal financial planning
information of Commercial furnished by management of Commercial, and
(viii) certain financial and securities data of Commercial and companies
deemed similar to Commercial or representative of the business sector in which
Commercial operates. In addition, Piper Jaffray engaged in discussions with
members of management of Commercial and Railroad concerning the respective
financial condition, current operating results and business outlook of
Commercial and Railroad.
In delivering its opinion to the Railroad Board of Directors on April 18,
1995, Piper Jaffray prepared and delivered to the Railroad Board of Directors
certain written materials containing various analyses and other information
material to the opinion. The following is a summary of these materials:
Stock Trading Analyses. Piper Jaffray reviewed the stock trading history
of each of Railroad and Commercial. Piper Jaffray presented the following
stock trading data:
<TABLE>
<CAPTION>
Railroad Commercial
-------- ----------
<S> <C> <C>
Average daily trading volume 4/18/94 - 4/17/95.. 2,820 73,082
Closing price on 4/17/95........................ $11.88 $ 26.50
Year preceding 4/17/95: High.................. $11.88 $ 27.88
Low................... $ 8.50 $ 18.88
</TABLE>
20
<PAGE>
Piper Jaffray also analyzed the per share purchase price and the aggregate
transaction value based on the collar structure set forth in the Merger
Agreement. The analysis indicated that Railroad Common Stock was trading at
the top of its 52-week trading range and that the Commercial Common Stock was
trading at approximately $1 3/8 below the top of its 52-week trading range.
The analysis also indicated that the trading price of Commercial Common Stock
on April 17, 1995 was within ($.50 below the top of) the range of prices of
Commercial Common Stock (the "Collar") that, if maintained during the
Determination Period, would result in consideration to holders of Railroad
Common Stock with a value of $17.25.
Comparable Transaction Analysis. Piper Jaffray reviewed recent merger
and acquisition transactions for which information was publicly available and
which involved Midwest thrifts, a seller receiving consideration of between
$25 million and $100 million and consideration comprised solely of stock and
an announcement date after January 1, 1991. This review produced 14
transactions (the "Comparable Transactions") deemed relevant to the proposed
Acquisition Merger. Piper Jaffray presented the following valuation multiples
for the Comparable Transactions: price to latest 12 months (LTM) earnings per
share (EPS) of 6.6x to 39.7x with a median of 16.0x and a mean of 16.8x; price
to book value of 1.07x to 1.90x, with a median of 1.39x and a mean of 1.43x;
price to tangible book value of 1.28x to 1.90x, with a median of 1.43x and a
mean of 1.49x; price to total assets of 6.8% to 22.6% with a median of 13.0%
and a mean of 13.6%; and price to total deposits of 7.4% to 28.3% with a
median of 16.7% and a mean of 17.1%. With respect to the price to total assets
ratio, Piper Jaffray noted that Railroad's return on assets was below the
return on assets of any of the target institutions included in the Comparable
Transactions. These ratios were compared to corresponding ratios for Railroad,
assuming a $17.25 per share purchase price and financial information as of and
for the 12 months ended December 31, 1994, of 20.2x, 1.51x, 1.54x, 6.8% and
11.9%, respectively. Piper Jaffray also updated these ratios for Railroad
based on preliminary results for the quarter ended March 31, 1995, calculating
a price to LTM EPS of 15.5x, a price to book value of 1.40x, a price to total
assets of 6.6% and a price to total deposits of 11.5%. In calculating a price
to LTM EPS ratio for Railroad at March 31, 1995, Piper Jaffray adjusted EPS to
remove the benefit of the gain on sale of one large REO property liquidated in
the first quarter of 1995.
Piper Jaffray also calculated an implied percentage premium to holders of
Railroad Common Stock based on a $17.25 purchase price and various prices for
the Railroad Common Stock prior to announcement of the transaction (assumed to
be April 18, 1995); and compared these implied premiums to those calculated
for the Comparable Transactions. This analysis produced a 45.3% implied
premium in the Acquisition Merger over the price of Railroad Common Stock one
trading day prior to announcement of the Acquisition Merger, which compared to
a range of 6.8% to 69.4%, a median of 23.3% and a mean of 26.1% for the
Comparable Transactions; a 51.6% implied premium in the Acquisition Merger
over the price of Railroad Common Stock five trading days prior to
announcement, which compared to a range of 4.5% to 77.3%, a median of 21.9%
and a mean of 26.6% for the Comparable Transactions; and a 64.3% implied
premium in the Acquisition Merger over the price of Railroad Common Stock 30
trading days prior to announcement, which compared to a range of 0.3% to
48.3%, a median of 34.0% and a mean of 28.5% for the Comparable Transactions.
Dilution Analysis. Piper Jaffray analyzed the hypothetical pro forma
effects of the Acquisition Merger on Commercial's earnings per share for the
years ending June 30, 1995 and 1996, assuming various Average Closing
Prices of Commercial Common Stock and giving effect to proposed revisions to
the accounting treatment of mortgage servicing rights. Projected Commercial
earnings, based on estimates published by the Institutional Brokers Estimate
Service, were combined with projected stand alone Railroad earnings, and
adjusted for the assumed realization of certain cost savings, non-recurring
acquisition costs and other synergies anticipated by Commercial management in
the Acquisition Merger. Assuming adoption of the proposed changes in
accounting for mortgage servicing rights and assuming an Average Closing
Price of $25.63 for Commercial Common Stock, this analysis indicated that the
Acquisition Merger would be dilutive to Commercial earnings per share by 3.2%
and 0.3% in fiscal 1995 and fiscal 1996, respectively. The analysis indicated
that the Acquisition Merger would be dilutive to such earnings in fiscal 1995
by 2.7% and accretive to such earnings by 0.2% in fiscal 1996 if the Average
Closing Price of Commercial Common Stock is $27.00 or more, and dilutive
to such earnings by 3.8% in fiscal 1995 and 1.0% in fiscal 1996 if the Average
Closing Price of Commercial Common Stock is $24.00 or less. The analysis
indicated that the Acquisition Merger would be slightly less dilutive if the
accounting changes were not adopted.
Comparable Public Company Analysis. Piper Jaffray compared certain
financial information and valuation ratios relating to Railroad and Commercial
to corresponding data and ratios for groups of selected publicly traded
companies deemed comparable to Railroad (the "Railroad Comparables") and to
Commercial (the "Commercial Comparables"). The Railroad Comparables and the
Commercial Comparables are collectively referred to as the
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"Comparable Companies". The Railroad Comparables comprised 11 publicly traded
savings institutions and savings and loan holding companies headquartered in a
13 state region in the Midwestern United States with assets between $200
million and $1.7 billion. The Commercial Comparables comprised seven publicly
traded savings institutions and savings and loan holding companies
headquartered in the same 13 state region, but with assets between $4.0
billion and $12.5 billion. The data and ratios for both the Railroad
Comparables and the Commercial Comparables were computed using the closing
price of the Comparable Companies as of April 17, 1995 and financial results
as of and for the year ended December 31, 1994.
Piper Jaffray calculated valuation ratios for the Railroad Comparables as
follows: price to LTM EPS of 6.4x to 12.7x, with a median of 9.8x and a mean
of 9.8x; price to calendar 1995 EPS estimates of 7.6x to 11.7x, with a median
of 9.9x and a mean of 9.8x; and price to book value of 0.79x to 1.36x, with a
median of 1.12x and a mean of 1.11x. These compared to corresponding ratios
for Railroad, based on an assumed purchase price of $17.25 per share, of
20.2x, 12.0x and 1.51x, respectively.
Piper Jaffray calculated valuation ratios for the Commercial Comparables
as follows: price to LTM EPS of 7.2x to 23.2x, with a median of 8.8x and a
mean of 11.5x; price to calendar 1995 EPS estimates of 6.9x to 12.6x, with a
median of 7.8x and a mean of 8.3x; and price to book value of 0.99x to 1.66x,
with a median of 1.28x and a mean of 1.32x. These compared to corresponding
ratios for Commercial, based on the closing price of Commercial Common Stock
on April 17, 1995 and financial results as of and for the year ended December
31, 1994, of 8.0x, 7.3x and 1.20x, respectively.
Piper Jaffray noted that the above multiples for Comparable Companies and
Railroad were derived from stock prices that represent prices at which small
blocks of stock could be purchased or sold. Such stock prices may not be
indicative of the price at which 100% of the stock of the Comparable Companies
and Railroad could be purchased or sold.
In reaching its conclusion as to fairness of the consideration to be
received in the Acquisition Merger and in its presentation to the Railroad
Board of Directors, Piper Jaffray did not rely on any single analysis or
factor described above, assign relative weights to the analyses or factors
considered by it, or make any conclusions as to how the results of any given
analysis, taken alone, supported its opinion. The preparation of a fairness
opinion is a complex process and not necessarily susceptible to partial
analyses or summary description. Piper Jaffray believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
of the factors considered by it, without considering all factors and analyses,
would create a misleading view of the process underlying the Piper Jaffray
opinion. The analyses of Piper Jaffray are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. No company or transaction
used in any comparable analysis as a comparison is identical to Commercial,
Railroad or the Acquisition Merger. Accordingly, an analysis of the results
is not mathematical; rather, it involves complex considerations and judgments
concerning differences in the various characteristics of the Comparable
Transactions to which the Acquisition Merger was compared and in the financial
and operating characteristics of the Comparable Companies and other factors
that could affect the public trading value of the Comparable Companies to
which Railroad and Commercial were compared.
For purposes of its opinion, Piper Jaffray relied upon and assumed the
accuracy, completeness and fairness of the financial and other information
made available to it and did not attempt independently to verify such
information. Piper Jaffray relied upon the assurances of Railroad and
Commercial managements that the information provided by Railroad and
Commercial had a reasonable basis and, with respect to financial planning data
and other business outlook information, reflected the best available
estimates, and that they were not aware of any information or fact that would
make the information provided to Piper Jaffray incomplete or misleading. In
arriving at its opinion, Piper Jaffray did not perform, nor was it furnished,
any appraisal or valuation of specific assets or liabilities of Railroad or
Commercial and expressed no opinion regarding the liquidation value of any
entity. No limitations were imposed by Railroad on the scope of Piper
Jaffray's investigation or the procedures to be followed in rendering
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its opinion. Piper Jaffray expressed no opinion as to the price at which
shares of Commercial Common Stock may trade at any future time. The Piper
Jaffray opinion is based upon information available to Piper Jaffray and the
facts and circumstances as they existed and were subject to evaluation on the
dates of the opinion. Events occurring after such dates could materially
affect the assumptions used in preparing the opinion.
Piper Jaffray, as a customary part of its investment banking business, is
engaged in the evaluation of businesses and their securities in connection
with mergers and acquisitions, underwritings and other distributions of
securities, private placements and evaluations for estate, corporate and other
purposes. The Railroad Board of Directors selected Piper Jaffray because of
its expertise, reputation and familiarity with the financial services industry
in general and the Midwestern banking market and Railroad in particular.
Piper Jaffray has provided financial advisory and investment banking
services to Railroad since 1991. Piper Jaffray acted as underwriter for a
public offering of senior notes of Railroad completed in January 1992. Piper
Jaffray makes a market in the senior notes and has published market research
on Railroad. Piper Jaffray also acted as the managing underwriter of a public
offering of Commercial subordinated notes in 1992, has published market
research on Commercial, and is a market maker in such notes and in Commercial
Common Stock. In the normal course of its market making activities, Piper
Jaffray may, from time to time, have a long or short position in and buy and
sell Railroad and Commercial securities, which positions, on occasion, may be
material in size relative to the volume of trading activity.
For acting as financial advisor to Railroad, Railroad has agreed to pay
Piper Jaffray a fee of 1.5% of the consideration paid in the Acquisition
Merger to the extent such consideration does not exceed $35 million plus 3% of
such consideration in excess of $35 million. The aggregate amount of the fee
payable to Piper Jaffray will depend on the amount of consideration received
by Railroad shareholders which will, in turn, depend on the Average Closing
Price during the Determination Period. If, for example, the Average Closing
Price is equal to $31.625 (the closing price of Commercial Common Stock on
August 10, 1995) the aggregate fees paid to Piper Jaffray would be
approximately $815,650. An aggregate of $200,000 of such fees are due on or
before the date Piper Jaffray renders its updated fairness opinion and the
balance (approximately $615,650 if the Average Closing Price is $31.625) is
contingent on, and due upon, consummation of the Acquisition Merger. Whether
or not the Acquisition Merger is consummated, Railroad has agreed to pay the
reasonable out-of-pocket expenses of Piper Jaffray (subject to the approval
of Railroad if in excess of $35,000) and to indemnify Piper Jaffray against
certain liabilities incurred (including liabilities under the federal
securities laws) in connection with the engagement of Piper Jaffray by
Railroad.
The full text of Piper Jaffray's written opinion of August 9, 1995,
which sets forth the assumptions made, procedures followed, and limitations on
reviews undertaken, is attached as Annex B to this Proxy Statement. The
summary of Piper Jaffray's written opinion set forth in this Prospectus/Proxy
Statement is qualified in its entirety by reference to the opinion. Railroad
stockholders are urged to read the Piper Jaffray opinion in its entirety.
Piper Jaffray's opinion does not constitute a recommendation to any
stockholder of Railroad as to how such stockholder should vote with respect to
the Merger Agreement and the Acquisition Merger.
Merrill Lynch. On September 29, 1994, Commercial retained Merrill Lynch
to act as its exclusive financial advisor in connection with the Merger.
Representatives of Merrill Lynch attended the meeting of the Board of
Directors of Commercial held on April 18, 1995 at which Commercial's Board of
Directors approved the Merger Agreement and the Stock Option Agreement. At
this meeting, Merrill Lynch rendered its written opinion to the effect that,
as of such date, the Exchange Ratio was fair to Commercial from a financial
point of view, which opinion is still in effect as of the date hereof. Merrill
Lynch was not requested to and did not make any recommendations to the
Commercial Board of Directors as to the form or amount of consideration to be
paid to the stockholders of Railroad in the Acquisition Merger, which was
determined through arms-length negotiations between Commercial and Railroad.
In arriving as its written opinion, Merrill Lynch, among other things,
reviewed selected financial and other information concerning Commercial and
Railroad, including publicly-available reports and internal projections and
forecasts, and information concerning comparable companies and comparable
thrift acquisition and merger transactions. In connection with rendering its
opinion, Merrill Lynch performed a variety of financial analyses. In
preparing its opinion, Merrill Lynch assumed and relied upon the accuracy and
completeness of all the financial and other information reviewed by it for
purposes of the opinion, and did not independently verify such information or
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undertake any independent evaluation or appraisal of the assets or liabilities
of Commercial or Railroad nor was it furnished with any such evaluation or
appraisal. Merrill Lynch is not an expert in the evaluation of allowance for
loan losses, and it has not made an independent evaluation of the adequacy of
the allowance for loan losses of Commercial or Railroad nor has it reviewed
any individual credit files, and it has assumed that the aggregate allowance
for loan losses is adequate to cover such losses and will be adequate on a pro
forma basis for the combined entity.
In arriving at its written opinion, Merrill Lynch also assumed and relied
upon the senior management of Commercial as to the reasonableness and
achievability of the financial and operating forecasts furnished by Commercial
and Railroad (and the assumptions and bases therefor). Merrill Lynch, with
the consent of Commercial, assumed that such information, including, without
limitation, financial forecasts, projected cost savings and operating
synergies resulting from the Merger and projections regarding underperforming
and nonperforming assets, net charge-offs, and adequacy of reserves, reflect
the best currently available estimates and judgment of the senior management
of Commercial and Railroad as to the expected future financial performance of
Commercial, Railroad, or the combined entity, as the case may be. The opinion
was based on economic, market and other conditions as in effect on, and the
information made available to Merrill Lynch on, the date the opinion was
rendered. The opinion also was rendered without regard as to the necessity
for, or level of, any restrictions, obligations, undertakings or divestitures
which may be imposed or required in the course of obtaining regulatory
approvals for the Merger.
Merrill Lynch has received a $150,000 fee for investment banking services
related to the Merger and related advisory work and will receive an additional
$125,000 fee upon consummation of the Merger. Merrill Lynch will also be
reimbursed for its out-of-pocket expenses and will be indemnified against
certain liabilities relating to or arising out of the Merger, including
liabilities arising under the securities laws. In addition, Merrill Lynch has
from time to time provided financial advisory services to Commercial for which
it has received customary compensation. In the ordinary course of its
business, Merrill Lynch may also trade the securities of Commercial and/or
Railroad for its own account and the accounts of customers and, accordingly,
may also from time to time hold a long or short position in such securities.
Merrill Lynch's opinion was rendered to the Board of Directors of
Commercial and does not constitute, and should not be construed as, a
recommendation to any shareholder of Railroad as to how such shareholder
should vote at the Special Meeting.
Conversion of Railroad Common Stock
Exchange Ratio. Each share of Railroad Common Stock issued and
outstanding at the Acquisition Merger Effective Time (other than shares owned
or held by Commercial) will be converted into and represent solely the right
to receive a number of shares of Commercial Common Stock that have a value
equal to $17.25 (such number of shares referred to as the "Exchange Ratio"),
such value to be based upon the "Average Closing Price" of Commercial Common
Stock (i.e., the arithmetic mean of the per share closing prices of Commercial
Common Stock as reported on the NYSE for the Determination Period; provided,
however, that (1) if such Average Closing Price of the Commercial Common Stock
is greater than $27.00 or less than $24.00, the Exchange Ratio shall be .6389
and .7188 shares, respectively, of Commercial Common Stock, (2) if the Average
Closing Price of the Commercial Common Stock is less than $20.00 and the
decline in the price of Commercial Common Stock during the period beginning on
April 17, 1995 and ending on the last date utilized in the calculation of the
Average Closing Price exceeds by more than 15% any decline in the weighted
stock price of the Index Group during the same period, Railroad will have the
right to terminate the Merger Agreement unless Commercial exercises its option
to adjust the Exchange Ratio to equal $14.38 divided by the Average Closing
Price of Commercial Common Stock. Trading of the Commercial Common Stock on
the NYSE commenced August 2, 1995. Prior to that date, the Commercial Common
Stock was quoted on the Nasdaq National Market. Any references herein to the
closing price of the Commercial Common Stock for the period up to and
including August 1, 1995 shall be to the closing price as reported on the
Nasdaq National Market. Based on the closing price per share of Commercial
Common Stock on the NYSE on August 10, 1995, of $31.625, each share of
Railroad Common Stock would be exchanged for .6389 shares of Commercial Common
Stock. Such Exchange Ratio may increase or decrease depending on the Average
Closing Price of Commercial Common Stock. Cash will be paid in lieu of
fractional shares.
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No Fractional Shares. No fractional shares of Commercial Common Stock
will be issued in the Merger. Instead, cash will be paid in lieu of any
fractional share interests of Commercial Common Stock resulting from the
Merger. No dividend or distribution with respect to Commercial Common Stock
will be payable on or with respect to any fractional share interests, and no
fractional share interest will entitle the owner thereof to vote or to any
other rights of a stockholder of Commercial. The applicable cash value of
each fractional share interest will be equal to the product of such fraction
multiplied by the Average Closing Price for shares of Commercial Common Stock.
Exchange of Railroad Stock Certificates. Chemical Bank/GeoServe is
expected to act as the exchange agent (the "Exchange Agent") to effect the
exchange of stock certificates in connection with the Merger. As soon as
practicable after the Acquisition Merger Effective Time, the Exchange Agent
will send a notice and transmittal form to each Railroad stockholder of record
at such date whose Railroad Common Stock has been converted into Commercial
Common Stock advising such stockholder of the effectiveness of the Acquisition
Merger and the procedure for surrendering to the Exchange Agent outstanding
certificates formerly evidencing Railroad Common Stock in exchange for new
certificates for Commercial Common Stock. Promptly following receipt of such
notice and transmittal form, holders of Railroad Common Stock certificates
should surrender their certificates in accordance with the specified
procedures. Upon surrender, each Railroad Common Stock certificate will be
cancelled.
Until surrendered, certificates that prior to the effective date of the
Acquisition Merger represented outstanding shares of Railroad Common Stock
will be deemed for all corporate purposes to evidence ownership of the number
of whole shares of Commercial Common Stock into which such shares of Railroad
Common Stock have been converted. Until such certificates are so surrendered,
no dividend payable to holders of Commercial Common Stock as of any record
date subsequent to the Acquisition Merger Effective Time will be paid to the
holders of such certificates. However, upon surrender of such certificates,
there will be paid to the record holder of the certificates of Commercial
Common Stock issued in exchange therefor the amount of dividends that
theretofore have become payable with respect to such shares of Commercial
Common Stock along with the amount of cash, if any, payable to the holder in
lieu of fractional shares. No interest will be payable with respect to such
dividends or cash paid in lieu of fractional shares.
If any certificate for shares of Commercial Common Stock is to be issued
in a name other than the name in which the surrendered certificate is
registered, it will be a condition of issuance that the certificate so
surrendered is properly endorsed and otherwise in proper form for transfer and
that the person requesting the issuance of such certificate either pay to the
Exchange Agent any transfer or other taxes required by reason of the issuance
of the certificate in a name other than the registered holder of the
certificate surrendered or establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
Holders of Railroad Common Stock should NOT surrender their certificates
until they receive written instructions from the Exchange Agent.
Any shares of Railroad Common Stock owned or held by Commercial or any of
its subsidiaries (other than in a fiduciary capacity) or by Railroad or any of
its subsidiaries (other than in a fiduciary capacity) at the Acquisition
Merger Effective Time will cease to exist, and the certificates for such
shares will be cancelled.
Treatment of Railroad Stock Options
At the Acquisition Merger Effective Time, each outstanding option under
the Railroad Option Plans will continue outstanding as an option to purchase
the number of shares (rounded down to the nearest whole share) of Commercial
Common Stock that would have been received by the optionee in the Merger had
the option been exercised in full (without regard to any limitations on
exercise) for shares of Railroad Common Stock immediately prior to the
Acquisition Merger. Such options shall remain outstanding on the same terms
and conditions under the relevant option as were applicable immediately prior
to the Acquisition Merger Effective Time, except for appropriate pro rata
adjustments as to the option price for shares of Commercial Common Stock
substituted therefor so that the
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aggregate option exercise price of shares subject to an option immediately
following the assumption and substitution will be the same as the aggregate
option exercise price for such shares immediately prior to such assumption and
substitution. In addition, under Railroad's 1994 Stock Option and Incentive
Plan, all options will become fully vested upon consummation of the Merger.
See " -- Interests of Certain Persons in the Merger" for information
regarding outstanding Railroad stock options.
No Dissenters' Appraisal Rights
Section 262(b)(1) of the Delaware General Corporation Law expressly
denies appraisal rights to stockholders of a corporation whose stock is listed
on a national securities exchange. Because Railroad's common stock is listed
on the American Stock Exchange, which is a national securities exchange,
Railroad's stockholders will not be entitled to appraisal rights in connection
with the Merger.
The Bank Merger
Following the Acquisition Merger, Railroad Savings will merge into the
Bank, as a result of which the Bank will be the surviving savings institution.
The Bank Merger will be undertaken subject to and upon the terms and
conditions contained in the Merger Agreement and in the Plan of Merger between
Railroad Savings and the Bank dated April 18, 1995. At the Bank Merger
Effective Time, the shares of Railroad Savings common stock issued and
outstanding immediately prior thereto will be cancelled and the shares of
capital stock of the Bank outstanding immediately prior thereto will
constitute the only outstanding shares of capital stock of the Bank following
consummation of the Bank Merger, the charter and bylaws of the Bank in effect
immediately before the Bank Merger will be the charter and bylaws of the Bank
immediately after the Bank Merger, the current home office of the Bank will
continue to be the home office of the Bank, and the former home office of
Railroad Savings and all branch offices of the Bank and former branch offices
and agency offices of Railroad Savings will be branch and agency offices of
the Bank. Following the Bank Merger, the Bank will continue to operate under
the name "Commercial Federal Bank, a Federal Savings Bank." For additional
information, see " -- Management after the Merger," " -- Employee Benefit
Plans after the Merger" and " -- Interests of Certain Persons in the Merger."
The obligations of the parties to consummate the Bank Merger are subject
to the receipt of OTS approval of the Bank Merger.
Management after the Merger
The directors and officers of Commercial will not be affected by the
Merger. The directors of the Bank will not be affected by the Merger. With
the exception of the addition of Mr. Gary L. Baugh (currently President and
Chief Operating Officer of Railroad), who will serve Commercial as Senior Vice
President and State Director, Kansas Operations following the Merger, the
officers of the Bank will not be affected by the Merger.
Representations and Warranties
Commercial and the Bank, and Railroad and Railroad Savings, have given
certain representations and warranties to each other in the Merger Agreement
relating to, among other things, the following: the validity of their
organization; authorized capital; the ownership, organization and status of
their subsidiaries; the accuracy and completeness of certain internal books
and records and of their financial statements, reports and material relating
to them included in this Prospectus/Proxy Statement; the absence of any
undisclosed material adverse change in their business, financial conditions or
results of operations; the accuracy and completeness of information contained
in this Prospectus/Proxy Statement; disclosure of financial advisory,
brokerage, finders and similar fees; the absence of undisclosed material
pending or threatened litigation; their standing under and compliance with
applicable state and federal law, including compliance with federal securities
laws and state and federal tax laws, among others; their authority to enter
into the Merger Agreement and to undertake the transactions contemplated by
it; and the accuracy
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of all information provided to each other in connection with the Merger.
Railroad and Railroad Savings have made additional representations as to the
absence of undisclosed employment agreements or arrangements and employee
benefits; ownership of all of their real property and undisturbed possession
of all material leases; absence of any material contract defaults; certain tax
matters; the absence of environmental hazards and claims; the quality of
Railroad Savings' loan portfolio; the adequacy of the present carrying values
of any real estate investments, joint ventures, construction loans or other
investments or loans under generally accepted accounting principles; lack of
undisclosed derivative contracts; and the adequacy of certain types of
insurance.
Covenants Pending the Acquisition Merger
In the Merger Agreement, Commercial, the Bank, Railroad and Railroad
Savings have agreed to use their best efforts, and to take all actions
necessary or appropriate, to consummate the transactions contemplated by the
Merger Agreement. Each party has also agreed to give to the other party and
its respective representatives and agents full access (to the extent lawful)
to all of the premises, books, records and employees of it and its
subsidiaries at all reasonable times, and to furnish and cause its
subsidiaries to furnish to the other party and its respective agents or
representatives access to and true and complete copies of such financial and
operating data and all documents with respect to matters to which reference is
made in the Merger Agreement.
Pursuant to the Merger Agreement, Railroad and its subsidiaries,
including Railroad Savings, will conduct their business only in the ordinary
course, and maintain their books and records in accordance with past practices
and not take any action that would (i) adversely affect the ability to obtain
any governmental approvals contemplated in the Merger Agreement, (ii)
adversely affect Railroad's ability to perform its obligations under the
Merger Agreement or the Stock Option Agreement or (iii) adversely affect the
ability of Railroad Savings to acquire and operate seven branch offices it
agreed to acquire by contract dated January 31, 1995 from First Bank, fsb.
Further, Railroad has agreed that it will not, without the prior written
consent of Commercial: (i) declare, set aside or pay any dividend or make any
other distribution with respect to Railroad's capital stock; (ii) reacquire
any of Railroad's outstanding shares; (iii) issue, sell or buy any shares of
capital stock of Railroad or any of its subsidiaries, except shares of
Railroad Common Stock issued under the Railroad Option Plans; (iv) effect any
stock split, stock dividend or other reclassification of Railroad's common
stock; or (v) grant any options or issue any warrants exercisable for or
securities convertible or exchangeable into capital stock of Railroad or any
Railroad subsidiary or grant any stock appreciation or other rights with
respect to shares of capital stock of Railroad or any of its subsidiaries.
In addition, pursuant to the Merger Agreement, Railroad and its
subsidiaries shall not, without the prior written consent of Commercial:
(i) sell or dispose of any significant assets of Railroad or any of its
subsidiaries other than in the ordinary course of business consistent with
past practices;
(ii) merge or consolidate Railroad or any of its subsidiaries with or
otherwise acquire any other entity, or file any application or make any
contract with respect to branching by Railroad Savings (whether de novo,
purchase, sale or relocation, other than the seven branches it agreed to
acquire by contract dated January 31, 1995) or acquire or construct, or enter
into any agreement to acquire or construct, any interest in real property
(other than with respect to security interests in properties securing loans
and properties acquired in settlement of loans in the ordinary course) or
improvements to real property;
(iii) change the certificate of incorporation, charter documents or
other governing instruments of Railroad or any of its subsidiaries, except as
provided in the Merger Agreement;
(iv) grant to any executive officer, director or employee of Railroad or
any of its subsidiaries (a) any increase in annual compensation, except for
increases in salaries paid to non-executive employees in the ordinary course
of business, which increases shall not exceed $25,000 in the aggregate, or (b)
any bonus type payment, except
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that bonuses may be paid from Railroad's formula bonus arrangement disclosed
in the Merger Agreement, pro rated to consummation of the Merger if certain
earnings targets are met;
(v) adopt any new or amend or terminate any existing employee plans
or benefit arrangements of any type;
(vi) authorize severance pay or other benefits for any officer,
director or employee of Railroad or any of its subsidiaries except as
permitted by the Merger Agreement and in accordance with similar policies of
Commercial;
(vii) incur any material indebtedness or obligation or enter into or
extend any material agreement or lease, except in the ordinary course of
business consistent with past practices;
(viii) engage in any lending activities other than in the ordinary
course of business consistent with past practices;
(ix) form any new subsidiary or cause or permit a material change in
the activities presently conducted by any Railroad subsidiary or make
additional investments in subsidiaries;
(x) purchase any debt securities or derivative securities, including
collateralized mortgage obligations ("CMOs") or real estate mortgage
investment conduits ("REMIC") products, that are defined as "high risk
mortgage securities" under OTS Thrift Bulletin No. 52 dated January 10, 1992,
as revised, or purchase any derivatives contracts or structured notes;
(xi) purchase any equity securities other than Federal Home Loan Bank
stock;
(xii) make any investment which would cause Railroad Savings to not be
a qualified thrift lender under Section 10(m) of the Home Owners' Loan Act or
not to be a "domestic building and loan association" as defined in Section
7701(a)(19) of the Internal Revenue Code of 1986, as amended (the "Code");
(xiii) make (a) any acquisition and development or land acquisition
loans, (b) any commercial or commercial real estate loans or multifamily real
estate loans, (c) any construction loans, or (d) any loans for the
construction or development of condominium projects, except in each case in
accordance with existing policies as of the date of the Merger Agreement or as
may otherwise be agreed to by Commercial and Railroad subsequent thereto;
(xiv) authorize capital expenditures other than in the ordinary course
of business;
(xv) adopt or implement any change in its accounting principles,
practices or methods other than as may be required by generally accepted
accounting principles, or adopt or implement any change in its methods of
accounting for federal income tax purposes; or
(xvi) make any loan in which participation interests therein are to be
sold to other persons or entities or acquire a participation interest in a
loan originated by another person or entity.
Notwithstanding the foregoing, Railroad Savings is permitted to engage in
any of the foregoing activities exclusively with the Bank.
Pursuant to the Merger Agreement, Railroad also shall not authorize or
permit any representative of Railroad or any subsidiary to initiate contact
with any person or entity in an effort to solicit, initiate or encourage any
"takeover proposal" (generally, any proposal other than as contemplated by the
Merger Agreement, for a merger or other business combination involving
Railroad or Railroad Savings, for the acquisition of a 10.0% or greater equity
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<PAGE>
interest in Railroad or Railroad Savings or for the acquisition of a
substantial portion of the assets of Railroad or Railroad Savings) or, except
as the fiduciary duties of Railroad's Board of Directors may otherwise
require, cooperate with, negotiate with or enter into an agreement with any
party relating to a takeover proposal. Further, Railroad has agreed to give
prompt written notice to Commercial upon becoming aware of any takeover
proposal.
Conditions to Consummation of the Merger
Pursuant to the Merger Agreement, the obligations of Commercial and
Railroad to effect the Acquisition Merger and the Bank Merger are subject to
the following conditions:
(i) holders of the outstanding shares of Railroad Common Stock shall
have approved the Merger Agreement and the Acquisition Merger;
(ii) no order shall have been entered and remain in force restraining
or prohibiting the Merger in any legal, administrative, arbitration,
investigatory or other proceedings by any governmental or judicial or other
authority;
(iii) to the extent required by applicable law or regulation, all
approvals of or filings with any governmental authority, including without
limitation those of the OTS, the FDIC, the Federal Trade Commission, the
Department of Justice, the Commission, and any state securities or blue sky
authorities, shall have been obtained or made and any waiting periods shall
have expired in connection with the consummation of the Merger and all other
statutory or regulatory requirements for the valid consummation of the Merger
and related transactions shall have been satisfied;
(iv) the registration statement of which this Prospectus/Proxy
Statement is a part shall have been declared effective and shall not be
subject to a stop order of the Commission and, if the offer and sale of
Commercial's common stock in the Merger pursuant to the Merger Agreement is
subject to the blue sky laws of any state, shall not be subject to a stop
order of any state securities commissioner; and
(v) receipt of either an opinion of Deloitte & Touche LLP, or other
tax advisor reasonably acceptable to Commercial and Railroad, or a private
letter ruling from the Internal Revenue Service ("IRS"), in form and content
reasonably satisfactory to Commercial and Railroad, and upon which Railroad
shareholders may rely, as to certain of the federal income tax consequences of
the Acquisition Merger and the Bank Merger (see " -- Federal Income Tax
Consequences").
The obligations of Commercial and the Bank to effect the Merger and the
transactions contemplated in the Merger Agreement are subject to the following
additional conditions, among others, any of which may be waived by Commercial
and the Bank: (i) Commercial shall have received from Railroad's counsel an
opinion dated as of the closing date of the Merger covering certain matters;
(ii) Railroad and Railroad Savings shall have obtained all necessary third
party consents or approvals in connection with the Merger, the absence of
which would materially and adversely affect Railroad and its subsidiaries,
taken as a whole; (iii) Commercial shall have received a letter from
Railroad's independent public accountants regarding certain financial
information included in this Prospectus/Proxy Statement and other matters;
(iv) between the date of the Merger Agreement and the closing date of the
Merger, there shall not have occurred any material adverse change in the
financial condition, business or results of operations of Railroad and the
Railroad subsidiaries, taken as a whole, other than any such change
attributable to or resulting from any change in law, regulation or generally
accepted accounting principles which impair both Railroad and Commercial in a
substantially similar manner; (v) the representations and warranties of
Railroad and Railroad Savings shall be true in all material respects at the
Acquisition Merger Effective Time with the same effect as though made at the
Acquisition Merger Effective Time (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date);
Railroad and Railroad Savings shall have performed all obligations and
complied with each covenant, in all material respects, and all conditions
under the Merger Agreement on their parts to be performed or complied with at
or prior to the Acquisition Merger Effective Time; and Railroad shall have
29
<PAGE>
delivered to Commercial a certificate, dated the Acquisition Merger Effective
Time and signed by its chief executive officer and chief financial officer, to
such effect; (vi) Commercial shall have received from Deloitte & Touche LLP a
letter dated the Acquisition Merger Effective Time, in substance reasonably
acceptable to Commercial, stating its opinion that, based upon the information
furnished to it, the Merger should be accounted for by Commercial as a
"pooling of interests" for financial statement purposes and that such
accounting treatment is in accordance with generally accepted accounting
principles; (vii) neither Railroad nor any of its subsidiaries shall be a
party to any pending litigation, reasonably probable of being determined
adversely to Railroad or any Railroad subsidiary, which would have a material
adverse effect on the business, financial condition or results of operations
of Railroad and its subsidiaries, taken as a whole; (viii) (a) all
governmental approvals required by the Merger Agreement to consummate the
transactions contemplated thereby shall have been obtained without the
imposition of any conditions which Commercial and the Bank reasonably and in
good faith determine to be unduly burdensome upon the conduct of the business
of Commercial or the Bank, and (b) in connection with such governmental
approvals, the OTS and any other applicable governmental agency shall confirm
in writing that the Bank, as the surviving institution of the Bank Merger,
shall be lawfully authorized to operate, maintain and replace the Railroad
Savings agency offices to the same extent as Railroad Savings currently
operates, maintains and replaces such agency offices and such authorization
shall be subject to no time or other restriction not in effect as of the date
of the Merger Agreement, (ix) the form and substance of all legal matters
contemplated by the Merger Agreement and all papers delivered thereunder shall
be reasonably acceptable to counsel to Commercial and the Bank; (x) Commercial
shall have received letter agreements from all affiliates of Railroad
regarding restrictions on resale of Commercial Common Stock received by them
in the Merger or upon the exercise of options treated as options for
Commercial Common Stock pursuant to the Merger Agreement to ensure compliance
with applicable resale restrictions imposed under the federal securities laws
and to ensure pooling of interests accounting treatment; (xi) prior to mailing
this Prospectus/Proxy Statement, Commercial shall have received an updated
written opinion from its financial advisor, Merrill Lynch & Co., to the effect
that the Exchange Ratio is fair to Commercial from a financial point of view;
and (xii) Commercial, at its expense, shall have received a Phase I
Environmental Risk Report (as contemplated in OTS Thrift Bulletin No. 16) on
(i) all commercial real estate owned of, (ii) all offices and premises used as
facilities by, and (iii) all properties which serve as security for any
commercial real estate loan having an original principal balance of $1,000,000
or more of, Railroad and Railroad Savings, and such reports or other reports
derived therefrom or supplemental thereto shall be satisfactory to Commercial.
The obligations of Railroad and Railroad Savings to effect the
Acquisition Merger and the transactions contemplated in the Merger Agreement
shall be subject to the following additional conditions, among others, any of
which may be waived by Railroad and Railroad Savings: (i) Railroad shall have
received from counsel to Commercial opinions dated as of the closing date of
the Merger covering certain matters; (ii) the representations and warranties
of Commercial and the Bank shall be true in all material respects at the
Acquisition Merger Effective Time with the same effect as though made at the
Acquisition Merger Effective Time (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date);
Commercial and the Bank shall have performed all obligations and complied with
each covenant, in all material respects, and all conditions under the Merger
Agreement on their parts to be performed or complied with at or prior to the
Acquisition Merger Effective Time; and Commercial shall have delivered to
Company a certificate, dated the Acquisition Merger Effective Time and signed
by its chief executive officer and chief financial officer, to such effect;
(iii) the form and substance of all legal matters contemplated by the Merger
Agreement and all papers delivered thereunder shall be reasonably acceptable
to counsel to Railroad; (iv) prior to mailing this Prospectus/Proxy Statement,
Railroad shall have received an updated written opinion from its financial
advisor, Piper Jaffray, to the effect that the consideration to be received by
Railroad shareholders in the Acquisition Merger is fair from a financial point
of view to the stockholders of Railroad; (v) a certificate for the required
number of whole shares of Commercial Common Stock, as determined in accordance
with the Merger Agreement, and cash for the fractional share interests, as so
determined, shall have been delivered to the Exchange Agent; and (vi) in
addition to governmental approvals, Commercial and the Bank shall have
obtained all necessary third party consents or approvals in connection with
the Merger, the absence of which would materially and adversely affect
Commercial and its subsidiaries, taken as a whole. For additional
information, see " -- Interests of Certain Persons in the Merger."
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<PAGE>
There can be no assurance that the conditions to consummation of the
Merger will be satisfied or waived. In the event the conditions to either
party's obligations become impossible to satisfy in any material respect, the
other party may elect to terminate the Merger Agreement. See " -- Amendment
or Termination of the Merger Agreement."
Amendment or Termination of the Merger Agreement
The Merger Agreement may be terminated at any time before the Acquisition
Merger Effective Time, whether before or after approval by stockholders; (i)
by mutual consent of the parties; (ii) at the election of either party, if the
closing of the Merger shall not have occurred on or before March 31, 1996 or
such later date as may be agreed to in writing by the parties, provided that
the right to terminate under this provision shall not be available to any
party whose failure to perform an obligation has been the cause of, or has
resulted in, the failure of the closing to occur on or before such date; (iii)
by Commercial upon delivery of written notice of termination to Railroad if
any event occurs which renders impossible satisfaction in any material respect
of one or more of the conditions to the obligations of Commercial to effect
the Merger as set forth in the Merger Agreement and noncompliance is not
waived by Commercial, provided that the right to terminate under this
provision due to the failure to obtain a Phase I Environmental Risk Report
expires on August 16, 1995; (iv) by Railroad upon delivery of written notice
of termination to Commercial if any event occurs which renders impossible
satisfaction in any material respect of one or more of the conditions to the
obligations of Railroad to effect the Merger set forth in the Merger Agreement
and noncompliance is not waived by Railroad; (v) by Railroad at any time
during the two business days commencing on the business day immediately
following the end of the Determination Period, if the Average Closing
Price of Commercial Common Stock is less than $20.00 and the decline in the
price of Commercial Common Stock during the period beginning on April 17, 1995
and ending on the last date utilized in the calculation of the Average
Closing Price exceeds by more than 15% any decline in the weighted stock price
of the Index Group during the same period; provided, however, that Railroad
shall not be entitled to terminate the Merger Agreement on this basis if
Commercial exercises its option to adjust the Exchange Ratio so that it equals
the number obtained by dividing $14.38 by the Average Closing Price of
Commercial Common Stock.
The representations, warranties and agreements of the parties set forth
in the Merger Agreement shall not survive the Acquisition Merger Effective
Time, and shall be terminated and extinguished at that time. From and after
that time, none of the parties shall have any liability to the other on
account of any breach or failure of any of those representations, warranties
and agreements, except with respect to agreements of the parties which by
their terms are intended to be performed after that time and with respect to
liability for fraud, deception or intentional misrepresentation.
The Merger Agreement may be amended, whether before or after approval by
stockholders of Railroad, by an agreement in writing executed in the same
manner as the Merger Agreement and authorized or ratified by the Boards of
Directors of Railroad and Commercial, except that after approval of the Merger
Agreement by Railroad's stockholders, no such amendment without further
approval by Railroad's stockholders may change the amount or form of the
consideration to be received by Railroad's stockholders in the Merger.
Stock Option Agreement
As a condition to Commercial's entry into the Merger Agreement, Railroad
and Commercial entered into a Stock Option Agreement dated April 18, 1995,
pursuant to which Railroad granted to Commercial an option to purchase shares
of authorized and unissued or treasury shares of Railroad Common Stock in an
amount up to 13.0% of the outstanding shares of such stock at an exercise
price of $11.875 per share, subject to adjustment, upon or after the
occurrence of a "purchase event" (generally, (i) the entry by Railroad or
Railroad Savings into an agreement with a person (other than Commercial or any
of its affiliates) (a) to merge or consolidate with, or enter into any similar
transaction with, Railroad or Railroad Savings, (b) to purchase, lease or
otherwise acquire all or substantially all of the assets of Railroad or
Railroad Savings or (c) to purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 10.0% or more of the voting power
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<PAGE>
of Railroad or Railroad Savings; or (ii) the acquisition by any person (other
than Commercial or its affiliates) of beneficial ownership of 25.0% or more of
the outstanding shares of Railroad's common stock, the merger, consolidation
or entry into a similar transaction by any person with Railroad or any of its
subsidiaries or the purchase, lease or other acquisition by any person of all
or substantially all of the assets of Railroad or any of its subsidiaries).
Subject to compliance with applicable law and regulation (including any
regulatory approvals required to be obtained by Railroad prior to issuing the
shares subject to the option), unless Commercial shall have breached in any
material respect any material covenant contained in the Merger Agreement and
such breach has not been cured, the option may be exercised, in whole or part,
at any time or from time to time only upon or after the occurrence of a
purchase event. Railroad shall notify Commercial promptly in writing of the
occurrence of any transaction or event which constitutes a purchase event. If
more than one of the transactions, offers or events giving rise to a purchase
event is undertaken or effected by the same person or occurs at the same time,
then all such transactions and events shall give rise only to one purchase
event, which purchase event shall be deemed continuing for all purposes until
all such transactions are terminated or abandoned by such person and all such
events have ceased or ended.
To exercise the option, Commercial shall send to Railroad a written
notice 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 20 business days from the notice date for the closing of such
purchase with respect to such exercise; however, if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such purchase, Commercial and the Bank shall promptly file the required
notice or application for approval and expeditiously process the same, and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which the last required notification period has
expired or been terminated or such approvals have been obtained and any
requisite waiting periods shall have passed.
Commercial has the right to transfer or assign the option following the
occurrence of a purchase event. Prior to any such transfer or assignment,
Commercial is required to give written notice of the proposed transfer or
assignment to Railroad, who may within 24 hours of the receipt of such notice
purchase the option at a price and on terms at least as favorable to
Commercial as are set forth in the notice.
The option shall expire and terminate, to the extent not previously
exercised, upon the earlier of (i) the Acquisition Merger Effective Time; (ii)
the date on which the Merger Agreement is terminated (other than a termination
based upon (a) a willful breach by Railroad or Railroad Savings of any of
their covenants under the Merger Agreement or (b) the failure of Railroad or
Railroad Savings to obtain stockholder approval of the transactions
contemplated by the Merger Agreement) if prior thereto a purchase event or a
"proposal" (generally, a proposal by any person (other than Commercial or its
affiliates) by public announcement or written communication, or in any
application to any federal or state regulatory authority, (a) to acquire,
merge, consolidate with or enter into any similar transactions with Railroad
or Railroad Savings, (b) to purchase, lease or otherwise acquire all or
substantially all of the assets of Railroad or Railroad Savings or (c) to
purchase or otherwise acquire (including by way of merger, consolidation,
share exchange or any similar transaction) securities representing more than
15.0% of the voting power of Railroad) has not occurred or has not been made;
(iii) 18 months after the later of (a) the occurrence of a purchase event or
(b) the making of a proposal; however, if a proposal shall be made during the
term of the Stock Option Agreement and prior to the occurrence of a purchase
event and subsequent thereto a purchase event occurs then the option shall be
further extended to expire upon the expiration of 18 months from the date of
occurrence of such purchase event; (iv) 18 months after the termination of the
Merger Agreement for the reasons set forth in (ii)(a) or (b) above; or (vi)
such other date as to which the holder of the option and Railroad shall agree.
The Stock Option Agreement is attached as Annex C hereto, and the
description herein of the Stock Option Agreement is qualified in its entirety
by reference to the Stock Option Agreement.
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<PAGE>
Required Regulatory Approvals
The Merger is subject to the approval of the OTS. Commercial has filed
an application with the OTS for approval of the Merger. As of the date of
this Prospectus/Proxy Statement, the approval of the OTS has not been
received. There can be no assurance as to the timing of such approval, if
given, or as to the conditions, if any, on which approval will be given. In
addition, the approval, if and when granted, may contain conditions which
Commercial may find duly burdensome (for example, denial of the request to
operate, maintain, and replace the Railroad Savings agency offices to the same
extent as Railroad Savings currently operates, maintains and replaces such
agency offices (for more information, see " -- Conditions to Consummation of
the Merger")). When such approval is received, material changes to the Merger
Agreement, material conditions, or other changes of a material nature may be
imposed by regulatory authorities in connection therewith which could require
a resolicitation of Railroad's stockholders for approval. Following OTS
approval of the Merger, the U.S. Department of Justice may review the Merger
and raise objections on antitrust grounds, though objections on such grounds
are not expected. If the required regulatory approvals are not obtained, the
Merger Agreement will be terminated, and the Merger will not occur.
Expenses
Pursuant to the Merger Agreement, each of the parties shall bear and pay
all costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated thereunder. All expenses in connection with the
printing and mailing of this Prospectus/Proxy Statement shall be incurred by
Railroad.
Closing; Merger Effective Times
As promptly as practicable following the satisfaction or waiver of all
conditions of the Merger Agreement, a closing shall take place at which the
parties thereto will exchange documents required by the Merger Agreement.
Immediately following the closing, and on the same day if practicable, the
Acquisition Merger shall become effective at the time and date which is the
later of the time at which (i) the Nebraska articles of merger is filed with
the appropriate authorities in Nebraska and (ii) the Delaware certificate of
merger is filed with the appropriate authorities in Delaware. Following the
Acquisition Merger, the Bank Merger shall become effective at the time the
articles of combination for such merger are endorsed by the OTS.
Employee Benefit Plans after the Merger
To the extent permitted by applicable law, the employees of Railroad and
Railroad Savings who become employees of Commercial and/or the Bank shall be
entitled to participate in all benefit plans sponsored by Commercial or the
Bank to the same extent as other similarly situated employees of Commercial
and the Bank, and Commercial shall honor all accrued vacation leave for the
employees of Railroad and Railroad Savings.
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Interests of Certain Persons in the Merger
Railroad Stock Options. The following table sets forth as of August 9,
1995, information regarding outstanding options under Railroad's Option Plans
held by directors and executive officers of Railroad Savings.
<TABLE>
<CAPTION>
Outstanding Weighted
Principal Position Stock Option Average
Name With Railroad Savings Shares Exercise Price
---- --------------------- ------------- --------------
<S> <C> <C> <C>
Robert D. Taylor Chairman of the Board and 2,500 (1) $9.00
Chief Executive Officer 7,500 (2) 9.00
Gary L. Baugh President and Chief 2,500 (1) 9.00
Operating Officer 7,500 (2) 9.00
John D. Coleman Director 1,280 (2) 9.38
9,450 (3) 3.37
Charles D. Johnson Director 1,280 (2) 9.38
Gary L. Gamm Director 1,280 (2) 9.38
Donaldson B. Lee Director 1,280 (2) 9.38
Kent J. Longenecker Director 1,280 (2) 9.38
9,450 (3) 3.37
R. Hal Bailey Senior Vice President and 16,015 (1) 2.43
Chief Lending Officer 5,000 (2) 9.00
John P. Gunther Senior Vice President 5,000 (2) 9.00
Thomas W. Anderson Senior Vice President 5,000 (2) 9.00
Kari S. Schmidt Senior Vice President and 5,000 (2) 9.00
Corporate Counsel
Donald J. Voth Senior Vice President and 5,000 (2) 9.00
Chief Financial Officer
I. Jean Maples Senior Vice President and 473 (1) 7.70
Manager Full Service 1,500 (2) 9.00
Banking
Total 88,288 $6.62
========= =====
--------------------
</TABLE>
(1) Granted under the Company's 1986 Stock Option and Incentive Plan. The
options are fully vested at time of grant.
(2) Granted under the Company's 1994 Stock Option and Incentive Plan.
Options granted to officers are subject to a vesting schedule of 1/36th
per month. Under the terms of this plan, however, all options will
become fully vested upon consummation of the Merger.
(3) Granted under the 1991 Directors' Stock Option Plan.
Severance Benefits. Railroad Savings maintains a Reduction in Force Plan
("RIF") which Commercial intends to honor in connection with the Merger. The
RIF provides for the following severance benefits to officers of Railroad
Savings: Senior Vice Presidents, all Vice Presidents and Assistant Vice
Presidents with five or more years of service receive two months' severance;
and Assistant Vice Presidents with fewer than five years of service receive
one month's severance. Specifically, under the RIF, Robert D. Taylor will
receive $28,605, Donald J. Voth will receive $12,308, Kari S. Schmidt will
receive $12,688 and all executive officers of Railroad as a group will
receive in the aggregate $277,000. However, this amount is expected to be
reduced substantially if the sale of Railroad's California mortgage banking
operations and its wholesale lending operations in Las Vegas, Nevada to CUB
Funding Corporation is consummated before the Merger because several
individuals will no longer be eligible to receive payments under the RIF.
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Indemnification of Railroad Management
Indemnification of Railroad Management. Pursuant to the Merger
Agreement, Commercial has agreed that for a period of six years following the
Acquisition Merger Effective Time, the Merger will not affect or diminish any
of Railroad's duties and obligations of indemnification existing as of the
Acquisition Merger Effective Time in favor of employees, agents, directors or
officers of Railroad or any of its subsidiaries arising by virtue of
Railroad's certificate of incorporation or bylaws in the form in effect at the
date of the Merger Agreement or arising by operation of law. Commercial will
cause the persons serving as officers and directors of Railroad immediately
prior to the Acquisition Merger Effective Time to be covered for a period of
three years from the Acquisition Merger Effective Time by the directors' and
officers' liability insurance policy maintained by Railroad (provided that
Commercial may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not materially less
advantageous than such policy) with respect to acts or omissions occurring
prior to the Acquisition Merger Effective Time which were committed by such
officers and directors in their capacity as such; however, in no event will
Commercial be required to expend more than 150% of the amount currently
expended by Railroad to maintain or procure insurance coverage for such three
year period pursuant to the Merger Agreement.
Federal Income Tax Consequences
Commercial and Railroad have not sought a ruling from the IRS concerning
the federal income tax consequences of the Merger. Instead, Commercial and
Railroad will rely upon an opinion of Deloitte & Touche LLP, tax advisor to
Commercial, to the following effect:
. the Acquisition Merger and the Bank Merger will each qualify as a
"reorganization" under Section 368(a) of the Internal Revenue Code;
. no gain or loss will be recognized by Commercial, the Bank, Railroad
or Railroad Savings by reason of the Acquisition Merger or the Bank
Merger;
. no gain or loss will be recognized by Railroad stockholders (except
in connection with the receipt of cash in lieu of fractional share
interests in Commercial Common Stock) upon the exchange of Railroad
Common Stock for Commercial Common Stock in the Merger;
. the basis of the Commercial Common Stock received by Railroad
stockholders whose Railroad Common Stock is exchanged for Commercial
Common Stock will be the same as the basis of the Railroad Common
Stock surrendered in exchange therefor (subject to any adjustments
required as the result of receipt of cash in lieu of fractional
share interests in Commercial Common Stock);
. the holding period of the Commercial Common Stock received by
Railroad stockholders whose Railroad Common Stock is exchanged for
Commercial Common Stock will include the period during which the
Railroad Common Stock surrendered in exchange therefor was held
(provided that the stockholder's Railroad Common Stock was held as a
capital asset at the Acquisition Merger Effective Time); and
. cash received by Railroad stockholders in lieu of fractional share
interests in Commercial Common Stock will be treated as having been
received as distributions in full payment in exchange for the
fractional share interests in Commercial Common Stock which they
would otherwise be entitled to receive and will qualify as capital
gain or loss (assuming that the Railroad Common Stock was a capital
asset in his hands at the Acquisition Merger Effective Time).
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<PAGE>
Unlike a ruling from the IRS, the opinion of Deloitte & Touche LLP has no
binding effect on the IRS. The opinion of Deloitte & Touche LLP is filed with
the Commission as an exhibit to Commercial's registration statement on Form S-
4 of which this Prospectus/Proxy Statement is a part. See " -- Additional
Information."
Cash payments made to the holders of Railroad Common Stock upon the
exchange thereof in connection with the Acquisition Merger (other than certain
exempt entities and persons) will be subject to a 31.0% backup withholding tax
under federal income tax law unless certain requirements are met. Generally,
Commercial will be required to deduct and withhold the tax if (i) the
stockholder fails to furnish a taxpayer identification number ("TIN") or fails
to certify under penalty of perjury that such TIN is correct, (ii) the IRS
notifies Commercial that the TIN furnished by the stockholder is incorrect,
(iii) the IRS notifies Commercial that the stockholder has failed to report
interest, dividends or original issue discount in the past, or (iv) there has
been a failure by the stockholder to certify under penalty of perjury that
such stockholder is not subject to the 31.0% backup withholding tax. Any
amounts withheld in collection of the 31.0% backup withholding tax will reduce
the federal income tax liability of the stockholders from whom such tax was
withheld. The TIN of an individual stockholder is that stockholder's Social
Security number.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER, WITHOUT CONSIDERATION OF THE PARTICULAR
FACTS AND CIRCUMSTANCES OF EACH RAILROAD STOCKHOLDER'S SITUATION. EACH
RAILROAD STOCKHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL
ADVISORS AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH
STOCKHOLDER AND NOT COMMON TO STOCKHOLDERS AS A WHOLE AND ALSO AS TO ANY
ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE
MERGER AND/OR ANY SALE THEREAFTER OF COMMERCIAL COMMON STOCK RECEIVED IN THE
MERGER.
Accounting Treatment
The Merger is expected to be accounted for as a pooling of interests.
Under this method of accounting, the recorded assets and liabilities of
Commercial and Railroad will be carried forward to the surviving corporation
in the Merger (Commercial) at their recorded amounts; income of the surviving
corporation will include income of Commercial and Railroad for the entire
fiscal year in which the Merger occurs; and the reported income of Commercial
and Railroad for prior periods will be combined and restated as retained
earnings of the surviving corporation (Commercial). The consummation of the
Merger is conditioned upon the receipt by Commercial from the independent
public accountants for Commercial, of a letter dated at the Acquisition Merger
Effective Time stating their opinion that the Merger should be accounted for
by Commercial as a pooling of interests for financial statement purposes and
that such accounting treatment is in accordance with generally accepted
accounting principles.
Resale of Commercial Common Stock; Restrictions on Transfer
The shares of Commercial Common Stock to be issued in the Acquisition
Merger will be registered under the Securities Act and will be freely
transferable under the Securities Act, except for shares issued to any
stockholder who may be deemed to be an "affiliate" of Railroad or Commercial
for purposes of Rule 145 under the Securities Act (generally, individuals or
entities that control, are controlled by or are under common control with
Railroad or Commercial). Affiliates may not sell their shares of Commercial
Common Stock acquired in connection with the Acquisition Merger except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act.
Commission guidelines regarding qualifying for the pooling of interests method
of accounting also limit sales by affiliates of the acquiring and acquired
company in a business combination. The guidelines indicate that the pooling
of interests method of accounting will generally not be challenged on the
basis of sales by affiliates
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<PAGE>
of the acquiring or acquired company if they do not dispose of any of the
shares of the corporation they own or shares of a corporation they receive in
connection with a merger during the period beginning 30 days before the merger
and ending when financial results covering at least 30 days of post-merger
operations of the combined entity have been published.
Railroad has agreed in the Merger Agreement to use its best efforts to
cause each director, executive officer and other person who is an affiliate
(for purposes of Rule 145 and for purposes of qualifying the Merger for
pooling of interests accounting treatment) of Railroad to deliver to
Commercial a written agreement intended to ensure compliance with the
Securities Act and to preserve the ability to treat the Merger as a pooling of
interests.
New York Stock Exchange Listing
Commercial Common Stock is traded on the NYSE under the symbol "CFB". It
is expected that Commercial Common Stock will continue to be quoted on the
NYSE under the symbol "CFB" following the Merger.
Vote Required
The affirmative vote of at least a majority of the outstanding Railroad
Common Stock is required for Railroad's stockholders to approve the Merger
Agreement and the Acquisition Merger. Each share of Railroad Common Stock
outstanding at the close of business on the record date for the Special
Meeting, August 9, 1995, is entitled to one vote on each matter to be
considered at such meeting. Railroad's directors and officers, and their
affiliates, are expected to vote substantially all of the 651,969 shares, or
30.6%, of Railroad's outstanding common stock (excluding stock options)
beneficially owned by them as of the record date for approval of the
Acquisition Merger and the Merger Agreement.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Statement of Financial Condition
The following unaudited pro forma combined statement of financial
condition for Commercial has been prepared based on the historical
consolidated statements of financial condition for Commercial and Railroad at
March 31, 1995. This unaudited pro forma statement gives effect to the Merger
accounted for as a pooling of interests, based on the conversion of each
outstanding share of Railroad Common Stock into .6389 of a share of Commercial
Common Stock, which would have been the applicable Exchange Ratio based on the
Average NMS Closing Price for shares of Commercial Common Stock as of August
10, 1995 ($31.45) if the Acquisition Merger had been consummated as of that
date. For information regarding adjustment of the Exchange Ratio in the event
the Average NMS Closing Price is lower than $24.00 or between $24.00 and
$27.00 as of the Acquisition Merger Effective Time, see "The Merger --
Conversion of Railroad Common Stock." The unaudited pro forma combined
statement of financial condition should be read in conjunction with the
historical consolidated financial statements and notes thereto incorporated by
reference herein. The unaudited pro forma combined statement of financial
condition presented on the following page does not include any expected cost
savings as a result of the Merger, nor does it reflect merger transaction
costs and is not necessarily indicative of the actual financial position that
would have occurred had the Merger been consummated on March 31, 1995 or that
may be obtained in the future.
37
<PAGE>
Unaudited Pro Forma Combined Statement of Financial Condition
<TABLE>
<CAPTION>
At March 31, 1995
------------------------------------------------------
Pro Forma Pro Forma
Commercial Railroad Adjustments Combined
----------- --------- ------------ -----------
(In thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
Assets:
Cash............................................ $ 30,285 $ 2,941 $ -- $ 33,226
Investment securities available for sale........ -- 3,735 -- 3,735
Mortgage-backed securities available
for sale, at fair value........................ 10,555 30,620 -- 41,175
Loans held for sale............................. 32,570 49,568 -- 82,138
Investment securities held to maturity.......... 284,923 3,290 -- 288,213
Mortgage-backed securities held to maturity..... 1,348,083 6,809 -- 1,354,892
Loans receivable, net........................... 3,808,079 453,411 -- 4,261,490
Federal Home Loan Bank stock.................... 95,184 9,641 -- 104,825
Interest receivable, net........................ 34,463 3,105 -- 37,568
Real estate..................................... 15,689 650 -- 16,339
Premises and equipment.......................... 59,108 3,762 -- 62,870
Prepaid expenses and other assets............... 62,194 3,603 -- 65,797
Goodwill and core value of deposits,
net of accumulated amortization................ 32,442 412 -- 32,854
---------- -------- -------- ----------
Total assets..................................... $5,813,575 $571,547 $ -- $6,385,122
========== ======== ======== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits........................................ $3,522,546 $326,991 $ -- $3,849,537
Advances from Federal Home Loan Bank............ 1,691,215 192,809 -- 1,884,024
Securities sold under agreements to repurchase.. 120,000 -- -- 120,000
Other borrowings................................ 56,223 10,900 -- 67,123
Interest payable................................ 22,579 2,524 -- 25,103
Other liabilities............................... 104,335 11,149 -- 115,484
---------- -------- -------- ----------
Total liabilities............................... 5,516,898 544,373 -- 6,061,271
---------- -------- -------- ----------
Commitments and contingencies.................... -- -- -- --
Stockholders' Equity:
Preferred stock................................. -- -- -- --
Common stock.................................... 129 221 (221)(A) 143
14 (B)
Additional paid-in capital...................... 139,231 7,376 (628)(A) 145,965
(14)(B)
Unrealized holding gain (loss) on securities
available for sale, net........................ 3 (416) -- (413)
Retained earnings, substantially restricted..... 157,314 20,842 -- 178,156
---------- -------- -------- ----------
296,677 28,023 (849) 323,851
Less: Treasury stock, at cost.................... -- (849) 849 (A) --
---------- -------- -------- ----------
Total stockholders' equity...................... 296,677 27,174 -- 323,851
---------- -------- -------- ----------
Total Liabilities and Stockholders' Equity....... $5,813,575 $571,547 $ -- $6,385,122
========== ======== ======== ==========
--------------
</TABLE>
(A) Represents the surrender, cancellation and exchange of Railroad's net
outstanding common stock ($.10 par value) totaling 2,116,074 shares
consisting of 2,205,083 shares issued net of 89,009 shares held as
treasury stock.
(B) Represents the tax-free exchange of .6389 shares of Commercial Common
Stock for Railroad Common Stock resulting in 1,351,960 shares of
Commercial Common Stock issued (2,116,074 net outstanding shares of
Railroad Common Stock multiplied by the exchange ratio of .6389). Such
ratio is based on the assumption that the Average Closing Price for
Commercial Common Stock would be at least $27.00 per share. No
consideration was given for fractional shares in these pro forma
adjustments. Fractional shares will be paid in cash.
38
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Operations
The following unaudited pro forma condensed combined statement of income
of Commercial has been prepared based upon the historical results of
operations of Commercial and Railroad for each of the three years in the
period ended June 30, 1994 and for the nine months ended March 31, 1995 and
1994. This unaudited pro forma statement presents the combined revenue and
expenses of Commercial and Railroad as if the companies had been merged as of
the beginning of the periods indicated. The unaudited pro forma condensed
combined statement of operations and earnings per share presented below and on
the following page do not include any expected cost savings as a result of the
Merger, nor do they reflect merger transaction costs and are not necessarily
indicative of the results that would have occurred if the Merger had occurred
as of the beginning of the periods indicated or which may be obtained in the
future. The unaudited pro forma condensed combined statement of operations
should be read in conjunction with the historical consolidated financial
statements and notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
-----------------------------------------------------------------------------
1995 1994
--------------------------------------- -----------------------------------
Pro Forma Pro Forma
Commercial Railroad Combined Commercial Railroad Combined
---------- ---------- ---------- ---------- ---------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Interest income........................... $ 303,771 $ 30,267 $ 334,038 $ 272,048 $ 21,315 $ 293,363
Interest expense.......................... 202,981 18,728 221,709 178,684 12,013 190,697
----------- ----------- ----------- ----------- ---------- -----------
Net interest income....................... 100,790 11,539 112,329 93,364 9,302 102,666
Provision for loan losses................. 4,525 300 4,825 4,525 110 4,635
----------- ----------- ----------- ----------- ---------- -----------
Net interest income after
provision for loan losses............... 96,265 11,239 107,504 88,839 9,192 98,031
Non-interest income....................... 27,403 6,376 33,779 23,398 8,726 32,124
Non-interest expense...................... 93,132 12,321 105,453 66,812 14,396 81,208
----------- ----------- ----------- ----------- ---------- -----------
Income before income taxes and
cumulative effects of changes in
accounting principles................... 30,536 5,294 35,830 45,425 3,522 48,947
Provision for income taxes................ 15,252 2,096 17,348 18,259 1,418 19,677
----------- ----------- ----------- ----------- ---------- -----------
Income before cumulative effects of
changes in accounting principles........ 15,284 3,198 18,482 27,166 2,104 29,270
Cumulative effects of changes
in accounting principles................ -- -- -- 5,803 -- 5,803
----------- ----------- ----------- ----------- ---------- -----------
Net income................................ $ 15,284 $ 3,198 $ 18,482 $ 32,969 $ 2,104 $ 35,073
=========== =========== =========== =========== ========== ===========
Per share income before cumulative
effects of changes in accounting
principles (1).......................... $ 1.17 $ 1.48 $ 1.28 $ 2.10 $ .94 $ 2.04
=========== =========== =========== =========== ========== ===========
Per share net income (1).................. $ 1.17 $ 1.48 $ 1.28 $ 2.55 $ .94 $ 2.45
=========== =========== =========== =========== ========== ===========
Weighted average shares outstanding (1)... 13,012,810 2,167,667 14,397,732 12,914,062 2,231,333 14,339,661
=========== =========== =========== =========== ========== ===========
</TABLE>
-----------
(1) Per share data presented in the above is based upon a Exchange Ratio of
.6389 and the issuance of 1,384,922 shares of Commercial Common Stock for
the nine months ended March 31, 1995 and 1,425,599 shares for the nine
months ended March 31, 1994. Based upon an Exchange Ratio of .7188, the
number of shares of Commercial Common Stock issued for the nine months ended
March 31, 1995 and 1994 would have been 1,558,119 and 1,603,882,
respectively. Based upon the Exchange Ratio of .7188, the pro forma earnings
per share for the nine months ended March 31, 1995 and 1994 would have
been $1.27 and $2.42, respectively, or $2.02 per share before cumulative
effects of changes in accounting principles for the nine months ended
March 31, 1994.
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------
1994 1993
--------------------------------------- -----------------------------------
Pro Forma Pro Forma
Commercial Railroad Combined Commercial Railroad Combined
---------- ---------- ---------- ---------- ---------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Interest income........................... $ 365,474 $ 29,178 $ 394,652 $ 372,778 $ 29,578 $ 402,356
Interest expense.......................... 239,950 16,424 256,374 256,468 17,489 273,957
----------- ----------- ----------- ----------- ---------- -----------
Net interest income....................... 125,524 12,754 138,278 116,310 12,089 128,399
Provision for loan losses................. 6,033 185 6,218 5,735 252 5,987
----------- ----------- ----------- ----------- ---------- -----------
Net interest income after
provision for loan losses............... 119,491 12,569 132,060 110,575 11,837 122,412
Non-interest income....................... 32,340 9,550 41,890 23,277 10,757 34,034
Non-interest expense...................... 143,245 18,758 162,003 82,233 16,495 99,728
----------- ----------- ----------- ----------- ---------- -----------
Income before income taxes, extraordinary
items and cumulative effects of change
in accounting principles................ 8,586 3,361 11,947 50,619 6,099 56,718
Provision for income taxes................ 14,231 1,354 15,585 19,841 2,321 22,162
----------- ----------- ----------- ----------- ---------- -----------
Income (loss) before extraordinary items
and cumulative effects of changes in
accounting principles................... (5,645) 2,007 (3,638) 30,778 3,778 34,556
Extraordinary items....................... -- -- -- -- -- --
Cumulative effects of changes
in accounting principles................ 5,803 -- 5,803 -- -- --
----------- ----------- ----------- ----------- ---------- -----------
Net income................................ $ 158 $ 2,007 $ 2,165 $ 30,778 $ 3,778 $ 34,556
=========== =========== =========== =========== ========== ===========
Per share income (loss) before
extraordinary items and cumulative
effects of changes in accounting
principles (1).......................... $ (.44) $ .90 $ (.25) $ 2.43 $ 1.72 $ 2.46
=========== =========== =========== =========== ========== ===========
Per share net income (1).................. $ .01 $ .90 $ .15 $ 2.43 $ 1.72 $ 2.46
=========== =========== =========== =========== ========== ===========
Weighted average shares outstanding (1)... 12,920,700 2,227,500 14,343,850 12,647,363 2,195,000 14,049,749
=========== =========== =========== =========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------
1992
---------------------------------------
Pro Forma
Commercial Railroad Combined
---------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C>
Interest income........................... $ 412,239 $ 34,536 $ 446,775
Interest expense.......................... 327,190 23,071 350,261
----------- ----------- -----------
Net interest income....................... 85,049 11,465 96,514
Provision for loan losses................. 7,381 678 8,059
----------- ----------- -----------
Net interest income after
provision for loan losses............... 77,668 10,787 88,455
Non-interest income....................... 68,499 12,655 81,154
Non-interest expense...................... 78,779 16,115 94,894
----------- ----------- -----------
Income before income taxes, extraordinary
items and cumulative effects of change
in accounting principles................ 67,388 7,327 74,715
Provision for income taxes................ 25,103 3,112 28,215
----------- ----------- -----------
Income (loss) before extraordinary items
and cumulative effects of changes in
accounting principles................... 42,258 4,215 46,500
Extraordinary items....................... (5,046) -- (5,046)
Cumulative effects of changes
in accounting principles................ -- 794 794
----------- ----------- -----------
Net income................................ $ 37,239 $ 5,009 $ 42,248
=========== =========== ===========
Per share income (loss) before
extraordinary items and cumulative
effects of changes in accounting
principles (1).......................... $ 5.19 $ 1.96 $ 4.88
=========== =========== ===========
Per share net income (1).................. $ 4.57 $ 2.33 $ 4.44
=========== =========== ===========
Weighted average shares outstanding (1)... 8,151,249 2,150,500 9,525,203
=========== =========== ===========
</TABLE>
----------------------
(1) Per share data presented in the above table is based upon an Exchange
Ratio of .6389 and the issuance of 1,423,150, 1,402,386 and 1,373,954
shares, respectively, of Commercial Common Stock for the years ended June
30, 1994, 1993 and 1992. Based upon an Exchange Ratio of .7188, the
number of shares of Commercial Common Stock issued for the years ended
June 30, 1994, 1993 and 1992 would have been $.15, $2.43 and $4.36,
respectively, or before extraordinary items and cumulative effects of
changes in accounting principles a loss of $.25 per share and income of
$2.43 and $4.80 per share, respectively, for the years ended June 30,
1994, 1993 and 1992.
39
<PAGE>
Unaudited Pro Forma Combined Earnings Per Share Data
The following table presents selected per share data for Commercial and
Railroad on a historical and pro forma basis as if the Merger had been
effective as of the dates or the beginning of the periods indicated.
The Merger will be accounted for under the pooling of interests method,
and pro forma data is derived in accordance with such method. The Railroad pro
forma equivalent amounts are presented with respect to each set of pro forma
data. Such pro forma equivalent per share amounts as to net income (loss) from
continuing operations and book value are computed by multiplying the pro forma
combined amounts by the Exchange Ratio of .6389, which would have been the
applicable Exchange Ratio based on the Average Closing Price for shares of
Commercial Common Stock as of August 10, 1995 ($31.45) if the Acquisition
Merger had been consummated as of that date. For information regarding
adjustment of the Exchange Ratio in the event the Average Closing Price is
lower than $24.00 or between $24.00 and $27.00 as of the Acquisition Merger
Effective Time, see "The Merger --Conversion of Railroad Common Stock." The
purpose of the Railroad pro forma equivalent net income (loss) from continuing
operations and book value per common share amounts is to show what such per
share amounts would have equated to for each respective share of Railroad
Common Stock had the Merger been consummated as of the beginning of the
periods indicated.
Historical information for Commercial and Railroad is derived from the
respective consolidated financial statements incorporated by reference herein,
and the pro forma combined information is derived from the pro forma financial
information elsewhere herein. The pro forma results might not be indicative
of the results that would have occurred if the Merger had occurred at the
beginning of the periods indicated or which may be obtained in the future.
The information below should be read in conjunction with such historical
consolidated financial statements of Commercial and Railroad.
<TABLE>
<CAPTION>
Nine Months Ended
March 31, Year Ended June 30,
-------------- ---------------------------
1995 1994 1994 1993 1992
------ ------ ------ --------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) per common
share before extraordinary
items and cumulative effects
of changes in accounting
principles:
Commercial historical.......... $ 1.17 $ 2.10 $ (.44) $ 2.43 $ 5.19
Railroad historical............ 1.48 .94 .90 1.72 1.96
Pro forma combined (1)......... 1.28 2.04 (.25) 2.46 4.88
Railroad pro forma equivalent.. .82 1.30 (.16) 1.57 3.12
Book value per common share:
Commercial historical.......... 23.04 24.55 21.86 21.95 22.02
Railroad historical............ 12.84 11.49 11.26 10.79 9.17
Pro forma combined (2)......... 22.76 23.90 21.45 21.45 21.21
Railroad pro forma equivalent.. 14.54 15.27 13.70 13.70 13.55
</TABLE>
-----------------------
(1) Per share data presented in the above table is based upon an Exchange
Ratio of .6389 and the issuance of 1,384,922 shares of Commercial Common
Stock for the nine months ended March 31, 1995 and 1,425,599 shares for
the nine months ended March 31, 1994. Shares issued at that Exchange
Ratio for the years ended June 30, 1994, 1993 and 1992 were 1,423,150,
1,402,386 and 1,373,954, respectively. Based upon an Exchange Ratio of
.7188, the number of shares of Commercial Common Stock issued for the
nine months ended March 31, 1995 and 1994 would have been 1,558,119 and
1,603,882, respectively. The number of shares issued at that Exchange
Ratio for the years ended June 30, 1994, 1993 and 1992 would have been
1,601,127, 1,577,766 and 1,545,779, respectively. Based upon that
Exchange Ratio, the pro forma combined earnings per share before
extraordinary items and cumulative effects of changes in accounting
principles for the nine months ended March 31, 1995 and 1994 would have
been $1.27 and $2.42, respectively, and for the years ended June 30,
1994, 1993 and 1992 would have been a loss of $.25 per share and income
of $2.43 and $4.80, respectively.
(2) Pro forma combined book value per common share presented in the above
table is based upon an Exchange Ratio of .6389 and the issuance of
1,351,960 shares of Commercial Common Stock as of March 31, 1995 and
1,396,136 shares as of March 31, 1994. Shares issued at that Exchange
Ratio as of June 30, 1994, 1993 and 1992 were 1,369,701, 1,368,825 and
1,278,266, respectively. Based upon an Exchange Ratio of .7188, the
number of shares of Commercial Common Stock issued as of March 31, 1995
and 1994 would have been 1,521,034 and 1,570,735, respectively. The
number of shares issued at that Exchange Ratio as of June 30, 1994, 1993
and 1992 would have been 1,540,994, 1,540,008 and 1,438,125,
respectively. Based upon that Exchange Ratio, the pro forma combined
book value per common share as of March 31, 1995 and 1994 would have been
$22.50 and $23.61, respectively, and at June 30, 1994, 1993 and 1992
would have been $21.19, $21.20 and $20.93, respectively.
40
<PAGE>
Unaudited Pro Forma Combined Regulatory Capital
The following unaudited pro forma combined regulatory capital table as of
March 31, 1995 presents the tangible, core and risk-based capital compliance
of the Bank and Railroad Savings on a historical basis and on an unaudited pro
forma combined basis as if the Merger had been consummated as of March 31,
1995.
<TABLE>
<CAPTION>
Historical
---------------------------------------------------- Pro Forma
Bank Railroad Savings Combined
-------------------------- ------------------------ --------------------
Percentage Percentage Percentage
Amount of Assets Amount of Assets Amount of Assets
------ ---------- ------ ---------- ------ -----------
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital:
Tangible capital.... $294,124 5.09% $36,561 6.41% $330,685 5.21%
Requirement......... 86,728 1.50 8,552 1.50 95,280 1.50
-------- ----- ------- ----- -------- -----
Excess............ $207,396 3.59% $28,009 4.91% $235,405 3.71%
======== ===== ======= ===== ======== =====
Core capital:
Core capital........ $316,766 5.46% $36,561 6.41% $353,327 5.54%
Requirement......... 174,134 3.00 17,104 3.00 191,238 3.00
-------- ----- ------- ----- -------- -----
Excess............ $142,632 2.46% $19,457 3.41% $162,089 2.54%
======== ===== ======= ===== ======== =====
Risk-based capital:
Risk-based capital.. $345,620 13.52% $38,579 12.52% $384,199 13.41%
Requirement......... 204,497 8.00 24,661 8.00 229,158 8.00
-------- ----- ------- ----- -------- -----
Excess............ $141,123 5.52% $13,918 4.52% $155,041 5.41%
======== ===== ======= ===== ======== =====
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991
established five regulatory capital categories: well-capitalized, adequately-
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized; and authorized banking regulatory agencies to take prompt
corrective action with respect to institutions in the three undercapitalized
categories. These corrective actions become increasingly more stringent as
the institution's regulatory capital declines. At March 31, 1995, the Bank
and Railroad Savings, on both a historical basis and on an unaudited pro forma
combined basis as if the Merger had been consummated as of March 31, 1995,
exceeded the minimum requirements for the well-capitalized category as shown
in the following table.
<TABLE>
<CAPTION>
Historical
-------------------------
Railroad Pro Forma
Bank Savings Combined
---- -------- ---------
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C>
Tier 1 capital to adjusted
total assets:
Actual capital........... $316,766 $36,561 $353,327
Percentage of adjusted
assets.................. 5.46% 6.41% 5.54%
Minimum requirements to
be classified as
well-capitalized....... 5.00% 5.00% 5.00%
Tier 1 capital to
risk-weighted assets:
Actual capital........... $316,766 $36,561 $353,327
Percentage of
risk-weighted assets.... 12.39% 11.86% 12.33%
Minimum requirements to
be classified as
well-capitalized....... 6.00% 6.00% 6.00%
Total capital to
risk-weighted assets:
Actual capital........... $345,620 $38,579 $384,199
Percentage of
risk-weighted assets.... 13.52% 12.52% 13.41%
Minimum requirements to
be classified as
well-capitalized....... 10.00% 10.00% 10.00%
</TABLE>
The above tables should be read in conjunction with the historical
information with respect to the Bank and Railroad Savings in the historical
financial statements of Commercial and Railroad incorporated by reference
herein.
41
<PAGE>
BENEFICIAL OWNERSHIP OF RAILROAD COMMON STOCK
The following tables set forth information as of August 9, 1995 with
respect to the shares of Railroad Common Stock beneficially owned by (1) those
persons who were beneficial owners of more than 5.0% of Railroad's outstanding
shares of common stock (as obtained from reports regarding such ownership
filed by such persons with the Commission), (2) Railroad's directors and
certain executive officers, and (3) all directors and executive officers of
Railroad as a group.
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Shares of
Name and Address Beneficial Common Stock
of Beneficial Owner Ownership(1) Outstanding
------------------- --------- -----------
<S> <C> <C>
Robert D. Taylor 175,252 (2) 8.2%
110 S. Main Street, Suite 900
Wichita, Kansas 67202
Donaldson B. Lee 139,915 (3) 6.6%
3321 Dell Road
Birmingham, Alabama 35223
Charles D. Johnson 111,686 (4) 5.2%
1344 North Walnut
McPherson, Kansas 67460
</TABLE>
------------------
(1) Unless otherwise indicated, the named individual has sole voting and
investment power over the shares listed.
(2) Includes 6,042 shares of common stock which may be acquired upon the
exercise of stock options and 3,300 shares owned by spouse, over which
Mr. Taylor effectively exercises sole or shared voting and investment
power. Does not include options for 3,958 shares of common stock that
were granted under the Company's 1994 Stock Option Plan which are not
vested but which are subject to a vesting schedule of 1/36th of the total
grant per month. Under the terms of this plan, however, all options will
become fully vested upon consummation of the Merger.
(3) Includes 1,280 shares of common stock which may be acquired upon the
exercise of stock options and 27,000 shares owned by spouse, over which
Mr. Lee effectively exercises sole or shared voting and investment power.
(4) Includes 1,280 shares of common stock which may be acquired upon the
exercise of stock options.
<TABLE>
<CAPTION>
Shares of Common Stock Percent
Beneficially Owned at of
Name August 9, 1995 (1) Class
---- ---------------------- -------
<S> <C> <C>
Robert D. Taylor 175,252 (2)(11) 8.2%
Gary L. Baugh 72,384 (3)(11) 3.4%
John D. Coleman 50,205 (4) 2.3%
Kent J. Longenecker 15,691 (4) 0.7%
Charles D. Johnson 111,686 (6) 5.2%
Gary L. Gamm 39,164 (7) 1.8%
Donaldson B. Lee 139,915 (5) 6.6%
R. Hal Bailey 32,087 (8)(11) 1.5%
John P. Gunther 14,780 (9)(11) .7%
Thomas W. Anderson 6,321 (9)(11) .3%
All Executive Officers and Directors
as a Group (13 persons) 718,354 (10) 32.7%
</TABLE>
(Footnotes on following page)
42
<PAGE>
--------------
(1) Unless otherwise indicated, the named individual has sole voting and
investment power over which the shares listed.
(2) Includes 6,042 shares of common stock which may be acquired upon the
exercise of stock options and 3,300 shares owned by spouse, over which
Mr. Taylor effectively exercises sole or shared voting and investment
power.
(3) Includes 6,042 shares of common stock which may be acquired upon the
exercise of stock options.
(4) Includes 10,730 shares of common stock which may be acquired upon the
exercise of stock options.
(5) Includes 1,280 shares of common stock which may be acquired upon the
exercise of stock options and 27,000 shares owned by spouse, over which
Mr. Lee effectively exercises sole or shared voting and investment power.
(6) Includes 1,280 shares of common stock which may be acquired upon the
exercise of stock options.
(7) Includes 1,280 shares of common stock which may be acquired upon the
exercise of stock options and 31,347 shares owned by spouse and child,
over which Mr. Gamm effectively exercises sole or shared voting and
investment power.
(8) Includes 18,376 shares of common stock which may be acquired upon the
exercise of stock options.
(9) Includes 2,361 shares of common stock which may be acquired upon the
exercise of stock options.
(10) Includes certain shares owned by spouses, or as custodian or trustee for
minor children, over which shares all Executive Officers and Directors as
a group effectively exercise sole or shared voting and investment power,
unless otherwise indicated. Includes 63,111 shares of common stock which
may be acquired upon the exercise of stock options.
(11) Does not include options for 3,958, 3,958, 2,639, 2,639, 2,639 and 21,903
shares of common stock granted under the Company's 1994 Stock Option Plan
to Messrs. Taylor, Baugh, Bailey, Gunther, Anderson and all Executive
Officers and Directors as a group, respectively. Options granted to
officers under this plan are subject to a vesting schedule of 1/36th of
the total grant per month. Under the terms of this plan, however, all
options will become fully vested upon consummation of the Merger.
43
<PAGE>
COMMON STOCK PRICES AND DIVIDENDS
Common Stock Prices
The Commercial Common Stock is currently traded on the NYSE under the
symbol "CFB." Prior to August 2, 1995, the Commercial Common Stock was quoted on
the Nasdaq National Market under the symbol "CFCN." The Railroad Common Stock is
traded on the American Stock Exchange and is quoted under the symbol "RF."
The following table sets forth the comparative market prices of
Commercial Common Stock and Railroad Common Stock for the periods indicated,
indicated by the high and low closing sales prices for the common stock of each
company as reported on the Nasdaq National Market for the periods shown below up
to and including August 1, 1995 and as reported on the NYSE thereafter for
Commercial and on the American Stock Exchange for Railroad. Information is
presented from the beginning of 1993 to the present (through August 10, 1995).
<TABLE>
<CAPTION>
Commercial Railroad
Common Stock Common Stock(1)
------------ ---------------
Quarter Ended High Low High Low
------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1993
----
March 31, 1993............................... $ 25.125 $ 16.50 $ 9.33 $ 7.38
June 30, 1993................................ 27 19.25 10.50 8.42
September 30, 1993........................... 27.75 24.125 13.58 10.08
December 31, 1993............................ 26.75 19.25 14.58 10.92
1994
----
March 31, 1994............................... 21.625 17.875 12.42 8.75
June 30, 1994................................ 25.75 17.875 10.13 8.75
September 30, 1994........................... 27.875 23.75 10.63 9.00
December 31, 1994............................ 24.8125 18.875 10.25 8.50
1995
----
March 31, 1995............................... 24.875 20.375 10.75 9.25
June 30, 1995................................ 31.25 24.875 18.375 11
September 30, 1995 (through August 10)....... 32 27.125 19.75 17
</TABLE>
______________________
(1) Adjusted to reflect the effect of a 3 for 2 stock split paid to Railroad
stockholders of record as of February 11, 1994.
On April 18, 1995, the last trading day preceding the public announcement
of the execution of the Merger Agreement, the reported closing sale price of
Commercial Common Stock was $26.50 per share and the reported closing sale price
for Railroad Common Stock was $11.875 per share. On August 10, 1995, the closing
sale price for Commercial Common Stock was $31.625 per share, and the closing
sale price for Railroad Common Stock was $19.25 per share.
44
<PAGE>
Dividends
Commercial has never paid dividends and Railroad has not paid dividends
since December 15, 1988. The payment of dividends by Commercial and Railroad is
subject to the discretion of each company's Board of Directors and depends on a
variety of factors, including each company's operating results and financial
condition, regulatory limitations, tax considerations and other factors. Under
Delaware law, dividends may be paid in cash, in property or in shares of
Railroad's capital stock either out of Railroad's surplus or, in case there is
no surplus, out of the net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under Nebraska law, dividends may be
paid in cash, in property or in shares of Commercial's capital stock only out of
Commercial's unrestricted earned surplus.
At the present time, the only significant independent sources of funds
available for the payment of dividends by Commercial are dividends paid by the
Bank to Commercial and Commercial's unrestricted liquid assets ($6.6 million
at March 31, 1995), and the only significant sources of funds available for
the payment of dividends by Railroad are dividends paid by Railroad Savings to
Railroad. Under regulations of the OTS, neither the Bank nor Railroad Savings
is permitted to pay dividends on its capital stock if its regulatory capital
would thereby be reduced below the amount then required for the liquidation
account established for the benefit of certain depositors at the time of its
conversion to stock form. In addition, the Bank and Railroad Savings are
required to give the OTS 30 days' prior notice of any proposed declaration of
a dividend to Commercial and Railroad, respectively, and are subject to
federal regulations which impose additional limitations on the payment of
dividends and other capital distributions (including stock repurchases and
cash mergers).
COMPARISON OF STOCKHOLDER RIGHTS
Introduction. Upon consummation of the Merger, holders of Railroad
Common Stock, whose rights are presently governed by Delaware law and
Railroad's certificate of incorporation and bylaws, and indirectly by Railroad
Savings' charter and bylaws, will become stockholders of Commercial, a
Nebraska corporation. Accordingly, their rights will be governed by the
Nebraska Business Corporation Act and the articles of incorporation and bylaws
of Commercial and indirectly by the Bank's charter and bylaws. Certain
differences arise from the change in governing law, as well as from
differences between the certificate of incorporation and bylaws of Railroad
and the articles of incorporation and bylaws of Commercial and between the
charter and bylaws of Railroad Savings and the Bank. The following discussion
is not intended to be a complete statement of all differences affecting the
rights of stockholders, but summarizes material differences and is qualified
in its entirety by reference to the Delaware General Corporation Law, the
Nebraska Business Corporation Act, the articles of incorporation and bylaws of
Commercial and the certificate of incorporation and bylaws of Railroad. See
"Available Information."
Issuance of Capital Stock. The articles of incorporation of Commercial
authorize the issuance of 25,000,000 shares of common stock, par value $.01 per
share, and 10,000,000 shares of preferred stock, par value $.01 per share. The
certificate of incorporation of Railroad authorizes the issuance of 4,000,000
shares of common stock, par value $0.10 per share, and 1,000,000 shares of
preferred stock, par value $0.10 per share. At August 10, 1995, 12,910,957 and
2,130,572 shares of Commercial Common Stock and Railroad Common Stock,
respectively, were issued and outstanding. For information regarding the number
of shares of Commercial's common stock that would have been issued on a pro
forma basis upon the consummation of the Acquisition Merger as of that date, see
"Unaudited Pro Forma Combined Financial Information." Under Commercial's
articles of incorporation and Railroad's certificate of incorporation,
Commercial and Railroad are authorized to issue additional shares of capital
stock up to the amount authorized without stockholder approval.
Payment of Dividends. The ability of Commercial and Railroad to pay
dividends on their common stock is governed by Nebraska and Delaware corporate
law, respectively. Under Nebraska corporate law, dividends may be paid in
cash, in property or in shares of Commercial's capital stock. Additionally,
under Nebraska law, dividends
45
<PAGE>
of cash or property may only be paid out of unreserved and unrestricted retained
earnings and no dividends may be paid when a corporation is insolvent or when
the payment of such a dividend would render a corporation insolvent. Under
Delaware corporate law, dividends may be paid in cash, in property or in
shares of Railroad's capital stock either out of Railroad's surplus (defined
as the excess of the net assets over the stated capital of Railroad) or, in
case there is no surplus, out of the net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
The ability of Commercial and Railroad to pay dividends on their common
stock is also affected by restrictions upon their receipt of dividends from
their respective subsidiary savings institutions. See "Common Stock Prices
and Dividends" for additional information.
Special Meetings of Stockholders. Commercial's articles of incorporation
provide that special meetings of stockholders of Commercial may be called by a
majority of the Board of Directors, by the holders of seventy-five percent or
more of the shares entitled to vote at such meeting, or by a duly authorized
committee of the Board of Directors. Special meetings of the holders of
Railroad's common stock may be called by a majority of the Board of Directors
or by a duly authorized committee of the Board of Directors.
Number and Term of Directors. Commercial's Board of Directors consists
of nine persons, divided into three classes. Under the terms of Commercial's
articles of incorporation, the number of directors may only be changed by the
affirmative vote of not less than 75.0% of all outstanding shares of stock of
the corporation entitled to vote generally, other than in the election of
directors, and the affirmative vote of the holders of not less than a majority
of the outstanding shares of stock of the corporation entitled to vote
generally, other than in the election of directors and other than "Principal
Shareholders" (as defined in the articles of incorporation). Railroad's Board
of Directors consists of seven persons, divided into three classes in nearly
equal number as possible. Railroad's bylaws provide that the number of
directors may be increased by the Board of Directors; however, Railroad's
certificate of incorporation limits the size of the Board to no more than nine
directors.
Advance Notice Requirements for Nominations of Directors and Presentation
of New Business at Annual Meeting of Stockholders. Commercial's bylaws
provide that any new business to be taken up at an annual meeting shall be
made in writing and filed with the Secretary of Commercial at least twenty
days before the date of the annual meeting. Railroad's Certificate of
Incorporation provides that nominations for the election of directors and
proposals for any new business to be taken up at any annual or special meeting
of stockholders may be made by any stockholder of Railroad entitled to vote
generally in the election of directors. In order to make any such nomination
or proposal, a stockholder must give notice in writing, delivered or mailed to
the Secretary of Railroad, not less than thirty days nor more than sixty days
prior to such meeting, together with certain information relating to the
nomination or proposal.
Limitations on Acquisitions of Capital Stock. Nebraska law contains a
control share acquisition statute pursuant to which an acquisition of 20% or
more of Commercial's common stock generally may be made only after (i) a
proposed acquiror submits a statement to Commercial identifying the proposed
acquiror and describing the number of shares owned and proposed to be acquired
and the terms of the proposed acquisition and (ii) the holders of a majority
of the shares entitled to vote which are not interested shares authorize the
proposed acquisition. Shares acquired in a "control-share acquisition"
(generally, an acquisition, directly or indirectly, by an acquiring person of
ownership of voting stock of a corporation that entitles that person to
exercise or direct the vote of at least 20% but less than 33-1/3%, at least
33-1/3% but less than or equal to 50%, or over 50% of the voting power of the
corporation) have the same voting rights as other shares in the same class or
series in all elections of directors, but have voting rights on all other
matters only to the extent approved by a vote of shareholders at an annual or
special meeting. Delaware law does not contain a control share acquisition
statute and therefore does not contain a similar requirement for stockholder
approval prior to an acquisition of 20% or more of Railroad's common stock.
See " --Approval of Mergers, Consolidations, Sale of Substantially All Assets
and Dissolution" for certain restrictions imposed by Delaware law.
46
<PAGE>
RAILROAD FINANCIAL CORPORATION
110 South Main Street, Suite 900
Wichita, Kansas 67202
(316) 269-0300
------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER __, 1995
------------------------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of Railroad Financial Corporation ("Railroad") will be held on Friday,
September 22, 1995 at 1:30 p.m. at 110 South Main Street, 9th Floor, Wichita,
Kansas, for the following purposes:
(1) To approve the merger of Railroad into Commercial Federal Corporation
("Commercial"), with Commercial as the surviving corporation, pursuant
to which the outstanding shares of Railroad's common stock will be
converted into shares of Commercial Common Stock as set forth below
and in the accompanying Prospectus/Proxy Statement (the "Acquisition
Merger"), and to adopt the Reorganization and Merger Agreement by and
between Commercial, Commercial Federal Bank, a Federal Savings Bank
(the "Bank"), Railroad and Railroad Savings Bank, fsb ("Railroad
Savings") dated April 18, 1995 (the "Merger Agreement"), which sets
forth the terms and conditions of the Acquisition Merger and also
provides for the subsequent merger of Railroad Savings into the Bank,
with the Bank as the surviving savings institution.
(2) Adjournment of the Special Meeting if necessary to permit further
solicitation of proxies in the event that there are not sufficient
votes at the time of the Special Meeting to approve the Acquisition
Merger and the Merger Agreement.
(3) Such other business as may properly come before the Special Meeting or
any adjournments thereof.
NOTE: The Board of Directors of Railroad is not aware of any other business to
come before the Special Meeting.
The Board of Directors of Railroad has fixed the close of business on
August 9, 1995 as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. Only stockholders of
record at the close of business on that date will be entitled to notice of and
to vote at the Special Meeting.
By Order of the Board of Directors,
[SIGNATURE]
Robert D. Taylor
Chairman of the Board, President and
Chief Executive Officer
Wichita, Kansas
August 10, 1995
--------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, PLEASE DATE, SIGN AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
--------------------------------------------------------------------------------
<PAGE>
Approval of Mergers, Consolidations, Sale of Substantially All Assets and
Dissolution. Nebraska law generally provides for the merger or consolidation
of Commercial with another corporation, the sale of all or substantially all
of Commercial's assets or the dissolution of Commercial upon the approval of
the holders of at least two-thirds of the outstanding shares. However, a
merger or consolidation, or a sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets of Commercial having an aggregate
market value equal to or more than 10% of the market value of the total assets
of Commercial involving an "interested shareholder" (generally, any person
entitled to exercise 10% of the voting power of Commercial) generally would
be prohibited under Nebraska law for five years after the interested
shareholder acquired 10% of Commercial's voting power (unless before such
acquisition Commercial's board of directors approved either the acquisition or
the proposed transaction). Delaware law generally provides for the merger or
consolidation of Railroad with another corporation, the sale of all or
substantially all of Railroad's assets or the dissolution of Railroad upon the
approval of the holders of a majority of Railroad's outstanding voting stock.
However, a merger or consolidation or disposition of assets or securities
issued by Railroad involving an interested shareholder is generally prohibited
under Delaware law for three years after the interested shareholder acquired
15% of Railroad's voting stock, unless either (i) before such acquisition,
Railroad's board of directors approved either the acquisition or the proposed
transaction, (ii) upon such acquisition, the interested shareholder owned at
least 85% of Railroad's voting stock, or (iii) on or after the acquisition
date, the proposed transaction is approved by Railroad's board of directors
and the holders of two-thirds of Railroad's outstanding voting stock not owned
by the interested shareholder.
Commercial's Articles of Incorporation require that any merger,
reorganization, or consolidation, or any sale, lease, exchange, mortgage,
pledge, transfer, or other disposition of at least 25% of the fair market
value of the total assets of Commercial with any affiliate or any person who
beneficially owns in the aggregate 20% or more of the outstanding shares of
voting stock of Commercial must first be approved by the affirmative vote of
the holders of not less than 75% of the outstanding shares of voting stock and
the affirmative vote of the holders of not less than a majority of the
outstanding shares of voting stock held by shareholders other than a principal
shareholder (a person who owns at least 20% of the outstanding shares of
Commercial's voting stock). Commercial's Articles of Incorporation also
require that certain fair price criteria designed to ensure that Commercial's
stockholders receive a fair price for their shares in a business combination
be met, unless a business combination is first approved by three-quarters of
the board of directors who were directors prior to the time the person became
a principal shareholder.
Railroad's Certificate of Incorporation provides that the affirmative
vote of the holders of at least 70% of the outstanding shares entitled to
vote, and at least a majority of the outstanding shares entitled to vote not
including shares beneficially owned by a "related person" (generally, an
individual who beneficially owns in the aggregate 10% or more of the
outstanding common stock of Railroad) is required in order to authorize any
merger or consolidation with a related person, or any sale, lease, exchange,
transfer or other disposition of more than 25% of the total assets of Railroad
to a related person, unless the merger or consolidation or such disposition of
assets is first approved by a majority of directors who are unaffiliated with
the related person and who were members of the board of directors prior to the
time that the related person acquired in the aggregate more than 10% of the
outstanding common stock of Railroad.
Dissenters' Rights of Appraisal. Under the DGCL, stockholders are
generally entitled to dissent from, and demand payment of the fair value of
their shares in connection with a plan of merger or consolidation provided
that shareholder has neither voted in favor of nor consented to such corporate
action. A stockholder may not demand the fair value of his or her stock and
is bound by the terms of the action if the stock of the corporation is listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by more than 2,000 shareholders.
Because Railroad Common Stock is authorized for quotation on the American
Stock Exchange, Railroad stockholders currently do not have the right to
demand and receive the fair value of their shares in connection with a plan of
merger or consolidation.
47
<PAGE>
The Nebraska Business Corporation Act provides in general that
stockholders of a corporation which is a party to certain extraordinary
corporate actions, including a merger, consolidation, sale of substantially
all of the assets of the corporation, and a charter amendment materially and
adversely affecting stockholder rights have a right to object to such actions
and to demand and receive the fair value of their shares. The Nebraska
Business Corporation Act provides, however, that dissenters' rights of
appraisal are not available to the stockholders of a bank, trust company,
stock-owned savings and loan association, industrial loan and investment
company, or the holding company of any such financial institution. As
Commercial is the holding company of a federal savings bank, Commercial's
stockholders do not have dissenters' rights of appraisal under the Nebraska
Business Corporation Act.
Limitations on Directors' Liability. The Nebraska Business Corporation
Act does not have a statute which provides for limiting or eliminating the
liability of directors. However, Article VI of Commercial's articles of
incorporation provides that an "outside director" shall not be personally
liable to Commercial or its stockholders for monetary damages for breach of
his fiduciary duty as a director and authorizes Commercial to indemnify such
outside director against monetary damages for such breach to the full extent
permitted by law. This provision applies to acts or omissions occurring after
the effective date of the amendment, and does not limit liability for (i) any
---
act or omission not in good faith which involves intentional misconduct or a
knowing violation of law, (ii) any transaction from which the outside director
derived an improper direct or indirect financial benefit, (iii) paying a
dividend or approving a stock repurchase in violation of the Nebraska Business
Corporation Act or (iv) any act or omission which violates a declaratory or
injunctive order obtained by Commercial or its stockholders. For purposes of
Article VI, "outside director" is defined as any member of the Board of
Directors who is not an officer or a person who may control the conduct of
Commercial through management agreements, voting trusts, directorships in
related corporations or any other device or relationship. There is no similar
provision in Commercial's articles of incorporation which limits the liability
of directors who are not "outside directors."
Under Delaware law, a Delaware corporation may include in its certificate
of incorporation a provision that eliminates or limits a director's personal
liability for monetary damages for breach of his or her fiduciary duty,
subject to certain limitations. Railroad's certificate of incorporation
provides that a director shall not be personally liable to Railroad or its
stockholders for monetary damages arising out of the director's breach of his
or her duty of care, except to the extent that Delaware law does not permit
exemption from such liability. The certificate of incorporation does not
eliminate the duty of care of directors; instead, it is designed to limit the
personal liability of directors for monetary damages. The certificate of
incorporation does not affect the availability of injunctive or other
equitable relief as a remedy for breach of the duty of care. In addition, the
provision applies only to the personal liability of directors (whether or not
they are also officers) acting as directors and has no effect on the potential
liability of individuals for their actions as officers of Railroad.
Amendment of articles of incorporation, certificate of incorporation and
bylaws. Commercial's articles of incorporation may be amended upon the
approval of two-thirds of Commercial's shareholders. However, the affirmative
vote of 75% of all outstanding shares of the corporation entitled to vote
generally, other than in the election of directors, and the affirmative vote
of the holders of not less than a majority of outstanding shares entitled to
vote generally, other than in the election of directors other than "principal
shareholders" (as defined in Commercial's articles) are required to alter or
amend certain provisions in the articles, including provisions which: (i)
require that there be nine directors; (ii) classify the board into three
classes with staggered terms; (iii) provide that a director may only be
removed upon the affirmative vote of 75% of the shares entitled to vote; (iv)
allow the board of directors to fill vacancies on the board; (v) require a
supermajority vote to approve certain business combinations with a 20% or
greater stockholder; (vi) mandate that certain business combinations comply
with the fair price provisions contained in the articles; (vii) permit the
stockholders to amend Commercial's bylaws only upon the affirmative vote of
75% or more of the shares entitled to vote. Commercial's bylaws may be
amended either by the board of directors or by the affirmative vote of 75% of
the outstanding shares of Commercial's stock. Railroad's certificate of
incorporation may be amended by a majority of the outstanding shares of its
voting stock, provided, however, that approval of 70% of the outstanding
voting stock is required to amend certain provisions of the certificate of
incorporation, including provisions which: (i) deny stockholders the power to
consent in writing
48
<PAGE>
to corporate action; (ii) eliminate the power of stockholders to call special
meetings; (iii) eliminate cumulative voting; (iv) set out the requirements for
nominations for the election of directors and proposals for new business; (v)
set out the number of directors and classify the board into three classes with
staggered terms (vi) provide that a director may only be removed by the vote
of 80% of the stockholders; (vii) require approval of 70% of the stockholders
of certain business combinations with a 10% or greater stockholder; (viii)
require the board to consider certain factors when evaluating certain business
combinations; (ix) eliminate the liability of directors to the stockholders in
certain circumstances; (x) provide for indemnification of directors, officers
and employees for certain liabilities; and (xi) provide that the directors may
amend the bylaws and that stockholders may only amend the bylaws upon the
affirmative vote of 70% or more of the outstanding shares entitled to vote
generally in the election of directors. Railroad's bylaws generally may be
amended either by the Board of Directors or upon the approval of the holders
of 70% of Railroad's outstanding voting stock.
Rights Plan. On December 19, 1988, the Board of Directors of Commercial
adopted a Shareholder Rights Plan (the "Rights Plan") and declared a
distribution of stock purchase rights (the "Rights") payable to shareholders
of record on December 30, 1988. The Rights consist of primary rights (the
"Primary Rights"), which generally entitle the holders thereof to purchase
shares of Commercial Common Stock at 20% of the market price of such shares in
the event any person acquires an interest in 15% or more of Commercial's
outstanding shares of common stock without complying with a procedure intended
to ensure fair treatment of all shareholders of Commercial, and secondary
rights (the "Secondary Rights"), which generally entitle the holders thereof
to purchase shares of Series A Junior Participating Cumulative Preferred Stock
of Commercial (the "Preferred Shares") in the event a person acquires an
interest in 25% or more of the outstanding shares of Commercial Common Stock
without complying with such procedural requirements. The December 30, 1988
distribution consisted of one Primary Right and One Secondary Right for each
share of Commercial Common Stock outstanding on that date and, subject to
adjustment under certain circumstances, unless the Rights expire or are
earlier redeemed, one Primary Right and one Secondary Right shall be issued
with each share of Commercial Common Stock issued following December 30, 1988
until the Rights become exercisable under the terms of the Rights Plan.
The Primary Rights will become exercisable, subject to extension, 10
business days following a public announcement that any person (other than
certain entities who beneficially owned more than 15% of Commercial's
outstanding common stock as of the date of adoption of the Rights Plan and
certain persons who acquire their shares directly from Commercial) has
acquired, or has obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding shares of common stock and has not complied with the
procedural requirements set forth in the Rights Plan (such person being
referred to as a "15% Person"). Secondary Rights will become exercisable upon
the earlier of (i) one business day following a public announcement that any
person (other than Commercial or certain related entities) has acquired, or
has obtained the right to acquire, beneficial ownership of 25% or more of the
outstanding shares of Commercial's common stock, provided that such
acquisition is not deemed a "Fair Offer," as described in the Rights Plan
(such person being known as a "25% Person"), or (ii) one business day
following the commencement of a tender offer, other than a Fair Offer, or
exchange offer, the consummation of which would result in the beneficial
ownership of 25% or more of the outstanding shares of Commercial's common
stock by any person other than Commercial or certain related entities. A
public announcement for this purpose shall be made by Commercial or, as the
case may be, by a 15% Person or a 25% Person.
The number of shares which may be purchased upon exercise of each Primary
Right is determined by dividing (i) that number of shares which equals 50% of
the outstanding shares of Commercial Common Stock, as of the date a person
became a 15% Person, by (ii) the number of Primary Rights outstanding,
exclusive of Primary Rights beneficially owned by the 15% Person, which shall
become void. The per share exercise price of shares issued upon the exercise
of a Primary Right is 20% of the market price of such shares as of the date
the 15% Person became a 15% Person.
49
<PAGE>
Unless the Secondary Rights are earlier redeemed, in the event a person
becomes a 25% Person, each holder of a Secondary Right (other than Secondary
Rights beneficially owned by such 25% Person, which will thereafter become
void) will have the Right to purchase one one-hundredth of a share of
Preferred Shares at a price of $42.00 per one one-hundredth of a share.
Unless the Secondary Rights are earlier redeemed, in the event that (i)
Commercial is the surviving corporation in a merger with a 25% Person and
Commercial Common Stock is not changed or exchanged in such merger, (ii) a 25%
Person engages in one of a number of "self dealing" transactions, including
certain preferential sales, transfers or exchanges of Commercial assets or
securities, (iii) during such time as there is a 25% Person, there shall be
any reclassification of securities or recapitalization of Commercial or any
merger or consolidation of Commercial with any of its subsidiaries or any
other transaction or series of transactions which has the effect of increasing
by more than 1% the proportionate share of the outstanding shares of any class
of equity securities or of securities exercisable for or convertible into
securities of Commercial or any of its subsidiaries which is beneficially
owned by a 25% Person, or (iv) a person (other than Commercial or certain
related entities) becomes the beneficial owner of 25% or more of the
outstanding shares of Commercial's common stock (other than pursuant to
certain transactions set forth in the Rights Plan), then each holder of a
Secondary Right will have the right to receive, upon exercise and payment of
the Secondary Right exercise price, Commercial Common Stock having a value
equal to two times the then current Secondary Right exercise price.
In the event Commercial is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earnings
power is sold, each holder of a Secondary Right will thereafter have the right
to receive, upon the exercise and payment of the Secondary Right exercise
price, that number of shares of common stock of the acquiring company which at
the time of such transaction has a value equal to two times the then current
Secondary Right exercise price.
A majority of the independent directors of Commercial may authorize the
redemption of either or both of the Primary or Secondary Rights at a price of
$.01 per Right at any time prior to the close of business on the tenth
business day, subject to extension, following the date of a public
announcement that any person has become a 15% Person, other than pursuant to
certain cash tender offers described in the Rights Plan, and at any time prior
to the public announcement that any person has become a 25% Person, other than
pursuant to such a cash tender offer. Commercial's right of redemption with
respect to the Secondary Rights will be reinstated if each 25% Person reduces
its beneficial ownership to less than 15% of Commercial's outstanding common
stock in a transaction not involving a purchase by Commercial or its
subsidiaries. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders thereof
will be to receive the redemption price.
The terms of the Rights may be amended by the Board of Directors of
Commercial without the consent of the holders of the Rights, except that
following the date on which the Rights become exercisable, such amendment may
not adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Commercial (other than rights resulting from such
holder's ownership of Commercial's common stock), including, without
limitation, the right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights could cause
substantial dilution to a person or group that attempts to acquire Commercial
without conditioning the offer on the Rights being redeemed or substantially
all of the Rights being acquired.
Railroad has not issued any similar rights or entered any similar
agreement with respect to its common stock.
50
<PAGE>
ADJOURNMENT OF SPECIAL MEETING
(Proposal 2 - Special Meeting)
In the event that there are not sufficient votes to approve the
Acquisition Merger and the Merger Agreement at the time of the Special
Meeting, such proposal could not be approved unless the Special Meeting were
adjourned in order to permit further solicitation of proxies. In order to
allow proxies that have been received by Railroad at the time of the Special
Meeting to be voted for such adjournment, if necessary, Railroad has submitted
the question of adjournment under such circumstances to its stockholders as a
separate matter for their consideration. A majority of the shares represented
and voting at the Special Meeting is required in order to approve any such
adjournment. The Board of Directors of Railroad recommends that stockholders
vote their proxies in favor of such adjournment so that their proxies may be
used for such purpose in the event it should become necessary. Properly
executed proxies will be voted in favor of any such adjournment unless
otherwise indicated thereon. Abstentions and broker non-votes will not be
voted in favor of this proposal. If it is necessary to adjourn the Special
Meeting, no notice of the time and place of the adjourned meeting is required
to be given to stockholders other than an announcement of such time and place
at the Special Meeting.
Railroad's Board of Directors unanimously recommends that stockholders
vote FOR the proposal to adjourn the Special Meeting if necessary to permit
further solicitation of proxies.
STOCKHOLDER PROPOSALS
If the Merger is not consummated, Railroad is expected to retain its
December 31 fiscal year end. In such event, in order to be eligible for
inclusion in Railroad's proxy solicitation materials for its 1996 annual
meeting of stockholders, any stockholder proposal to take action at such
meeting is required to be received at Railroad's home office at 110 South Main
Street, Suite 900, Wichita, Kansas 67202, no later than November 20, 1995.
Any such proposal would be subject to the requirements of the proxy rules
adopted under the Exchange Act.
LEGAL MATTERS
The legality of the Commercial Common Stock to be issued pursuant to the
Merger Agreement will be passed upon for Commercial by Fitzgerald, Schorr,
Barmettler & Brennan, Omaha, Nebraska.
Certain other legal matters in connection with the Merger will be passed
upon for Commercial by Housley Goldberg Kantarian & Bronstein, P.C.,
Washington, D.C., and for Railroad by Thompson & Mitchell, St. Louis,
Missouri.
EXPERTS
The consolidated financial statements of Commercial as of June 30, 1994
and 1993 and for each of the three years in the period ended June 30, 1994
incorporated in this Prospectus/Proxy Statement by reference from Commercial's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated by reference herein, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
51
<PAGE>
The consolidated financial statements of Railroad as of December 31, 1994
and 1993, and for each of the years in the three-year period ended December
31, 1994, have been included herein and incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, included herein and incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1993 financial
statement refers to a change in the method of accounting for certain
investments in debt and equity securities and the report covering the December
31, 1992 financial statements refers to a change in the method of accounting
for income taxes.
INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP, Railroad's independent
certified public accountants, are expected to be present at the Special
Meeting. They will be afforded the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
52
<PAGE>
ANNEX A
<PAGE>
Annex A
______________________________________________________
REORGANIZATION AND MERGER AGREEMENT
BY AND AMONG
COMMERCIAL FEDERAL CORPORATION
AND
COMMERCIAL FEDERAL BANK, A FEDERAL SAVINGS BANK
AND
RAILROAD FINANCIAL CORPORATION
AND
RAILROAD SAVINGS BANK, FSB
DATED AS OF APRIL 18, 1995
______________________________________________________
<PAGE>
TABLE OF CONTENTS
__________________________________________________________
<TABLE>
<S> <C>
Article I - The Merger and Related Matters.................. 2
1.1 Merger: Surviving Institution........................ 2
1.2 Effective Time of the Merger......................... 3
1.3 Conversion of Shares................................. 3
1.4 Surviving Corporation in the Merger.................. 5
1.5 Authorization for Issuance of Commercial
Common Stock; Exchange of Certificates.............. 6
1.6 No Fractional Shares................................. 8
1.7 Shareholders' Meeting................................ 8
1.8 Company Stock Options................................ 8
1.9 Registration Statement; Prospectus/
Proxy Statement...................................... 9
1.10 Cooperation; Regulatory Approvals.................... 11
1.11 Closing.............................................. 11
1.12 Closing of Transfer Books............................ 12
1.13 Bank Merger.......................................... 12
1.14 Option Agreement..................................... 12
Article II - Representations and Warranties
of Company and Savings....................... 13
2.1 Organization, Good Standing, Authority,
Insurance, Etc...................................... 13
2.2 Capitalization....................................... 13
2.3 Ownership of Subsidiaries............................ 14
2.4 Financial Statements and Reports..................... 14
2.5 Absence of Changes................................... 16
2.6 Prospectus/Proxy Statement........................... 16
2.7 No Broker's or Finder's Fees......................... 16
2.8 Litigation and Other Proceedings..................... 17
2.9 Compliance with Law.................................. 17
2.10 Corporate Actions.................................... 17
2.11 Authority............................................ 18
2.12 Employment Arrangements.............................. 18
2.13 Employee Benefits.................................... 19
2.14 Information Furnished................................ 20
2.15 Property and Assets.................................. 20
2.16 Agreements and Instruments........................... 21
2.17 Material Contract Defaults........................... 21
2.18 Tax Matters.......................................... 22
2.19 Environmental Matters................................ 22
2.20 Loan Portfolio: Portfolio Management................. 23
2.21 Real Estate Loans and Investments.................... 24
2.22 Derivatives Contracts................................ 24
2.23 Insurance............................................ 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Article III - Representations and Warranties of
Commercial and the Bank....................... 25
3.1 Organization, Good Standing, Authority,
Insurance, Etc........................................ 25
3.2 Capitalization......................................... 25
3.3 Ownership of Subsidiaries.............................. 25
3.4 Financial Statements and Reports....................... 26
3.5 Absence of Changes..................................... 27
3.6 Prospectus/Proxy Statement............................. 27
3.7 No Broker's or Finder's Fees........................... 27
3.8 Compliance With Law.................................... 28
3.9 Corporate Actions...................................... 28
3.10 Authority.............................................. 28
3.11 Information Furnished.................................. 29
3.12 Litigation and Other Proceedings....................... 29
3.13 Agreements and Instruments............................. 29
Article IV -- Covenants....................................... 29
4.1 Investigations; Access and Copies...................... 29
4.2 Conduct of Business of the Company
and the Company Subsidiaries.......................... 30
4.3 No Solicitation........................................ 32
4.4 Shareholder Approvals.................................. 33
4.5 Filing of Holding Company and Merger
Applications.......................................... 33
4.6 Consents............................................... 33
4.7 Resale Letter Agreements; Pooling
of Interests.......................................... 33
4.8 Publicity.............................................. 34
4.9 Cooperation Generally.................................. 34
4.10 Additional Financial Statements and Reports............ 34
4.11 Due Diligence.......................................... 34
4.12 Stock Listing.......................................... 34
4.13 Allowance for Loan and Real Estate
Owned Losses.......................................... 35
4.14 D&O Indemnification and Insurance...................... 35
Article V - Conditions of the Merger;
Termination of Agreement..................................... 36
5.1 General Conditions..................................... 36
5.2 Conditions to Obligations of Commercial and
Bank.................................................. 37
5.3 Conditions to Obligations of Company
and Savings........................................... 40
5.4 Termination of Agreement and Abandonment
of Merger............................................. 41
Article VI - Termination of Obligations; Payment of
Expenses..................................................... 44
6.1 Termination; Lack of Survival of
Representations and Warranties........................ 44
6.2 Payment of Expenses.................................... 44
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Article VII - Certain Post-Merger Agreements.................. 45
7.1 Registration of Stock Underlying Stock Options......... 45
7.2 Reports to the SEC..................................... 45
7.3 Employees.............................................. 45
Article VIII - General........................................ 45
8.1 Amendments............................................. 45
8.2 Confidentiality........................................ 46
8.3 Governing Law.......................................... 46
8.4 Notices................................................ 46
8.5 No Assignment.......................................... 47
8.6 Headings............................................... 47
8.7 Counterparts........................................... 47
8.8 Construction and Interpretation........................ 47
8.9 Entire Agreement....................................... 47
8.10 Severability........................................... 48
8.11 No Third Party Beneficiaries........................... 48
Schedules:
Schedule I Disclosure Schedule for the Company
and Savings.....................................
Schedule II Disclosure Schedule for Commercial
and the Bank....................................
Exhibits:
Exhibit 1.1(a) Acquisition Agreement of Merger..........
Exhibit 1.1(b) Bank Plan of Merger............................
Exhibit 1.14 Option Agreement..........................
Exhibit 5.2(a) Form of Opinion of Counsel for
the Company................................
Exhibit 5.3(a) Form of Opinion of Counsel for
Commercial...............................
Exhibit 7.3(b) Severance Payment Policy.......................
</TABLE>
iii
<PAGE>
REORGANIZATION AND MERGER AGREEMENT
=================================================================
THIS REORGANIZATION AND MERGER AGREEMENT ("Agreement") is dated as of April
18, 1995, by and among COMMERCIAL FEDERAL CORPORATION, a Nebraska corporation
("Commercial") and COMMERCIAL FEDERAL BANK, A FEDERAL SAVINGS BANK, a Federal-
chartered savings bank and wholly-owned subsidiary of Commercial ("Bank"); and
RAILROAD FINANCIAL CORPORATION, a Delaware corporation ("Company") and RAILROAD
SAVINGS BANK, FSB, a Federal-chartered savings bank and wholly-owned subsidiary
of Company ("Savings").
WHEREAS, Commercial, a non-diversified, unitary savings and loan holding
company, with principal offices in Omaha, Nebraska, owns all of the issued and
outstanding capital stock of Bank, with its principal offices in Omaha,
Nebraska;
WHEREAS, Company, a non-diversified, unitary savings and loan holding
company, with principal offices in Wichita, Kansas, owns all of the issued and
outstanding capital stock of Savings, with principal offices in Wichita,
Kansas;
WHEREAS, Commercial and Company desire to combine their respective holding
companies through a tax-free, stock-for-stock exchange so that the respective
shareholders of both Commercial and Company will have an equity ownership in the
combined holding company;
WHEREAS, following the combination of Commercial and Company it is intended
that Bank and Savings will be merged such that the resulting holding company
will retain the advantage of a unitary savings and loan holding company status
and that the resulting savings institution will achieve certain economies of
scale and efficiencies as a result of such subsequent merger and expand its
market area.
WHEREAS, it is intended that to accomplish this result, the Company will be
acquired by means of a merger (the "Acquisition Merger") of the Company with and
into Commercial, followed by the merger of Savings with and into Bank (the "Bank
Merger"). The Acquisition Merger and the Bank Merger are collectively referred
to as the "Merger".
WHEREAS, it is intended that for federal income tax purposes, the Merger
shall qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code") and this Agreement shall
constitute a plan of reorganization pursuant to Section 368 of the Code.
1
<PAGE>
WHEREAS, as an inducement to and condition of Commercial's willingness to
enter into this Agreement, the Company will grant to Commercial an option
pursuant to the Stock Option Agreement, the form of which is attached hereto as
Exhibit 1.14.
WHEREAS, the Boards of Directors of Commercial and the Company (at meetings
duly called and held) have determined that this Agreement and the transactions
contemplated hereby are in the best interests of Commercial and the Company,
respectively, and their respective stockholders and have approved this Agreement
and the Stock Option Agreement. Consummation of the Merger is subject to the
prior approval of the Office of Thrift Supervision ("OTS") and the stockholders
of the Company, among other conditions specified herein.
NOW THEREFORE, in consideration of the premises and mutual promises
hereinafter set forth, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 Merger: Surviving Institution. Subject to the terms and conditions of
-----------------------------
this Agreement, and pursuant to the provisions of the Nebraska Business
Corporation Act ("NBCA") and the Delaware General Corporation Law (the "DGCL"),
Home Owners Loan Act of 1933, as amended ("HOLA"), and the rules and regulations
promulgated thereunder (the "Thrift Regulations"), (a) at the Acquisition Merger
Effective Time (as hereinafter defined), the Company shall be merged with and
into Commercial pursuant to the terms and conditions set forth herein and in the
Agreement of Merger to be set forth as Exhibit 1.1(a) attached hereto (the
"Acquisition Agreement of Merger"), (b) the separate corporate existence of the
Company shall cease, and (c) thereafter, at the Bank Merger Effective Time (as
hereinafter defined) Savings shall be merged with and into the Bank pursuant to
the terms and conditions set forth herein and in a plan of merger set forth in
Exhibit 1.1(b) (the "Bank Plan of Merger"). The Acquisition Merger shall have
the effects specified in the NBCA and the DGCL, Section 1.4(e) hereof and the
Acquisition Agreement of Merger. Upon the consummation of the Acquisition
Agreement of Merger, the separate existence of the Company shall cease and
Commercial shall continue as the surviving corporation (sometimes referred to
herein in such capacity as the "Surviving Corporation"). Upon consummation of
the Bank Merger, the separate existence of Savings shall cease and the Bank
shall continue as the surviving institution of the Bank Merger. The name of the
Bank, as the surviving institution of the Bank Merger, shall remain "Commercial
Federal Bank, a Federal Savings Bank". From and after the Bank Merger Effective
Time, the Bank, as the surviving institution of the Bank Merger, shall possess
all of the properties
2
<PAGE>
and rights and be subject to all of the liabilities and obligations of the Bank
and Savings, all as more fully described in the Thrift Regulations, Section 1.13
hereof and the Bank Plan of Merger. Commercial may at any time change the method
of effecting the Merger if and to the extent it deems such change to be
desirable, provided, however, that no such change shall (A) alter or change the
-------- -------
amount or kind of consideration to be issued to holders of Company common stock
as provided for in this Agreement, (B) adversely affect the tax treatment to
Company shareholders as a result of receiving the consideration described in
Section 1.3 herein or (C) materially impede or delay the consummation of the
transactions contemplated by this Agreement.
1.2 Effective Time of the Merger. As soon as practicable after each of
----------------------------
the conditions set forth in Article V hereof have been satisfied or waived,
Commercial and the Company will file, or cause to be filed, certificates or
articles of merger with appropriate authorities of Nebraska and Delaware for the
Acquisition Merger and articles of combination with the OTS for the Bank Merger
which certificate or articles of merger and articles of combination shall in
each case be in the form required by and executed in accordance with applicable
provisions of law and the Thrift Regulations, respectively. The Acquisition
Merger shall become effective at the time, and date which is the later of the
time at which (i) the Nebraska articles of merger is filed with the appropriate
authorities of Nebraska and (ii) the Delaware certificate of merger is filed
with the appropriate authorities of Delaware. ("Acquisition Merger Effective
Time") which shall be immediately following the Closing (as defined in Section
1.11 herein) and on the same day as the Closing if practicable. The Bank Merger
shall become effective at the time the articles of combination for such merger
are endorsed by the OTS pursuant to Section 552.13(k) of the Thrift Regulations
(the "Bank Merger Effective Time"). The parties shall cause the Acquisition
Merger to become effective prior to the Bank Merger.
1.3 Conversion of Shares.
--------------------
(a) At the Acquisition Merger Effective Time, by virtue of the Merger
and without any action on the part of Commercial or Company or the holders of
shares of Commercial or Company common stock:
(i) Each outstanding share of Company common stock issued and
outstanding at the Acquisition Merger Effective Time, except as provided in
clause (a)(ii) of this Section and Section 1.6 hereof, shall be converted into
and represent solely the right to receive without any action by the holder,
shares of Commercial common stock, in the manner provided in Section 1.5 hereof,
and shall no longer be a share of common stock of Company, according to the
following Exchange Ratios (which shall be subject to adjustment as provided in
clause (a)(v) of this Section):
3
<PAGE>
(A) If the Average NMS Closing Price (as defined below)
shall be equal to or greater than $24.00 but equal to or less than $27.00, then
the Exchange Ratio shall be such number of shares of Commercial common stock
equal to the quotient (carried to four digits) that results by dividing $17.25
by the Average NMS Closing Price of Commercial common stock (a maximum of .7188
and a minimum of .6389 shares of Commercial common stock);
(B) If the Average NMS Closing Price shall be greater than
$27.00, then the Exchange Ratio shall be .6389 shares of Commercial common
stock;
(C) If the Average NMS Closing Price shall be less than
$24.00, then the Exchange Ratio shall be .7188 shares of Commercial common
stock; provided, however, in the event the Exchange Ratio is adjusted pursuant
to the proviso contained in Section 5.4(f) hereof the Exchange Ratio shall be
the Exchange Ratio as so adjusted.
(ii) Any shares of Company common stock which are owned or held
by Company or any of its subsidiaries (except shares held in any 401(k) plan of
the Company or any of its subsidiaries or held in a fiduciary capacity) or by
Commercial or any of Commercial's subsidiaries (other than in a fiduciary
capacity) at the Acquisition Merger Effective Time shall cease to exist, and the
certificates for such shares shall as promptly as practicable be cancelled and
no shares of capital stock of Commercial shall be issued or exchanged therefor.
(iii) Each share of common stock of Commercial issued and
outstanding immediately prior to the Acquisition Merger Effective Time shall
remain an outstanding share of common stock of the Surviving Corporation.
(iv) The holders of certificates representing shares of Company
common stock shall cease to have any rights as stockholders of the Company,
except such rights, if any, as they may have pursuant to the DGCL.
(v) If the holders of Commercial common stock shall have
received or shall have become entitled to receive, without payment therefor,
during the period commencing on the date hereof and ending with the Acquisition
Merger Effective Time, additional shares of common stock or other securities for
their stock by way of a stock split, stock dividend, reclassification,
combination of shares or similar corporate rearrangement ("Stock Adjustment"),
then the amount of Commercial common stock to be exchanged on the Acquisition
Merger Effective Time for Company common stock or kind of securities of
Commercial shall be proportionately adjusted to take into account such Stock
Adjustment. In addition, the Average NMS Closing Price amounts set forth above
shall be proportionately adjusted to compensate for any such Stock Adjustment.
4
<PAGE>
(b) The term "NMS Closing Price" shall mean the price per share
(carried to four decimal places) of the last sale of Commercial common stock
reported on the National Market System (or reported on such other national
securities exchange on which shares of Commercial common stock shall be listed)
at the close of the trading day by the National Association of Securities
Dealers, Inc. (the "National Market System") (or at the close of the trading day
by such other national securities exchange). The term "Average NMS Closing
Price" shall mean the arithmetic mean of the NMS Closing Prices for the twenty-
fifth through the sixth trading day, inclusive, immediately preceding the
Acquisition Merger Effective Time (the "Determination Period").
(c) Each share of common stock of Commercial to be issued to the
Company's shareholders pursuant to this Section 1.3 shall include the
corresponding number of rights associated with the Commercial common stock
pursuant to the Rights Agreement dated as of December 19, 1988 by and between
Commercial and Manufacturers Hanover Trust Company, as Rights Agent ("Commercial
Rights Agreement").
1.4 Surviving Corporation in the Merger.
-----------------------------------
(a) The name of the Surviving Corporation in the Acquisition Merger
shall be Commercial Federal Corporation.
(b) The Articles of Incorporation of Commercial as in effect on the
Acquisition Merger Effective Time shall be the Articles of Incorporation of the
Surviving Corporation as the Surviving Corporation.
(c) The bylaws of Commercial, together with all amendments thereto,
if any, as in effect immediately prior to the Acquisition Merger Effective Time,
shall thereafter be the bylaws of the Surviving Corporation, until amended as
provided therein or by law.
(d) The directors and officers of Commercial in office immediately
prior to the Acquisition Merger Effective Time shall be the directors and
officers of the Surviving Corporation following the Acquisition Merger, until
their successors shall be duly elected and qualified.
(e) From and after the Acquisition Merger Effective Time:
(i) The Surviving Corporation shall possess all assets and
property of every description, and every interest in the assets and property,
wherever located, and the rights, privileges, immunities, powers, franchises,
and authority, of a public as well as of a private nature, of each of Commercial
and the Company, and all obligations belonging or due to each of Commercial and
Company,
5
<PAGE>
all of which are vested in the Surviving Corporation without further act or
deed. Title to any real estate or any interest in the real estate vested in
Commercial or the Company shall not revert or in any way be impaired by reason
of the Acquisition Merger.
(ii) The Surviving Corporation is liable for all the
obligations of each of Commercial and the Company. Any claim existing, or action
or proceeding pending, by or against the Company or Commercial, may be
prosecuted to judgement, with right of appeal, as if the Acquisition Merger had
not taken place, or the Surviving Corporation may be substituted in its place.
(iii) All the rights of creditors of each of the Company and
Commercial are preserved unimpaired, and all liens upon the property of the
Company and Commercial are preserved unimpaired, on only the property affected
by such liens immediately prior to the Acquisition Merger Effective Time.
1.5 Authorization for Issuance of Commercial Common Stock; Exchange of
------------------------------------------------------------------
Certificates.
------------
(a) Commercial has reserved for issuance a sufficient number of
shares of its common stock for the purpose of issuing its shares to the
Company's shareholders in accordance with this Article I.
(b) After the Acquisition Merger Effective Time, holders of
certificates theretofore evidencing outstanding shares of Company common stock
(other than as provided in Section 1.3(a)(ii), upon surrender of such
certificates to an exchange agent appointed by Commercial (the "Exchange
Agent"), shall be entitled to receive certificates representing the number of
whole shares of Commercial common stock into which shares of Company common
stock theretofore represented by the certificates so surrendered shall have been
converted, as provided in Section 1.3 hereof, and cash payments in lieu of
fractional shares, as provided in Section 1.6 hereof. As soon as practicable
after the Acquisition Merger Effective Time, the Exchange Agent will send a
notice and transmittal form to each Company shareholder of record at the
Acquisition Merger Effective Time whose Company stock shall have been converted
into Commercial common stock advising such shareholder of the effectiveness of
the Acquisition Merger and the procedure for surrendering to the Exchange Agent
outstanding certificates formerly evidencing Company common stock in exchange
for new certificates for Commercial common stock and cash in lieu of any
fractional interest. Upon surrender, each certificate evidencing Company common
stock shall be cancelled.
6
<PAGE>
(c) Until surrendered as provided in this Section 1.5 hereof, each
outstanding certificate which, prior to the Acquisition Merger Effective Time,
represented Company common stock (other than shares cancelled at the Acquisition
Merger Effective Time pursuant to Section 1.3(a)(ii) hereof) will be deemed for
all corporate purposes to evidence ownership of the number of whole shares of
Commercial common stock into which the shares of Company common stock formerly
represented thereby were converted and the right to receive cash in lieu of any
fractional interest. However, until such outstanding certificates formerly
representing Company common stock are so surrendered, no dividend or
distribution payable to holders of record of Commercial common stock shall be
paid to any holder of such outstanding certificates, but upon surrender of such
outstanding certificates by such holder there shall be paid to such holder the
amount of any dividends or distribution, without interest, theretofore paid with
respect to such whole shares of Commercial common stock, but not paid to such
holder, and which dividends or distribution had a record date occurring on or
subsequent to the Acquisition Merger Effective Time and the amount of any cash,
without interest, payable to such holder in lieu of fractional shares pursuant
to Section 1.6 hereof. After the Acquisition Merger Effective Time, there shall
be no further registration of transfers on the records of the Company of
outstanding certificates formerly representing shares of Company common stock
and, if a certificate formerly representing such shares is presented to
Commercial, it shall be forwarded to the Exchange Agent for cancellation and
exchange for certificates representing shares of Commercial common stock as
herein provided.
(d) All shares of Commercial common stock and cash for any fractional
share issued and paid upon the surrender for exchange of Company common stock in
accordance with the above terms and conditions shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
common stock.
(e) If any new certificate for Commercial common stock is to be
issued in the name other than that in which the certificate surrendered in
exchange thereof is registered, it shall be a condition of the issuance therefor
that the certificate surrendered in exchange shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
transfer pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of a new certificate for shares of Commercial common
stock in any name other than that of the registered holder of the certificate
surrendered, or establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
(f) In the event any certificate for Company common stock shall have
been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed
7
<PAGE>
certificate, upon the making of an affidavit of that fact by the holder thereof,
such shares of Commercial common stock and cash for fractional shares, if any,
as may be required pursuant hereto; provided, however, that Commercial may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate to deliver a bond in such
sum as it may direct as indemnity against any claim that may be made against
Commercial, the Company, the Exchange Agent or any other party with respect to
the certificate alleged to have been lost, stolen or destroyed.
1.6 No Fractional Shares. Notwithstanding any term or provision hereof,
--------------------
no fractional shares of Commercial common stock, and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in exchange for
any shares of Company common stock; no dividend or distribution with respect to
Commercial common stock shall be payable on or with respect to any fractional
share interests; and no such fractional share interest shall entitle the owner
thereof to vote or to any other rights of a shareholder of Commercial. In lieu
of such fractional share interest, any holder of Company common stock who would
otherwise be entitled to a fractional share of Commercial common stock will,
upon surrender of his certificate or certificates representing Company common
stock outstanding immediately prior to the Acquisition Merger Effective Time, be
paid the applicable cash value of such fractional share interest, which shall be
equal to the product of the fraction multiplied by the Average NMS Closing
Price. For the purposes of determining any such fractional share interests, all
shares of Company common stock owned by a Company shareholder shall be combined
so as to calculate the maximum number of whole shares of Company common stock
issuable to such Company shareholder.
1.7 Shareholders' Meeting. The Company shall, at the earliest practicable
---------------------
date, hold a meeting of its shareholders (the "Company Shareholders' Meeting")
to submit for shareholder approval this Agreement and the Acquisition Merger.
The affirmative vote of the holders of a majority of the issued and outstanding
shares of Company common stock entitled to vote shall be required for such
approval.
1.8 Company Stock Options.
---------------------
(a) At the Acquisition Merger Effective Time, each outstanding option
under the Company's 1994 Stock Option and Incentive Plan, the 1986 Stock Option
and Incentive Plan and the 1991 Director's Stock Option Plan (the "Company
Option Plans") shall continue outstanding as an option to purchase, in place of
the purchase of each share of Company common stock, the number of shares
(rounded down to the nearest whole share) of Commercial common stock that would
have been received by the optionee in the Merger had the option been exercised
in full (without regard to any
8
<PAGE>
limitations contained therein on exercise) for shares of Company common stock
immediately prior to the Acquisition Merger upon the same terms and conditions
under the relevant option as were applicable immediately prior to the
Acquisition Merger Effective Time, except for appropriate pro rata adjustments
as to the relevant option price for shares of Commercial common stock
substituted therefor so that the aggregate option exercise price of shares
subject to an option immediately following the assumption and substitution shall
be the same as the aggregate option exercise price for such shares immediately
prior to such assumption and substitution. It is intended that the foregoing
assumption shall be undertaken consistent with and in a manner that will not
constitute a "modification" under Section 424 of the Code as to any stock option
which is an "incentive stock option." Commercial and Company agree to take such
actions as shall be necessary to give effect to the foregoing.
(b) At all times after the Acquisition Merger Effective Time,
Commercial shall reserve for issuance such number of shares of Commercial common
stock as necessary so as to permit the exercise of options granted under the
Company's Option Plans in the manner contemplated by this Agreement and the
instruments pursuant to which such options were granted. Commercial shall make
all filings required under federal and state securities laws so as to permit the
exercise of such options and the sale of the shares received by the optionee
upon such exercise.
1.9 Registration Statement; Prospectus/Proxy Statement.
--------------------------------------------------
(a) For the purposes (i) of registering the Commercial common stock
to be issued to holders of Company common stock in connection with the Merger
with the Securities and Exchange Commission ("SEC") and with applicable state
securities authorities, and (ii) of holding the Company Shareholders' Meeting,
the parties hereto shall cooperate in the preparation of an appropriate
registration statement (such registration statement, together with all and any
amendments and supplements thereto, being herein referred to as the
"Registration Statement"), including the prospectus/proxy statement satisfying
all applicable requirements of applicable state laws, and of the Securities Act
of 1933 (the "1933 Act") and the Securities Exchange Act of 1934 (the "1934
Act") and the rules and regulations thereunder (such prospectus/proxy statement,
together with any and all amendments or supplements thereto, being herein
referred to as the "Prospectus/Proxy Statement").
(b) Commercial shall furnish such information concerning Commercial
and the Commercial Subsidiaries (as defined in Section 3.1 hereof) as is
necessary in order to cause the Prospectus/Proxy Statement, insofar as it
relates to such corporations, to comply with Section 1.9(a) hereof. Commercial
agrees promptly to advise the Company if at any time prior to the Company
Shareholders'
9
<PAGE>
Meeting any information provided by Commercial in the Prospectus/Proxy Statement
becomes incorrect or incomplete in any material respect and to provide the
information needed to correct such inaccuracy or omission. Commercial shall
promptly file such supplemental information as may be necessary in order to
cause such Prospectus/Proxy Statement, insofar as it relates to Commercial and
the Commercial Subsidiaries, to comply with Section 1.9(a).
(c) The Company shall furnish Commercial with such information
concerning the Company and the Company Subsidiaries (as defined in Section 2.1
hereof) as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to such corporations, to comply with Section 1.9(a)
hereof. The Company agrees promptly to advise Commercial if at any time prior
to the Company Shareholders' Meeting any information provided by the Company in
the Prospectus/Proxy Statement becomes incorrect or incomplete in any material
respect and to provide Commercial with the information needed to correct such
inaccuracy or omission. The Company shall furnish Commercial with such
supplemental information as may be necessary in order to cause the
Prospectus/Proxy Statement, insofar as it relates to the Company and the Company
Subsidiaries, to comply with Section 1.9(a).
(d) Commercial shall promptly file the Registration Statement with
the SEC and applicable state securities agencies. Commercial shall use all
reasonable efforts to cause the Registration Statement to become effective under
the 1933 Act and applicable state securities laws at the earliest practicable
date. The Company authorizes Commercial to utilize in the Registration Statement
the information concerning the Company and the Company Subsidiaries provided to
Commercial for the purpose of inclusion in the Prospectus/Proxy Statement. The
Company shall have the right to review and comment on the form of proxy
statement included in the Registration Statement. Commercial shall advise the
Company promptly when the Registration Statement has become effective and of any
supplements or amendments thereto, and Commercial shall furnish Company with
copies of all such documents. Prior to the Acquisition Merger Effective Time or
the termination of this Agreement, each party shall consult with the other with
respect to any material (other than the Prospectus/Proxy Statement) that might
constitute a "prospectus" relating to the Merger within the meaning of the 1933
Act.
(e) The Company shall consult with Commercial in order to determine
whether any directors, officers or shareholders of the Company may be deemed to
be "affiliates" of Company ("affiliated persons") within the meaning of Rule 145
of the SEC promulgated under the 1933 Act. Commercial and the Company each shall
take such action as may be necessary or appropriate to ensure that their
respective affiliated persons are aware of and comply with the guidelines of the
SEC with respect to the sale by affiliates of stock of companies engaging in a
business combination transaction
10
<PAGE>
to be accounted for as a pooling of interests as set forth in Topic 2-E of the
SEC staff accounting bulletin series. All shares of Commercial common stock
issued to such Company affiliated persons (i) in connection with the Merger or
(ii) upon exercise of options received pursuant to Section 1.8 hereof subsequent
to the Acquisition Merger Effective Time, shall bear a legend upon the face
thereof stating that transfer of the securities is or may be restricted by the
provisions of the 1933 Act and/or pooling of interests accounting requirements,
and notice shall be given to Commercial's transfer agent of such restriction,
provided that such legend shall be removed by delivery of a substitute
certificate without such legend if such Company affiliated person shall have
delivered to Commercial a copy of a letter from the staff of the SEC or an
opinion of counsel, in form and substance satisfactory to Commercial, to the
effect that such legend is not required for purposes of the 1933 Act, and, in
any event, at any time after the expiration of three years from the Acquisition
Merger Effective Time unless, in the opinion of the counsel for Commercial, such
person was an "affiliate" of Commercial within the meaning of Rule 145 within
three months prior to the expiration of such three year period. So long as
shares of such Commercial common stock bear such legend, no transfer of such
Commercial common stock shall be allowed unless and until the transfer agent is
provided with such information as may reasonably be requested by counsel for
Commercial to assure that such transfer will not violate applicable provisions
of the 1933 Act, or rules, regulations or policies of the SEC.
1.10 Cooperation; Regulatory Approvals. The parties shall cooperate and
---------------------------------
use reasonable best efforts to complete the transactions contemplated hereunder
at the earliest practicable date. Each party shall cause each of their
affiliates and subsidiaries to cooperate, in the preparation and submission by
them, as promptly as reasonably practicable, of such applications, petitions,
and other documents and materials as any of them may reasonably deem necessary
or desirable to the OTS, Federal Trade Commission ("FTC"), Department of Justice
("DOJ"), SEC, applicable Secretary of State, other regulatory authorities,
holders of the voting shares of common stock of the Company, and any other
persons for the purpose of obtaining any approvals or consents necessary to
consummate the transactions contemplated by this Agreement. At the date hereof,
none of the parties is aware of any reason that the regulatory approvals
required to be obtained by it would not be obtained.
1.11 Closing. If (i) this Agreement has been duly approved by the
-------
shareholders of the Company, and (ii) all relevant conditions of this Agreement
have been satisfied or waived, a closing (the "Closing") shall take place as
promptly as practicable thereafter at the principal office of Commercial at
which the parties hereto will exchange certificates, opinions, letters and other
documents as required hereby and will make the filings described in Section
11
<PAGE>
1.2 hereof. Such Closing will take place as soon as practicable as agreed by the
parties, provided, however, that the Closing shall be no more than thirty
-------- -------
(30) days after the satisfaction or waiver of all conditions and/or obligations
contained in Article V of this Agreement.
1.12 Closing of Transfer Books. At the Acquisition Merger Effective Time,
-------------------------
the transfer books for Company common stock shall be closed, and no transfer of
shares of Company common stock shall thereafter be made on such books.
1.13 Bank Merger.
-----------
(a) At the Bank Merger Effective Time, each share of Savings Common
Stock issued and outstanding immediately prior thereto shall, by virtue of the
Bank Merger, be cancelled. No new shares of the capital stock or other
securities or obligations of the Bank shall be issued or be deemed issued with
respect to or in exchange for such cancelled shares, and such cancelled shares
of Savings Common Stock shall not be converted into any shares or other
securities or obligations of the Bank.
(b) The charter and bylaws of the Bank, as in effect immediately
prior to the Bank Merger Effective Time, shall be the charter and bylaws of the
Bank, as the surviving institution of the Bank Merger, and may thereafter be
amended in accordance with applicable law.
(c) The directors and officers of the Bank immediately prior to the
Bank Merger Effective Time shall be the directors and officers of the Bank, as
the surviving institution of the Bank Merger, and shall continue in office until
their successors are duly elected or otherwise duly selected.
(d) The liquidation account established by Savings pursuant to the
plan of conversion adopted in connection with its conversion from mutual to
stock form shall continue to be maintained by the Bank after the Bank Merger
Effective Time for the benefit of those persons and entities who were savings
account holders of Savings on June 18, 1986 and who continue from time to time
to have rights therein. If required by the rules and regulations of the OTS,
the Bank shall amend its charter to specifically provide for the continuation of
the liquidation account established by Savings.
1.14 Option Agreement. Simultaneously with the execution of this
----------------
Agreement by the parties, Commercial and the Company are executing a Stock
Option Agreement (the "Option Agreement") in the form of Exhibit 1.14.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SAVINGS
Company and Savings represent and warrant to Commercial and the Bank that,
except as disclosed in Schedule I attached hereto:
2.1 Organization, Good Standing, Authority, Insurance, Etc. The Company
------------------------------------------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Section 2.1 of Schedule I lists each
"subsidiary" of the Company and Savings within the meaning of Section
10(a)(1)(G) of HOLA, (individually a "Company Subsidiary" and collectively the
"Company Subsidiaries") (unless otherwise noted herein all references to a
"Company Subsidiary" or to the "Company Subsidiaries" shall include Savings).
Each of the Company Subsidiaries is duly organized, validly existing, and in
good standing under the laws of the respective jurisdiction under which it is
organized, as set forth in Section 2.1 of Schedule I. The Company and each
Company Subsidiary has all requisite power and authority and is duly qualified
and licensed to own, lease and operate its properties and conduct its business
as it is now being conducted. The Company has delivered to Commercial a true,
complete and correct copy of the certificate of incorporation, charter, or other
organizing document and of the bylaws, as in effect on the date of this
Agreement, of Company and each Company Subsidiary. The Company and each Company
Subsidiary is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which qualification is necessary under
applicable law, except to the extent that any failures to so qualify would not,
in the aggregate, have a material adverse effect on the business, financial
condition or results of operations of the Company and the Company Subsidiaries,
taken as a whole. Savings is a member in good standing of the Federal Home Loan
Bank of Topeka and all eligible accounts issued by Savings are insured by the
Savings Association Insurance Fund ("SAIF") to the maximum extent permitted
under applicable law. Savings is a "domestic building and loan association" as
defined in Section 7701(a)(19) of the Code and is a "qualified thrift lender" as
defined in Section 10(m) of the HOLA and the Thrift Regulations. The Company is
duly registered as a savings and loan holding company under the HOLA.
The minute books of the Company and the Company's Subsidiaries contain
complete and accurate records of all meetings and other corporate actions held
or taken of their respective shareholders and Boards of Directors (including the
committees of such Boards).
2.2 Capitalization. The authorized capital stock of the Company consists
--------------
of (i) 4,000,000 shares of common stock, par value $0.10 per share, of which
2,116,074 shares were issued and outstanding as of the date of this Agreement,
and (ii) 1,000,000 shares of preferred stock, par value of $0.10 per share, of
which no shares were outstanding as of the date of this Agreement. All
13
<PAGE>
outstanding shares of Company common stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. Except for outstanding
options to purchase 146,309 shares of Company common stock under the Company
Option Plans and as contemplated by the Option Agreement, as of the date of this
Agreement, there are no options, convertible securities, warrants, or other
rights (preemptive or otherwise) to purchase or acquire any of the Company's
capital stock from the Company and no oral or written agreement, contract,
arrangement, understanding, plan or instrument of any kind (collectively, "Stock
Contract") to which the Company or any of its affiliates is subject with respect
to the issuance, voting or sale of issued or unissued shares of the Company's
capital stock. A true and complete copy of the Company's Option Plans, as in
effect on the date of this Agreement, is attached as Section 2.2 of Schedule I.
Neither the Company nor Savings is aware of any event or circumstance (but not
including actions or events by Commercial) which would disqualify the Merger
from being accounted for as a pooling of interests.
2.3 Ownership of Subsidiaries. All the outstanding shares of the capital
-------------------------
stock of the Company Subsidiaries are validly issued, fully paid, nonassessable
and owned beneficially and of record by the Company or a Company Subsidiary free
and clear of any lien, claim, charge, restriction or encumbrance (collectively,
"Encumbrance"). Except as set forth in Section 2.3 of Schedule I, all of the
outstanding capital stock or other ownership interests in all of the Company
Subsidiaries is owned either by the Company or Savings. There are no options,
convertible securities, warrants, or other rights (preemptive or otherwise) to
purchase or acquire any capital stock of any Company Subsidiary and no contracts
to which the Company or any of its affiliates is subject with respect to the
issuance, voting or sale of issued or unissued shares of the capital stock of
any of the Company Subsidiaries. Neither the Company nor any Company Subsidiary
owns any of the capital stock or other equity securities (including securities
convertible or exchangeable into such securities) of or profit participations in
any "company" (as defined in Section 10(a)(1)(C) of the HOLA) other than the
Federal Home Loan Bank of Topeka or except as set forth in Section 2.3 of
Schedule I.
2.4 Financial Statements and Reports.
--------------------------------
(a) No registration statement, proxy statement, schedule or report
filed by the Company or any Company Subsidiary with the SEC or the OTS under the
1933 Act or the 1934 Act ("SEC Reports"), on the date of effectiveness in the
case of such registration statements, or on the date of filing in the case of
such reports or schedules, or on the date of mailing in the case of such proxy
statements, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. For the
14
<PAGE>
past five years, the Company and the Company Subsidiaries have timely filed all
reports and documents required to be filed by them with the SEC, the OTS, or the
Federal Deposit Insurance Corporation (the "FDIC") under various securities and
financial institution laws and regulations except to the extent that all
failures to so file, in the aggregate, would not have a material adverse effect
on the business, financial condition or results of operations of the Company and
the Company Subsidiaries, taken as a whole; and all such documents, as finally
amended, complied in all material respects with applicable requirements of law
and, as of their respective date or the date as amended, did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
stated therein, all financial statements and schedules included in the documents
referred to in the preceding sentences (or to be included in similar documents
to be filed after the date hereof) (i) are or will be (with respect to financial
statements in respect of periods ending after December 31, 1994) in accordance
with the Company's books and records and those of any of its Subsidiaries, and
(ii) present (and in the case of financial statements in respect of periods
ending after December 31, 1994, will present) fairly the consolidated balance
sheet and the consolidated statements of operations, stockholders' equity and
cash flows of the Company and its Subsidiaries as of the dates and for the
period indicated in accordance with generally accepted accounting principles
applied on a basis consistent with prior periods (except for the omission of
notes to unaudited statements, year end adjustments to interim results and
changes to generally accepted accounting principles). The audited consolidated
financial statements of the Company at December 31, 1994 and for the year then
ended and the consolidated financial statements for all periods thereafter up to
the Closing reflect or will reflect, as the case may be, all liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due and regardless of when asserted) of the Company and the Company
Subsidiaries required to be reflected in such financial statements according to
generally accepted accounting principles and contain or will contain adequate
reserves for losses on loans and properties acquired in settlement of loans,
taxes and all other material accrued liabilities and for all reasonably
anticipated material losses, if any as of such date. There exists no set of
circumstances that could reasonably be expected to result in any liability or
obligation material to the Company or the Company Subsidiaries, taken as a
whole, except as disclosed in such consolidated financial statements at December
31, 1994 or for transactions effected or actions occurring or omitted to be
taken after December 31, 1994 (i) in the ordinary course of business, or (ii) as
permitted by this Agreement.
(b) The Company has delivered to Commercial each SEC Report filed,
used or circulated by it with respect to periods
15
<PAGE>
since January 1, 1992 through the date of this Agreement and will promptly
deliver each such SEC Report filed, used or circulated after the date hereof,
each in the form (including exhibits and any amendments thereto) filed with the
SEC or the OTS (or, if not so filed, in the form used or circulated), including,
without limitation, its Annual Reports on Form 10-K and its Quarterly Reports on
Form 10-Q.
2.5 Absence of Changes.
------------------
(a) Since December 31, 1994, there has been no material adverse
change in the business, properties, financial condition, results of operations
or assets of the Company and the Company Subsidiaries, taken as a whole. There
is no occurrence, event or development of any nature existing or, to the best
knowledge of the Company, threatened which may reasonably be expected to have a
material adverse effect upon the business, properties, financial condition,
operations or assets of Company or any Company Subsidiary.
(b) Except as set forth in Section 2.5 of Schedule I, since December
31, 1994, each of the Company and the Company Subsidiaries has owned and
operated their respective assets, properties and businesses in the ordinary
course of business and consistent with past practice.
2.6 Prospectus/Proxy Statement. At the time the Prospectus/ Proxy
--------------------------
Statement is mailed to the shareholders of the Company for the solicitation of
proxies for the approvals referred to in Section 1.7(a) hereof and at all times
subsequent to such mailings up to and including the times of such approval, such
Prospectus/Proxy Statement (including any supplements thereto), with respect to
all information set forth therein relating to the Company (including the Company
Subsidiaries), its shareholders and representatives, Company common stock and
all other transactions contemplated hereby, will:
(a) Comply in all material respects with applicable provisions of the
1933 Act, the 1934 Act and the rules and regulations under such Acts; and
(b) Not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
it is made, not misleading.
2.7 No Broker's or Finder's Fees. No agent, broker, investment banker,
----------------------------
person or firm acting on behalf or under authority of the Company or any of the
Company Subsidiaries is or will be entitled to any broker's or finder's fee or
any other commission or similar fee directly or indirectly in connection with
the Merger or any other transaction contemplated hereby, except the
16
<PAGE>
Company has engaged Piper Jaffray Inc. to provide financial advisory services
and to deliver a "fairness opinion" to the effect that the consideration to be
received by the Company shareholders in the Merger is fair to the Company
shareholders from a financial point of view, whose fees and reasonable out-of-
pocket expenses will be paid by Company. A copy of the engagement agreement with
Piper Jaffray is attached to Section 2.7 of Schedule I.
2.8 Litigation and Other Proceedings. Except as set forth in Section 2.8
--------------------------------
of Schedule I, neither the Company nor any Company Subsidiary is a defendant in,
nor is any of its property subject to, any pending, or, to the best knowledge of
the management of the Company, threatened, claim, action, suit, investigation,
or proceeding, or subject to any judicial order, judgment or decree.
2.9 Compliance with Law.
-------------------
(a) The Company and the Company Subsidiaries are in compliance in all
material respects with all material laws and regulations applicable to their
respective business or operations or with respect to which compliance is a
condition of engaging in the business thereof, and neither the Company nor any
Company Subsidiary has received notice from any federal, state or local
government or governmental agency of any material violation of, and does not
know of any material violations of, any of the above.
(b) The Company and each of its Subsidiaries have all material
permits, licenses, certificates of authority, orders and approvals of, and have
made all material filings, applications and registrations with, all federal,
state, local and foreign governmental or regulatory bodies that are required in
order to permit them to carry on their respective business as they are presently
conducted.
2.10 Corporate Actions.
-----------------
(a) The Boards of Directors of the Company and Savings have duly
authorized their respective officers to execute and deliver (as applicable) this
Agreement, the Acquisition Merger Agreement, the Bank Plan of Merger and the
Option Agreement and to take all action necessary to consummate the Merger and
the other transactions contemplated hereby. The Board of Directors of the
Company has authorized and directed the submission for shareholders' approval of
this Agreement, together with the Merger and any other action requiring such
approval. All corporate authorization by the Board of Directors of the Company
required for the consummation of the Merger has been obtained.
(b) The Company's Board of Directors has taken or will take all
necessary action to exempt this Agreement, the Acquisition Merger Agreement, the
Bank Plan of Merger and the Option Agreement and the transactions contemplated
hereby and thereby from, (i) any
17
<PAGE>
applicable state takeover laws, (ii) any Delaware laws limiting or restricting
the voting rights of shareholders, (iii) any Delaware laws requiring a
shareholder approval vote in excess of the vote normally required in
transactions of similar type not involving a "related person," "interested
shareholder" or person or entity of similar type, and (iv) any provision in its
or any of the Company's Subsidiaries articles/certificate of incorporation,
charter or bylaws, (A) restricting or limiting stock ownership or the voting
rights of shareholders, or (B) requiring a shareholder approval vote in excess
of the vote normally required in transactions of similar type not involving a
"related person," interested shareholder" or person or entity of similar type.
2.11 Authority. Except as set forth in Section 2.11 of Schedule I, the
---------
execution, delivery and performance of its obligations under this Agreement and
the Option Agreement by the Company and Savings does not violate any of the
provisions of, or constitute a default under or give any person the right to
terminate or accelerate payment or performance under (i) the certificate of
incorporation or bylaws of the Company, the articles of incorporation, charter
or bylaws of any Company Subsidiary, (ii) any regulatory restraint on the
acquisition of the Company or Savings or control thereof, (iii) any law, rule,
ordinance, or regulation or judgment, decree, order, award or governmental or
non-governmental permit or license to which it or any of its Subsidiaries is
subject or (iv) any other material agreement, material lease, material contract,
note, mortgage, indenture, arrangement or other obligation or instrument
("Contract") to which the Company or any of the Company Subsidiaries is a party
or is subject or by which any of their properties or assets is bound. The
parties acknowledge that the consummation of the Merger and the other
transactions contemplated hereby is subject to various regulatory approvals.
The Company and Savings have all requisite corporate power and authority to
enter into this Agreement and the Option Agreement and to perform their
respective obligations hereunder and thereunder, except, with respect to this
Agreement and the Acquisition Merger, the approval of the Company's shareholders
required under applicable law. Other than the receipt of Governmental Approvals
(as defined in Section 5.1(c)), the approval of shareholders and the consents
specified in Schedule I with respect to the Contracts, no consents or approvals
are required on behalf of Company in connection with the consummation of the
transactions contemplated by this Agreement and the Option Agreement. This
Agreement and the Option Agreement constitute the valid and binding obligation
of the Company and Savings and each is enforceable in accordance with its terms,
except as enforceability may be limited by applicable laws relating to
bankruptcy, insolvency or creditors rights generally and general principles of
equity.
2.12 Employment Arrangements. Except as disclosed in Section 2.12 of
-----------------------
Schedule I, there are no employment, severance or other
18
<PAGE>
agreements, plans or arrangements with any current or former directors, officers
or employees of Company or any Company Subsidiary which may not be terminated
without penalty (including any augmentation or acceleration of benefits) on 30
days or less notice to such person. No payments to directors, officers or
employees of the Company or the Company Subsidiaries resulting from the
transactions contemplated hereby will cause the imposition of excise taxes under
Section 4999 of the Code or the disallowance of a deduction to the Company or
any Company Subsidiary pursuant to Section 280G(a) of the Code.
2.13 Employee Benefits.
-----------------
(a) Neither the Company nor any of the Company Subsidiaries maintains
any funded deferred compensation plans (including profit sharing, pension,
savings or stock bonus plans), unfunded deferred compensation arrangements or
employee benefit plans as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), other than any plans
("Employee Plans") set forth in Section 2.13 of Schedule I (true and correct
copies of which have been delivered to Commercial). None of Company or any of
the Company Subsidiaries has incurred or reasonably expects to incur any
liability to the Pension Benefit Guaranty Corporation except for required
premium payments which, to the extent due and payable, have been paid. The
Employee Plans intended to be qualified under Section 401(a) of the Code are so
qualified, and Company is not aware of any fact which would adversely affect the
qualified status of such plans. Except as set forth in Section 2.13 of Schedule
I, neither the Company nor any of the Company Subsidiaries (a) provides health,
medical, death or survivor benefits to any former employee or beneficiary
thereof, or (b) maintains any form of current (exclusive of base salary and base
wages) or deferred compensation, bonus, stock option, stock appreciation right,
benefit, severance pay, retirement, incentive, group or individual health
insurance, welfare or similar plan or arrangement for the benefit of any single
or class of directors, officers or employees, whether active or retired
(collectively "Benefit Arrangements").
(b) Except as disclosed in Section 2.13 to Schedule I, all Employee
Plans and Benefit Arrangements which are in effect were in effect for
substantially all of calendar year 1994 and there has been no material amendment
thereof (other than amendments required to comply with applicable law) or no
material increase in the cost thereof or benefits payable thereunder on or after
January 1, 1994.
(c) To the best knowledge of the Company, with respect to all
Employee Plans and Benefit Arrangements, the Company and each Company Subsidiary
are in substantial compliance with the requirements prescribed by any and all
statutes, governmental or court orders, or rules or regulations currently in
effect,
19
<PAGE>
including but not limited to ERISA and the Code, applicable to such Employee
Plans or Benefit Arrangements. No condition exists that could constitute grounds
for the termination of any Employee Plan under Section 4042 of ERISA; no
"prohibited transaction," as defined in Section 406 of ERISA and Section 4975 of
the Code, has occurred with respect to any Employee Plan, or any other employee
benefit plan maintained by Company or any Company Subsidiary which is covered by
Title I of ERISA, which could subject any person to liability under Title I of
ERISA or to the imposition of any tax under Section 4975 of the Code which could
have an adverse effect on the business, assets, financial condition, results of
operations or prospects of Company or any Company Subsidiary; nor to the best
knowledge of Company has any Employee Plan subject to Part III of Subtitle B of
Title I of ERISA or Section 412 of the Code, or both, incurred any "accumulated
funding deficiency," as defined in Section 412 of the Code, whether or not
waived; nor has Company or any Company Subsidiary failed to make any
contribution or pay any amount due and owing as required by the terms of any
Employee Plan or Benefit Arrangement. To the best of its knowledge, neither
Company nor any Company Subsidiary has incurred or expects to incur, directly or
indirectly, any liability under Title IV of ERISA arising in connection with the
termination of, or a complete or partial withdrawal from, any plan covered or
previously covered by Title IV of ERISA which could constitute a liability of
Commercial, or any of its affiliates at or after the Effective Time of the
Merger.
2.14 Information Furnished. No statement contained in any schedule,
---------------------
certificate or other document furnished (whether prior to or subsequent to the
date of this Agreement) or to be furnished in writing by or on behalf of Company
to Commercial pursuant to this Agreement or pursuant to the due diligence to be
conducted pursuant to Section 4.11 hereof contains or will contain any untrue
statement of a material fact or any material omission. No information material
to the Merger and which is necessary to make (i) the representations and
warranties or (ii) the information provided and to be provided to Commercial for
purposes of its due diligence examination pursuant to Section 4.11 hereof not
misleading, to the best knowledge of the Company, has been withheld from
Commercial.
2.15 Property and Assets. The Company and the Company Subsidiaries have
-------------------
good and marketable title to all of their real property reflected in the
financial statements at December 31, 1994, referred to in Section 2.4 hereof, or
acquired subsequent thereto, free and clear of all Encumbrances, except for (a)
such items shown in such financial statements or in the notes thereto, (b) liens
for current real estate taxes not yet delinquent, (c) customary title exceptions
that have no material adverse effect upon the value of such property, (d)
property sold or transferred in the ordinary course of business since the date
of such financial statements, (e) pledges or liens incurred in the ordinary
course of
20
<PAGE>
business and (f) as otherwise specifically indicated in Section 2.15 of Schedule
I. Company and the Company Subsidiaries enjoy peaceful and undisturbed
possession under all material leases for the use of real property under which
they are the lessee; all of such leases are valid and binding and in full force
and effect and neither Company nor any Company Subsidiary is in default in any
material respect under any such lease. No consent of the lessor of any material
real property or material personal property lease is required for consummation
of the Merger except as set forth in Section 2.15 of Schedule I. Except as set
forth in Section 2.15 of Schedule I, there has been no material physical loss,
damage or destruction, whether or not covered by insurance, affecting the real
properties of Company and the Company Subsidiaries since December 31, 1994. All
property and assets material to their business and currently used by Company and
the Company Subsidiaries are, in all material respects, in good operating
condition and repair, normal wear and tear excepted.
2.16 Agreements and Instruments. Except as set forth in Section 2.16 of
--------------------------
Schedule I, neither the Company nor any Company Subsidiary is a party to (a) any
material agreement, arrangement or commitment not made in the ordinary course of
business, (b) any agreement, indenture or other instrument relating to the
borrowing of money by the Company or any Company Subsidiary or the guarantee by
the Company or any Company Subsidiary of any such obligation (other than Federal
Home Loan Bank advances with a maturity of one year or less from the date
hereof, (c) any agreements to make loans or for the provision, purchase or sale
of goods, services or property between Company or any Company Subsidiary and any
director or officer of Company or Savings, or any member of the immediate family
or affiliate of any of the foregoing, (d) any agreements with or concerning any
labor or employee organization to which Company or any Company Subsidiary is a
party, (e) any agreements between Company or any Company Subsidiary and any five
percent or more shareholder of Company, and (f) any agreements, directives,
orders, or similar arrangements between or involving the Company or any Company
Subsidiary and any state or federal savings institution regulatory authority.
2.17 Material Contract Defaults. Neither the Company nor any Company
--------------------------
Subsidiary nor the other party thereto is in default in any respect under any
contract, agreement, commitment, arrangement, lease, insurance policy, or other
instrument to which the Company or a Company Subsidiary is a party or by which
its respective assets, business, or operations may be bound or affected or under
which it or its respective assets, business, or operations receives benefits,
and which default is reasonably expected to have either individually or in the
aggregate a material adverse effect on the Company or any Company Subsidiary,
and there has not occurred any event that, with the lapse of time or the giving
of notice or both, would constitute such a default.
21
<PAGE>
2.18 Tax Matters.
-----------
(a) The Company and each of the Company Subsidiaries have duly and
properly filed all federal, state, local and other tax returns required to be
filed by them and have made timely payments of all taxes due and payable,
whether disputed or not; the current status of audits of such returns by the
Internal Revenue Service ("IRS") and other applicable agencies is as set forth
in Section 2.18 of Schedule I; and, except as set forth in Section 2.18 of
Schedule I, there is no agreement by the Company or any Company Subsidiary for
the extension of time or for the assessment or payment of any taxes payable.
Except as set forth in Section 2.18 of Schedule I, neither the IRS nor any other
taxing authority is now asserting or, to the best knowledge of Company,
threatening to assert any deficiency or claim for additional taxes (or interest
thereon or penalties in connection therewith), nor is Company aware of any basis
for any such assertion or claim. The Company and each of the Company
Subsidiaries have complied in all material respects with applicable IRS backup
withholding requirements and have filed all appropriate information reporting
returns for all tax years for which the statute of limitations has not closed.
The Company and each Company Subsidiary have complied with all applicable state
law sales and use tax collection and reporting requirements.
(b) Adequate provision for any federal, state, local, or foreign
taxes due or to become due for the Company or any of the Company Subsidiaries
for any period or periods through and including December 31, 1994, has been made
and is reflected on the December 31, 1994 audited Company consolidated financial
statements and has been or will be made with respect to periods ending after
December 31, 1994.
2.19 Environmental Matters. Except as set forth in Section 2.19 of
---------------------
Schedule I, to the best knowledge of the Company, neither the Company nor any
Company Subsidiary owns or leases any properties affected by toxic waste, radon
gas or other hazardous conditions or constructed in part with the use of
asbestos. Except as set forth in Section 2.19 of Schedule I, neither the
Company nor any Company Subsidiary has knowledge of, nor has the Company or any
Company Subsidiary received written notice from any governmental or regulatory
body of, any conditions, activities, practices or incidents which is reasonably
likely to interfere with or prevent compliance or continued compliance with
hazardous substance laws or any regulation, order, decree, judgment or
injunction, issued, entered, promulgated or approved thereunder, or which may
give rise to any common law or legal liability, or otherwise form the basis of
any claim, action, suit, proceeding, hearing or investigation based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant or
chemical, or
22
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industrial, toxic or hazardous substance or waste. There is no civil, criminal
or administrative claim, action, suit, proceeding, hearing or investigation
pending or, to Company's knowledge, threatened against Company or any Company
Subsidiary relating in any way to such hazardous substance laws or any
regulation, order, decree, judgment or injunction issued, entered, promulgated
or approved thereunder.
2.20 Loan Portfolio: Portfolio Management.
-------------------------------------
(a) All evidences of indebtedness reflected as assets in the
consolidated balance sheet of Company as of December 31, 1994, or acquired since
such date, are (except with respect to those assets which are no longer assets
of the Company or any Company Subsidiary) binding obligations of the respective
obligers named therein except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding may be brought, and the payment of no material amount thereof (either
individually or in the aggregate with other evidences of indebtedness) is
subject to any defenses which have been threatened or asserted against the
Company or any Company Subsidiary. All such indebtedness which is secured by an
interest in real property is secured by a valid and perfected mortgage lien
having the priority specified in the loan documents. All loans originated or
purchased by Savings were at the time entered into and at all times since have
been in compliance in all material respects with all applicable laws (including,
without limitation, all consumer protection laws) and regulations. Savings
administers its loan and investment portfolios (including, but not limited to,
adjustments to adjustable mortgage loans) in accordance with all applicable laws
and regulations and the terms of applicable instruments. The records of Savings
regarding all loans outstanding on its books are accurate in all material
respects and the risk classification system has been established in accordance
with the requirements of the OTS.
(b) Section 2.20 of Schedule I sets forth a list, accurate and
complete in all material respects, of the aggregate amounts of loans, extensions
of credit and other assets of Savings and its subsidiaries that have been
adversely designated, criticized or classified by it as of March 31, 1995,
separated by category of classification or criticism (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been adversely designated, classified or criticized as of the date
hereof by any representative of any government entity as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import are excluded from
the amounts disclosed in the Asset Classification, other than amounts of loans,
23
<PAGE>
extensions of credit or other assets that were charged off by it or any of its
Subsidiaries before the date hereof.
2.21 Real Estate Loans and Investments. Except for properties acquired in
---------------------------------
settlement of loans, there are no facts, circumstances or contingencies known to
the Company or any Company Subsidiary which exist which would require a material
reduction under generally accepted accounting principles in the present carrying
value of any of the real estate investments, joint ventures, construction loans,
other investments or other loans of the Company or any Company Subsidiary
(either individually or in the aggregate with other loans and investments).
2.22 Derivatives Contracts. Neither the Company nor any of its
---------------------
Subsidiaries is a party to or has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract or any other contract not included on its Balance Sheet which is a
derivatives contract (including various combinations thereof) (each, a
"Derivatives Contract") or owns securities that are identified in Thrift
Bulletin No. 65 or otherwise referred to as structured notes (each, a
"Structured Note"), except for those Derivatives Contracts and Structured Notes
set forth in Section 2.22 of Schedule I, including a list, as applicable, of any
of its or any of its Subsidiaries' assets pledged as security for a Derivatives
Contract.
2.23 Insurance. Except as set forth in Section 2.23 of Schedule I, the
---------
Company and the Company Subsidiaries have in effect insurance coverage with
reputable insurers which, in respect to amounts, types and risks insured, is
reasonably adequate for the business in which the Company and the Company
Subsidiaries are engaged. A schedule of all insurance policies in effect as to
the Company and the Company Subsidiaries (the "Insurance Policies") is as set
forth on Section 2.23 of Schedule I (other than policies pertaining to mortgage
loans made in the ordinary course of business). Except as set forth on Section
2.23 of Schedule I, all Insurance Policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including the date
of this Agreement have been paid, such premiums covering all periods from the
date hereof up to and including the Acquisition Merger Effective Date shall have
been paid on or before the Acquisition Merger Effective Date, to the extent then
due and payable (other than retrospective premiums which may be payable with
respect to worker's compensation insurance policies, adequate reserves for which
are reflected in the Company's financial statements). The Insurance Policies
are valid, outstanding and enforceable in accordance with their respective terms
and will not in any way be affected by, or terminated or lapsed solely by reason
of, the transactions contemplated by this Agreement. Except as set forth on
Section 2.23 of Schedule I, neither the Company nor any Company Subsidiary has
been refused any insurance with respect to any material properties, assets or
operations, nor has any coverage
24
<PAGE>
been limited or terminated by any insurance carrier to which it has applied for
any such insurance or with which it has carried insurance during the last three
years.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMMERCIAL AND THE BANK
Commercial and the Bank represent and warrant to Company and Savings that,
except as disclosed in Schedule II attached hereto:
3.1 Organization, Good Standing, Authority, Insurance, Etc. Commercial is
------------------------------------------------------
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Nebraska. Each of the subsidiaries of Commercial within
the meaning of Section 10(a)(1)(G) of HOLA (individually a "Commercial
Subsidiary" and collectively the "Commercial Subsidiaries") is duly organized,
validly existing, and in good standing under the laws of the respective
jurisdiction under which it is organized. Commercial and each Commercial
Subsidiary has all requisite power and authority and is duly qualified and
licensed to own, lease and operate its properties and conduct its business as it
is now being conducted. Commercial and each Commercial Subsidiary is qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which qualification is necessary under applicable law, except to
the extent that any failures to so qualify would not, in the aggregate, have a
material adverse effect on the business, financial condition or results of
operations of Commercial and the Commercial Subsidiaries, taken as a whole. The
Bank is a member in good standing of the Federal Home Loan Bank of Topeka, and
all eligible accounts issued by the Bank are insured by the SAIF to the maximum
extent permitted under applicable law. The Bank is a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Code, and is a "qualified
thrift lender" as defined in Section 10(m) of the HOLA and the Thrift
Regulations. Commercial is duly registered as a savings and loan holding company
under the HOLA.
3.2 Capitalization. The authorized capital stock of Commercial consists
--------------
of 25,000,000 shares of Commercial common stock, par value $.01 per share, of
which 12,877,339 shares were issued and outstanding as of the date of this
Agreement and 10,000,000 shares of serial preferred stock, par value of $.01 per
share, of which no shares were outstanding as of the date of this Agreement.
All outstanding shares of Commercial common stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights.
3.3 Ownership of Subsidiaries. All the outstanding shares of the capital
-------------------------
stock of the Commercial Subsidiaries are validly issued, fully paid,
nonassessable and owned beneficially and of record by Commercial or a Commercial
Subsidiary free and clear of
25
<PAGE>
any Encumbrance. Except as disclosed in Section 3.3 of Schedule II, all of the
outstanding capital stock or other ownership interests in all of the Commercial
Subsidiaries is owned either by Commercial or the Bank. There are no options,
convertible securities, warrants, or other rights (preemptive or otherwise) to
purchase or acquire any capital stock of any Commercial Subsidiary and no
contracts to which Commercial or any of its affiliates is subject with respect
to the issuance, voting or sale of issued or unissued shares of the capital
stock of any of the Commercial Subsidiaries.
3.4 Financial Statements and Reports. No registration statement, proxy
--------------------------------
statement, schedule or report filed by Commercial or any Commercial Subsidiary
with the SEC or the OTS under the 1933 Act, or the 1934 Act, on the date of
effectiveness in the case of such registration statements, or on the date of
filing in the case of such reports or schedules, or on the date of mailing in
the case of such proxy statements, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. For the past five years, Commercial and
the Commercial Subsidiaries have timely filed all documents required to be filed
by them with the SEC, the OTS, or the FDIC under various securities and
financial institution laws and regulations, except to the extent that all
failures to so file, in the aggregate, would not have a material adverse effect
on the business, financial condition or results of operations of Commercial and
the Commercial Subsidiaries, taken as a whole; and all such documents, as
finally amended, complied in all material respects with applicable requirements
of law and, as of their respective date or the date as amended, did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
to the extent stated therein, all financial statements and schedules included in
the documents referred to in the preceding sentences (or to be included in
similar documents to be filed after the date hereof) (i) are or will be (with
respect to financial statements in respect of periods ending after December 31,
1994) in accordance with Commercial's books and records and those of any of its
Subsidiaries, and (ii) present (and in the case of financial statements in
respect of periods ending after December 31, 1994, will present) fairly the
consolidated statement of financial condition and the consolidated statements of
operations, stockholders' equity and cash flows of Commercial and its
Subsidiaries as of the dates and for the periods indicated in accordance with
generally accepted accounting principles (except for the omission of notes to
unaudited statements, year end adjustments to interim results and changes in
generally accepted accounting principles). The consolidated financial
statements of Commercial as of December 31, 1994 and for the six months then
26
<PAGE>
ended and the consolidated financial statements for all periods thereafter up to
the Closing disclose or will disclose, as the case may be, all liabilities
(including contingent liabilities) as of such date of Commercial and the
Commercial Subsidiaries, other than liabilities which are not, in the aggregate,
material to Commercial and the Commercial Subsidiaries, taken as a whole, and
contain or will contain in the opinion of management adequate reserves for
losses on loans and properties acquired in settlement of loans, taxes and all
other material accrued liabilities and for all reasonably anticipated material
losses, if any as of such date. There exists no set of circumstances that could
reasonably be expected to result in any liability or obligation material to
Commercial or the Commercial Subsidiaries, taken as a whole, except as disclosed
in such consolidated financial statements at December 31, 1994, or for
transactions effected or actions occurring or omitted to be taken after December
31, 1994, (i) in the ordinary course of business, or (ii) as permitted by this
Agreement.
3.5 Absence of Changes. Since December 31, 1994, there has been no
------------------
material adverse change in the business, properties, financial condition,
results of operations or assets of Commercial and the Commercial Subsidiaries,
taken as a whole. There is no occurrence, event or development of any nature
existing or, to the best knowledge of Commercial, threatened which may
reasonably be expected to have a material adverse effect upon the business,
properties, financial condition, operations or assets of Commercial or any
Commercial Subsidiary.
3.6 Prospectus/Proxy Statement. At the time the Registration Statement
--------------------------
becomes effective and at the time the Prospectus/Proxy Statement is mailed to
the shareholders of the Company for the solicitation of proxies for the approval
referred to in Section 1.7(b) hereof and at all times subsequent to such
mailings up to and including the times of such approval, such Registration
Statement and Prospectus/Proxy Statement (including any amendments or
supplements thereto), with respect to all information set forth therein relating
to Commercial (including the Commercial Subsidiaries) and its shareholders,
Commercial common stock, this Agreement, the Merger and all other transactions
contemplated hereby, will:
(a) comply in all material respects with applicable provisions of the
1933 Act, the 1934 Act and the rules and regulations under such Acts; and
(b) not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
it is made, not misleading.
3.7 No Broker's or Finder's Fees. No agent, broker, investment banker,
----------------------------
person or firm acting on behalf or under
27
<PAGE>
authority of Commercial or any of the Commercial Subsidiaries is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
directly or indirectly in connection with the Merger or any other transaction
contemplated hereby, except Commercial has engaged Merrill Lynch & Co., an
investment banking firm, to provide financial advisory services and to deliver a
"fairness opinion" as to whether or not the Exchange Ratio is fair to
Commercial's shareholders from a financial point of view, whose fees and
reasonable out-of-pocket expenses will be paid by Commercial.
3.8 Compliance With Law.
-------------------
(a) Commercial and the Commercial Subsidiaries are in compliance in
all material respects with all material laws and regulations applicable to their
respective business or operations or with respect to which compliance is a
condition of engaging in the business thereof, and neither Commercial nor any
Commercial Subsidiary has received notice from any federal, state or local
government or governmental agency of any material violation of, and does not
know of any material violations of, any of the above.
(b) Commercial and each of it Subsidiaries have all material permits,
licenses, certificates of authority, orders and approvals of, and have made all
material filings, applications and registrations with, all federal, state, local
and foreign governmental or regulatory bodies that are required in order to
permit it to carry on its respective business as it is presently conducted.
3.9 Corporate Actions. The Boards of Directors of Commercial and the Bank
-----------------
have duly authorized their respective officers to execute and deliver (as
applicable) this Agreement, the Acquisition Merger Agreement, the Bank Plan of
Merger and the Option Agreement and to take all action necessary to consummate
the Merger and the other transactions contemplated hereby. All corporate
authorizations by the Board of Directors of Commercial required for the
consummation of the Merger have been obtained.
3.10 Authority. The execution, delivery and performance of this Agreement
---------
by Commercial and the Bank does not violate any of the provisions of, or
constitute a default under or give any person the right to accelerate payment or
performance under (i) the articles of incorporation or bylaws of Commercial, the
charter or bylaws of the Bank, or the articles of incorporation or bylaws or of
any other Commercial Subsidiary, (ii) any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or non-governmental permit or
license to which it or any of its Subsidiaries is subject or (iii) any other
Contract to which Commercial or any of the Commercial Subsidiaries is a party or
is subject to or by which any of their properties or assets is bound which
default, termination or acceleration would have a material
28
<PAGE>
adverse effect on the financial condition, business or results of operations of
Commercial and its Subsidiaries, taken as a whole. The parties acknowledge that
the consummation of the Merger and the other transactions contemplated hereby is
subject to various regulatory approvals. Commercial and the Bank have all
requisite corporate power and authority to enter into this Agreement and the
Option Agreement and to perform their obligations hereunder and thereunder.
Other than the receipt of Government Approvals, no consents or approvals are
required on behalf of Commercial or any Commercial Subsidiary in connection with
the consummation of the transactions contemplated by this Agreement and the
Option Agreement. This Agreement and the Option Agreement constitute the valid
and binding obligation of Commercial and the Bank, and are enforceable in
accordance with their terms, except as enforceability may be limited by
applicable laws relating to bankruptcy, insolvency or creditors' rights
generally and general principles of equity.
3.11 Information Furnished. No statement contained in any schedule,
---------------------
certificate or other document furnished (whether prior to or subsequent to the
date of this Agreement) or to be furnished in writing by or on behalf of
Commercial to Company pursuant to this Agreement contains or will contain any
untrue statement of a material fact or any material omission. No information
material to the Merger and which is necessary to make the representations and
warranties not misleading, to the best knowledge of Commercial, has been
withheld from the Company.
3.12 Litigation and Other Proceedings. Except for matters which would not
--------------------------------
have a material adverse effect on the business, financial condition or results
of operations of Commercial and Commercial's Subsidiaries taken as a whole,
neither Commercial nor any Commercial Subsidiary is a defendant in, nor is any
of its property subject to, any pending, or, to the best knowledge of the
management of Commercial, threatened, claim, action, suit, investigation, or
proceeding, or subject to any judicial order, judgment or decree.
3.13 Agreements and Instruments. As of the date of this Agreement, there
--------------------------
are no agreements, directives, orders or similar arrangements between or
involving Commercial or any Commercial Subsidiary and any state or federal
savings institution regulatory authority.
ARTICLE IV
COVENANTS
4.1 Investigations; Access and Copies. Between the date of this Agreement
---------------------------------
and the Acquisition Merger Effective Time, each party agrees to give to the
other party and its respective representatives and agents full access (to the
extent lawful) to
29
<PAGE>
all of the premises, books, records and employees of it and its subsidiaries at
all reasonable times, and to furnish and cause its subsidiaries to furnish to
the other party and its respective agents or representatives access to and true
and complete copies of such financial and operating data, all documents with
respect to matters to which reference is made in Articles II or III of this
Agreement or on any list, schedule or certificate delivered or to be delivered
in connection herewith, and such other documents, records, or information with
respect to the business and properties of it and its subsidiaries as the other
party or its respective agents or representative shall from time to time
reasonably request; provided, however, that any such inspection (a) shall be
-------- -------
conducted in such manner as not to interfere unreasonably with the operation of
the business of the entity inspected and (b) shall not affect any of the
representations and warranties hereunder. Each party will also give prompt
written notice to the other party of any event or development (x) which, had it
existed or been known on the date of this Agreement, would have been required to
be disclosed under this Agreement, (y) which would cause any of its
representations and warranties contained herein to be inaccurate or otherwise
materially misleading, or (z) which materially relate to the satisfaction of the
conditions set forth in Article V of this Agreement.
4.2 Conduct of Business of the Company and the Company Subsidiaries.
---------------------------------------------------------------
Between the date of this Agreement and the Acquisition Merger Effective Time,
the Company and Savings agree:
(a) That the Company and the Company Subsidiaries shall conduct
their business only in the ordinary course, and maintain their books and records
in accordance with past practices and not to take any action that would (i)
adversely affect the ability to obtain the Governmental Approvals or (ii)
adversely affect the Company's ability to perform its obligations under this
Agreement or the Stock Option Agreement or (iii) adversely affect the ability of
Savings to acquire and operate the seven branch offices it agreed to acquire by
contract dated January 31, 1995 from Metropolitan Federal Bank, fsb;
(b) That the Company shall not, without the prior written consent of
Commercial: (i) declare, set aside or pay any dividend or make any other
distribution with respect to Company's capital stock; (ii) reacquire any of
Company's outstanding shares; (iii) issue or sell or buy any shares of capital
stock of the Company or any Company Subsidiary, except shares of Company common
stock issued pursuant to the Company Option Plans; (iv) effect any stock split,
stock dividend or other reclassification of Company's common stock; or (v) grant
any options or issue any warrants exercisable for or securities convertible or
exchangeable into capital stock of Company or any Company Subsidiary or grant
any stock appreciation or other rights with respect to shares of capital stock
of Company or of any Company Subsidiary;
30
<PAGE>
(c) That Company and the Company Subsidiaries shall not, without the
prior written consent of Commercial: (i) sell or dispose of any significant
assets of the Company or of any Company Subsidiary other than in the ordinary
course of business consistent with past practices; (ii) merge or consolidate the
Company or any Company Subsidiary with or otherwise acquire any other entity, or
file any applications or make any contract with respect to branching by Savings
(whether de novo, purchase, sale or relocation, it being the understanding of
the parties, however, that Savings may acquire and operate the seven branches it
agreed to acquire by contract dated January 31, 1995) or acquire or construct,
or enter into any agreement to acquire or construct, any interest in real
property (other than with respect to security interests in properties securing
loans and properties acquired in settlement of loans in the ordinary course) or
improvements to real property; (iii) change the certificate of incorporation,
charter documents or other governing instruments of the Company or any Company
Subsidiary, except as provided in this Agreement; (iv) grant to any executive
officer, director or employee of the Company or any Company Subsidiary (A) any
increase in annual compensation, except for increases in salaries paid to non-
executive employees in the ordinary course of business, which inreases shall not
exceed $25,000 in the aggregate, or (B) any bonus type payment, except that
bonuses may be paid from the Company's formula bonus arrangement disclosed in
Section 4.2 of Schedule I pro rated to the Closing if the earnings targets the
Company previously advised Commercial are met, provided, that any actions taken
--------
pursuant to Section 4.13 of this Agreement shall not adversely impact the
ability of Savings to make any bonus payments in accordance herewith; (v) adopt
any new or amend or terminate any existing Employee Plans or Benefit
Arrangements of any type; (vi) authorize severance pay or other benefits for any
officer, director or employee of Company or any Company Subsidiary except, other
than as permitted hereby, in accordance with similar policies of Commercial;
(vii) incur any material indebtedness or obligation or enter into or extend any
material agreement or lease, except in the ordinary course of business
consistent with past practices; (viii) engage in any lending activities other
than in the ordinary course of business consistent with past practices; (ix)
form any new subsidiary or cause or permit a material change in the activities
presently conducted by any Company Subsidiary or make additional investments in
subsidiaries; (x) purchase any debt securities or derivative securities,
including CMO or REMIC products, that are defined as "high risk mortgage
securities" under OTS Thrift Bulletin No. 52 dated January 10, 1992 as revised
or purchase any Derivatives Contracts or Structured Notes; (xi) purchase any
equity securities other than Federal Home Loan Bank stock; (xii) make any
investment which would cause Savings to not be a qualified thrift lender under
Section 10(m) of the HOLA, or not to be a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Code; (xiii) make (A) any
acquisition and development or land acquisition loans, (B) any commercial or
commercial real estate
31
<PAGE>
loan or multifamily real estate loan, (C) any construction loans, or (D) any
loans for the construction or development of condominium projects, except in
each case in accordance with existing policies as of the date hereof or as may
otherwise be agreed to by Commercial and the Company after the date hereof;
(xiv) authorize capital expenditures other than in the ordinary course of
business; (xv) adopt or implement any change in its accounting principles,
practices or methods other than as may be required by generally accepted
accounting principles or adopt or implement any change in its methods of
accounting for Federal income tax purposes; or (xvi) make any loan in which
participation interests therein are to be sold to other persons or entities or
acquire a participation interest in a loan originated by another person or
entity. The limitations contained in this Section 4.2(c) shall also be deemed to
constitute limitations as to the making of any commitment with respect to any of
the matters set forth in this Section 4.2(c). Notwithstanding the foregoing,
Savings may engage in any of the foregoing activities exclusively with the Bank.
4.3 No Solicitation. The Company will not authorize any officer,
---------------
director, employee, investment banker, financial consultant, attorney,
accountant or other representative of Company or any Company Subsidiary,
directly or indirectly, to initiate contact with any person or entity in an
effort to solicit, initiate or encourage any "Takeover Proposal" (as such term
is defined below). Except as the fiduciary duties of the Company Board of
Directors may otherwise require (as determined in consultation with legal
counsel), the Company will not authorize any officer, director, employee,
investment banker, financial consultant, attorney, accountant or other
representative of the Company or any Company Subsidiary, directly or indirectly,
(A) to cooperate with, or furnish or cause to be furnished any non-public
information concerning its business, properties or assets to, any person or
entity in connection with any Takeover Proposal; (B) to negotiate any Takeover
Proposal with any person or entity; or (C) to enter into any agreement, letter
of intent or agreement in principle as to any Takeover Proposal. The Company
will promptly give written notice to Commercial upon becoming aware of any
Takeover Proposal, such notice to contain, at a minimum, the identity of the
persons submitting the Takeover Proposal, a copy of any written inquiry or other
communication, the terms of any Takeover Proposal, any information requested or
discussions sought to be initiated and the status of any requests, negotiations
or expressions of interest. As used in this Agreement with respect to the
Company, "Takeover Proposal" shall mean any proposal, other than as contemplated
by this Agreement, for a merger or other business combination involving the
Company or Savings or for the acquisition of a ten percent (10%) or greater
equity interest in Company or Savings, or for the acquisition of a substantial
portion of the assets of Company or Savings (other than loans or securities sold
in the ordinary course).
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4.4 Shareholder Approvals. The Company shall call the meeting of its
---------------------
shareholders to be held for the purpose of voting upon the Acquisition Merger
and related matters, as referred to in Section 1.7 hereof, as soon as
practicable. In connection with such meeting, the Company Board of Directors
shall recommend approval of the Merger, subject to the fiduciary duties of the
Board of Directors and receipt of an updated fairness opinion immediately prior
to the date of mailing of the Prospectus/Proxy Statement. The Company shall use
its best efforts to solicit from its shareholders proxies in favor of approval
and to take all other action necessary or helpful to secure a vote of the
holders of the shares of Company common stock in favor of the Merger, except as
the fiduciary duties of the Boards of Directors may otherwise require.
4.5 Filing of Holding Company and Merger Applications. Commercial shall
-------------------------------------------------
use its best efforts promptly to prepare, submit and file, a holding company
application to the OTS pursuant to 12 C.F.R. (S)574.3 for acquisition of control
of Company and Savings and a merger application to the OTS pursuant to the Bank
Merger Act and 12 C.F.R. 563.22(a) for the Bank Merger and any other
applications required to be filed in connection with the transactions
contemplated hereby. Commercial and the Company each agree to use their best
efforts to secure the OTS confirmation described in Section 5.2(h)(ii) herein.
4.6 Consents. Company and Savings will use their best efforts to obtain
--------
the consent or approval of each person whose consent or approval shall be
required in order to permit Company or Savings, as the case may be, to
consummate the Acquisition Merger and the Bank Merger.
4.7 Resale Letter Agreements; Pooling of Interests. After execution of
----------------------------------------------
this Agreement, (i) Company shall use its best efforts to cause to be delivered
to Commercial from each person who may be deemed to be an "affiliate" of Company
within the meaning of Rule 145, a written letter agreement regarding
restrictions on resale of the shares of Commercial common stock received by such
persons in the Merger and upon exercise of options received under Section 1.8
herein subsequent to the Acquisition Merger Effective Time to ensure compliance
with applicable resale restrictions imposed under the federal securities laws
and to ensure pooling of interest accounting treatment and (ii) neither
Commercial nor the Company (including the Company Subsidiaries) shall take any
action which would materially impede or delay consummation of the Merger, or
prevent the transactions contemplated hereby from (A) qualifying for accounting
treatment as a "pooling of interests" (unless this requirement is waived (in
writing, if the action is to be taken by the Company) by Commercial in which
event the condition set forth in Section 5.2(f) hereof shall also be deemed
waived by Commercial) or (B) qualifying as a reorganization within the meaning
of Section 368 of the Code; provided that nothing hereunder shall limit the
33
<PAGE>
ability of Commercial to exercise its rights under the Option Agreement.
4.8 Publicity. Between the date of this Agreement and the Acquisition
---------
Merger Effective Time, neither Commercial, Company or any of their subsidiaries
shall, without the prior approval of the other, issue or make, or permit any of
its directors, employees, officers or agents to issue or make, any press
release, disclosure or statement to the press or any third party with respect to
the Merger or the transactions contemplated hereto, except as required by law.
The parties shall cooperate when issuing or making any press release, disclosure
or statement with respect to Merger or the transactions contemplated hereby,
except as required by law.
4.9 Cooperation Generally. Between the date of this Agreement and the
---------------------
Acquisition Merger Effective Time, Commercial, Company and their subsidiaries
shall use their best efforts, and take all actions necessary or appropriate, to
consummate the Merger and the other transactions contemplated by this Agreement
at the earliest practicable date.
4.10 Additional Financial Statements and Reports. As soon as reasonably
-------------------------------------------
practicable after they become publicly available, the Company shall furnish to
Commercial and Commercial shall furnish to the Company, respectively, its
balance sheet and related statements of operations, cash flows and stockholders'
equity for all periods prior to the Closing. Such financial statements will be
prepared in conformity with generally accepted accounting principles applied on
a consistent basis and fairly present the financial condition, results of
operations and cash flows of the Company or Commercial, as the case may be
(subject, in the case of unaudited financial statements, to (a) normal year-end
audit adjustments, (b) any other adjustments described therein and (c) the
absence of notes which, if presented, would not differ materially from those
included in its most recent audited consolidated balance sheet, and all of such
financial statements will be prepared in conformity with the requirements of
Form 10-Q or Form 10-K, as the case may be, under the Exchange Act.
4.11 Due Diligence. For a period commencing on the date hereof and ending
-------------
on May 24, 1995, the Company shall permit Commercial and its counsel and other
representatives to conduct a due diligence investigation of the Company and its
Subsidiaries. The Company shall provide full access during normal business hours
for such review of its properties, books and records. The Company shall furnish
Commercial with such information concerning its affairs and the affairs of the
Company Subsidiaries as may reasonably be requested.
4.12 Stock Listing. Commercial agrees to use all reasonable efforts to
-------------
cause to be listed on the NASDAQ National Market System (or such other national
securities exchange on which the shares of
34
<PAGE>
Commercial common stock outstanding as of the date hereof shall be listed as of
the date of consummation of the Merger), subject to official notice of issuance,
the shares of Commercial common stock to be issued in the Merger.
4.13 Allowance for Loan and Real Estate Owned Losses. At the request of
-----------------------------------------------
Commercial and in an amount specified by Commercial, prior to the Acquisition
Merger Effective Time, the Company and Savings shall establish such additional
provisions for loan and real estate owned losses as may be necessary in the sole
determination of Commercial to conform the Company's and Savings' loan and real
estate owned allowance practices and methods to those of Commercial and the Bank
(as such practices and methods are to be applied to Company and Savings from and
after the Acquisition Merger Effective Time); provided, however, that Company
and Savings shall not be required to take such action until: (i) Company and
Savings provide to Commercial a written statement dated the date of Closing
certified by the Chairman of the Board, the President and the Chief Financial
Officer of the Company and Savings, that the conditions in Sections 5.1 and 5.2
to be satisfied by the Company or Savings or both of them have been satisfied by
either or both of them or, alternatively, setting forth in detail the
circumstances that have prevented such conditions from being satisfied (the
"Reliance Certificate"); and (ii) Commercial and the Bank, after reviewing the
Reliance Certificate, provide the Company and Savings a written waiver of any
right either entity may have to terminate the Agreement which waiver shall
contain an express condition precedent that Company and Savings have established
such additional provisions for loan and real estate losses as requested by
Commercial pursuant to this Section 4.13. No additional provision for loan and
real estate owned losses taken by Savings pursuant to this Section 4.13 shall be
deemed in and of itself to be a breach or violation of any representation,
warranty, covenant, condition or other provision of this Agreement.
4.14 D&O Indemnification and Insurance. For a period of six (6) years
---------------------------------
following the Acquisition Merger Effective Time, Commercial agrees that the
Merger shall not affect or diminish any of the Company's duties and obligations
of indemnification existing as of the Acquisition Merger Effective Time in favor
of employees, agents, directors or officers of the Company or the Company
Subsidiaries arising by virtue of its Certificate of Incorporation or Bylaws in
the form in effect at the date of this Agreement or arising by operation of law.
Commercial shall cause the persons serving as officers and directors of the
Company immediately prior to the Acquisition Merger Effective Time to be covered
for a period of three years from the Acquisition Merger Effective Time by the
directors' and officers' liability insurance policy maintained by the Company
(provided that Commercial may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not materially
less advantageous than such policy) with respect to acts or omissions occurring
prior to the
35
<PAGE>
Acquisition Merger Effective Time which were committed by such officers and
directors in their capacity as such; provided, however, that in no event shall
Commercial be required to expend more than 150% of the amount currently expended
by the Company to maintain or procure insurance coverage for such three year
period pursuant hereto.
ARTICLE V
CONDITIONS OF THE MERGER;
TERMINATION OF AGREEMENT
5.1 General Conditions. The obligations of Commercial, the Bank, the
------------------
Company and Savings to effect the Acquisition Merger and the Bank Merger shall
be subject to the following conditions:
(a) Stockholder Approval. The holders of the outstanding shares of
--------------------
Company common stock shall have approved this Agreement and the Acquisition
Merger as specified in Section 1.7 hereof or as otherwise required by applicable
law.
(b) No Proceedings. No order shall have been entered and remain in
--------------
force restraining or prohibiting the Merger in any legal, administrative,
arbitration, investigatory or other proceedings (collectively, "Proceedings") by
any governmental or judicial or other authority.
(c) Government Approvals. To the extent required by applicable
--------------------
law or regulation, all approvals of or filings with any governmental authority
(collectively, "Governmental Approvals"), including without limitation those of
the OTS, the FDIC, the Federal Trade Commission, DOJ, the SEC, and any state
securities or blue sky authorities, shall have been obtained or made and any
waiting periods shall have expired in connection with the consummation of the
Merger. All other statutory or regulatory requirements for the valid
consummation of the Merger and related transactions shall have been satisfied.
(d) Registration Statement. The Registration Statement shall have
----------------------
been declared effective and shall not be subject to a stop order of the SEC and,
if the offer and sale of Commercial's common stock in the Merger pursuant to
this Agreement is subject to the Blue Sky laws of any state, shall not be
subject to a stop order of any state securities commissioner.
(e) Federal Tax Opinion. Receipt of either an opinion of Deloitte &
-------------------
Touche LLP, or other tax advisor reasonably acceptable to Commercial and the
Company, or a private letter ruling from the IRS, in form and content
reasonably satisfactory to Commercial and the Company, and upon which Company
shareholders may rely, to the effect that for federal income tax purposes:
36
<PAGE>
(i) The Acquisition Merger and the Bank Merger will each
qualify as a "reorganization" under Section 368(a) of the Code.
(ii) No gain or loss will be recognized by Commercial, the
Bank, the Company or Savings by reason of the Acquisition Merger or the Bank
Merger.
(iii) No gain or loss will be recognized by any Company
shareholder (except in connection with the receipt of cash in lieu of a
fractional share of Commercial common stock) upon the exchange of Company common
stock for Commercial common stock in the Merger.
(iv) The basis of the Commercial common stock received by a
Company shareholder who exchanges Company common stock for Commercial common
stock will be the same as the basis of the Company common stock surrendered in
exchange therefor (subject to any adjustments required as the result of receipt
of cash in lieu of a fractional share of Commercial common stock).
(v) The holding period of the Commercial common stock received
by a Company shareholder receiving Commercial common stock will include the
period during which the Company common stock surrendered in exchange therefore
was held (provided that such common stock of such Company shareholder was held
as a capital asset at the Acquisition Merger Effective Time).
(vi) Cash received by a Company shareholder in lieu of a
fractional share interest of Commercial common stock will be treated as having
been received as a distribution in full payment in exchange for the fractional
share interest of Commercial common stock which he would otherwise be entitled
to receive and will qualify as capital gain or loss (assuming the Company stock
was a capital asset in his hands at the Acquisition Merger Effective Time).
5.2 Conditions to Obligations of Commercial and Bank. The obligations of
------------------------------------------------
Commercial and Bank to effect the Merger and the transactions contemplated
herein shall be subject to the following additional conditions:
(a) Opinion of Counsel for Company. Commercial shall have received
------------------------------
from Thompson & Mitchell, counsel to Company, an opinion dated as of the Closing
covering the matters to be set forth in Exhibit 5.2(a).
(b) Required Consents. In addition to Governmental Approvals,
-----------------
Company and Savings shall have obtained all necessary third party consents or
approvals in connection with the Merger, the absence of which would materially
and adversely affect Company and the Company Subsidiaries, taken as a whole; in
this connection,
37
<PAGE>
the Company and Savings shall obtain consents from all lessors to their
respective real estate leases that may be required for consummation of the
Merger.
(c) Company Accountants' Letter. Commercial shall deliver an
---------------------------
appropriate representation letter pursuant to SAS 72 and shall have received
from KPMG Peat Marwick LLP, letters dated the date of mailing the
Prospectus/Proxy Statement and the date of the Closing to the effect that: (i)
with respect to the Company they are independent accountants within the meaning
of the 1933 Act and 1934 Act and the applicable rules and regulations
thereunder, (ii) it is their opinion that the audited financial statements of
the Company included in the Prospectus/Proxy Statement comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and 1934 Act and the applicable published accounting rules and regulations
thereunder, (iii) on the basis of such procedures as are set forth therein but
without performing an examination in accordance with generally accepted auditing
standards nothing has come to their attention which would cause them to believe
that (A) any unaudited interim financial statements appearing in the
Prospectus/Proxy Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and 1934 Act and the
published rules and regulations thereunder; (B) said financial statements are
not stated on a basis substantially consistent with that of the audited
financial statements; (C) (1) at the date of the latest available consolidated
financial statements of the Company and at a specific date not more than five
business days prior to the date of each such letter there has been, except as
specified in such letter, any increase in the outstanding capital stock, or
indebtedness for borrowed money of the Company (other than deposits and Federal
Home Loan Bank advances with a maturity of one year or less) or any decrease in
the stockholders' equity thereof as compared with amounts shown in the latest
statement of financial condition included in the Prospectus/Proxy Statement, or
(2) for the period from the date of the latest audited financial statements of
the Company included in the Prospectus/Proxy Statement to a specific date not
more than five business days prior to the date of each such letter, there were,
except as specified in such letter, any decreases, as compared with the
corresponding period in the preceding year, in consolidated net income for
Company or any increase, as compared with the corresponding period in the
preceding year, in the provision for loan losses for Company, (iv) they have
performed certain specific procedures as a result of which they determined that
certain information of an accounting, financial or statistical nature included
in the Prospectus/Proxy Statement and requested by Commercial and agreed upon by
such accountants, which is expressed in dollars (or percentages obtained from
such dollar amounts) and obtained from accounting records which are subject to
the internal controls of the Company's accounting system or which has been
derived directly from such accounting records by analysis or computation is in
38
<PAGE>
agreement with such records or computations made therefrom (excluding any
questions of legal interpretation), and (v) on the basis of such procedures as
are set forth in such letter, nothing came to their attention with respect to
the Company which would cause them to believe that the pro forma financial
statements had not been properly compiled on the pro forma basis described
therein.
(d) No Material Adverse Change. Between the date of this Agreement
--------------------------
and the date of Closing, there shall not have occurred any material adverse
change in the financial condition, business or results of operations of Company
and the Company Subsidiaries, taken as a whole, other than any such change
attributable to or resulting from any change in law, regulation or generally
accepted accounting principles which impair both the Company and Commercial in a
substantially similar manner.
(e) Representations and Warranties to be True; Fulfillment of
---------------------------------------------------------
Covenants and Conditions. The representations and warranties of the Company and
------------------------
Savings shall be true in all material respects at the Acquisition Merger
Effective Time with the same effect as though made at the Acquisition Merger
Effective Time (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date); Company and Savings
shall have performed all obligations and complied with each covenant, in all
material respects, and all conditions under this Agreement on their parts to be
performed or complied with at or prior to the Acquisition Merger Effective Time;
and Company shall have delivered to Commercial a certificate, dated the
Acquisition Merger Effective Time and signed by its chief executive officer and
chief financial officer, to such effect.
(f) Commercial Accountants' Letter. Commercial shall have received
------------------------------
from Deloitte & Touche LLP a letter dated the Acquisition Merger Effective Time,
in substance reasonably acceptable to Commercial, stating its opinion that,
based upon the information furnished to it, the Merger should be accounted for
by Commercial as a "pooling of interests" for financial statement purposes and
that such accounting treatment is in accordance with generally accepted
accounting principles.
(g) No Litigation. Neither the Company nor any Company Subsidiary
-------------
shall be a party to any pending litigation, reasonably probable of being
determined adversely to the Company or any Company Subsidiary, which would have
a material adverse effect on the business, financial condition or results of
operations of the Company and the Company Subsidiaries, taken as a whole.
(h) Regulatory Approval. (i) All Governmental Approvals required
-------------------
hereunder to consummate the transactions contemplated hereby shall have been
obtained without the imposition of any conditions which Commercial and the Bank
reasonably and in good
39
<PAGE>
faith determine to be unduly burdensome upon the conduct of the business of
Commercial or the Bank; and (ii) in connection with such Governmental Approvals,
the OTS and any other applicable governmental agency shall confirm in writing
that the Bank, as the surviving institution of the Bank Merger, shall be
lawfully authorized to operate, maintain and replace Savings agency offices to
the same extent as Savings currently operates, maintains and replaces such
agency offices and such authorization shall be subject to no time or other
restriction not in effect as of the date hereof.
(i) Acceptance of Legal Matters. The form and substance of all
---------------------------
legal matters contemplated hereby and all papers delivered hereunder shall be
reasonably acceptable to Housley Goldberg Kantarian & Bronstein, P.C., special
counsel to Commercial and the Bank.
(j) Affiliates Letters. Commercial shall have received the letter
------------------
agreements from all affiliates of the Company as contemplated in Section 4.7(i)
herein.
(k) Fairness Opinion. Prior to mailing the Prospectus/Proxy
----------------
Statement, Commercial shall have received an updated written opinion from
Merrill Lynch & Co. to the effect that the Exchange Ratio is fair to Commercial
from a financial point of view.
(l) Environmental Reports. Commercial, at its expense, shall have
---------------------
received a Phase I Environmental Risk Report (as contemplated in OTS Thrift
Bulletin #16) on (i) all commercial real estate owned of, (ii) all offices and
premises used as facilities by, and (iii) all properties which serve as security
for any commercial real estate loan having an original principal balance of
$1,000,000 or more of, the Company and Savings, such Reports or other reports
derived therefrom or supplemental thereto to be satisfactory to Commercial.
5.3 Conditions to Obligations of Company and Savings. The obligations of
------------------------------------------------
Company and Savings to effect the Acquisition Merger and the transactions
contemplated herein shall be subject to the following additional conditions:
(a) Opinion of Counsel for Commercial. Company shall have received
---------------------------------
from Housley Goldberg Kantarian & Bronstein, P.C., special counsel to
Commercial, and Fitzgerald, Schorr, Barmettler & Brennan, an opinion dated as of
the Closing covering the matters to be set forth in Exhibit 5.3(a).
(b) Representations and Warranties to be True; Fulfillment of
---------------------------------------------------------
Covenants and Conditions. The representations and warranties of Commercial and
------------------------
the Bank shall be true in all material respects at the Acquisition Merger
Effective Time with the same
40
<PAGE>
effect as though made at the Acquisition Merger Effective Time (or on the date
when made in the case of any representation or warranty which specifically
relates to an earlier date); Commercial and the Bank shall have performed all
obligations and complied with each covenant, in all material respects, and all
conditions under this Agreement on their parts to be performed or complied with
at or prior to the Acquisition Merger Effective Time; and Commercial shall have
delivered to Company a certificate, dated the Acquisition Merger Effective Time
and signed by its chief executive officer and chief financial officer, to such
effect.
(c) Acceptance of Legal Matters. The form and substance of all
---------------------------
legal matters contemplated hereby and all papers delivered hereunder shall be
reasonably acceptable to Thompson & Mitchell, counsel to the Company.
(d) Fairness Opinion. Prior to mailing the Prospectus/Proxy
----------------
Statement, the Company shall have received an updated written opinion from Piper
Jaffray Inc. to the effect that the consideration to be received by the Company
shareholders in the Acquisition Merger is fair from a financial point of view to
the stockholders of the Company.
(e) Commercial Common Stock. A certificate for the required number
-----------------------
of whole shares of Commercial common stock, as determined pursuant to Section
1.3 hereof, and cash for the fractional share interests, as so determined, shall
have been delivered to the Exchange Agent.
(f) Required Consents. In addition to Governmental Approvals,
-----------------
Commercial and the Bank shall have obtained all necessary third party consents
or approvals in connection with the Merger, the absence of which would
materially and adversely affect Commercial and the Commercial Subsidiaries,
taken as a whole.
5.4 Termination of Agreement and Abandonment of Merger. This Agreement
--------------------------------------------------
and the Acquisition Plan of Merger may be terminated at any time before the
Acquisition Merger Effective Time, whether before or after approval thereof by
shareholders of Company, as provided below:
(a) Mutual Consent. By mutual consent of the parties, evidenced by
--------------
their written agreement.
(b) Closing Delay. At the election of either party, evidenced by
-------------
written notice, if the Closing shall not have occurred on or before March 31,
1996, or such later date as shall have been agreed to in writing by the parties;
provided, however, that the right to terminate under this Section 5.4(b) shall
-------- -------
not be available to any party whose failure to perform an obligation hereunder
has been the cause of, or has resulted in, the failure of the Closing to occur
on or before such date.
41
<PAGE>
(c) Conditions to Commercial Performance Not Met. By Commercial
--------------------------------------------
upon delivery of written notice of termination to Company if any event occurs
which renders impossible of satisfaction in any material respect one or more of
the conditions to the obligations of Commercial and the Bank to effect the
Merger set forth in Sections 5.1 and 5.2 and noncompliance is not waived by
Commercial, provided, however, that (i) Commercial's right to terminate this
-------- -------
Agreement due to failure of the condition set forth in Section 5.2(l) shall
expire unless exercised by Commercial on or prior to August 16, 1995; and (ii)
the right to terminate under this Section 5.4(c) shall not be available to
Commercial where Commercial's or Bank's failure to perform an obligation
hereunder has been the cause of, or has resulted in, the failure of the Closing
to occur on or before such date.
(d) Conditions to Company Performance Not Met. By the Company upon
-----------------------------------------
delivery of written notice of termination to Commercial if any event occurs
which renders impossible of satisfaction in any material respect one or more of
the conditions to the obligations of Company and Savings to effect the Merger
set forth in Sections 5.1 and 5.3 and noncompliance is not waived by Company,
provided, however, that the right to terminate under this Section 5.4(d) shall
-------- -------
not be available to the Company where the Company's or Savings' failure to
perform an obligation hereunder has been the cause of, or has resulted in, the
failure of the Closing to occur on or before such date.
(e) Commercial Due Diligence Not Satisfactory. By Commercial at any
-----------------------------------------
time prior to the close of business on May 24, 1995, if Commercial shall not
be satisfied with the results of its due diligence investigation (including
review of the Company Disclosure Schedule (Schedule I) and any documents or
information set forth or disclosed therein) to be conducted pursuant to Section
4.11 herein.
(f) Average NMS Closing Price. By the Company at any time during
-------------------------
the two business day period commencing on the business day immediately after the
end of the Determination Period, if both of the following conditions are met:
(i) the Average NMS Closing Price shall be less than $20.00
(adjusted as indicated below in this Section 5.4(f)); and
(ii) (A) the number obtained by dividing the Average NMS
Closing Price by the Starting Price shall be less than (B) the number obtained
by dividing the Index Price on the last day of the Determination Period by the
Index Price on the Starting Date and subtracting 0.15 from the quotient in this
clause (ii)(B);
subject, however, to the following three sentences. If the Company elects to
exercise its termination right pursuant to this Section
42
<PAGE>
5.4(f), it shall give written notice to Commercial no later than the end of the
aforementioned two day period. During the two business day period commencing
with the business day after its receipt of such notice, Commercial shall have
the option to increase the consideration to be received by the holders of
Company common stock hereunder, by adjusting the Exchange Ratio to equal the
number (calculated to four digits) obtained by dividing (A) $14.38 by (B) the
Average NMS Closing Price. If Commercial so elects within such two day period,
it shall give written notice to the Company no later than the end of the
aforementioned two day period of such election and the revised Exchange Ratio,
whereupon no termination shall have occurred pursuant to this Section 5.4(f) and
this Agreement shall remain in effect in accordance with its terms (except as
the Exchange Ratio shall have been so modified).
For purposes of this Section 5.4, the following terms shall have the
meanings indicated:
"Average NMS Closing Price" shall have the meaning specified in
Section 1.3(b).
"Determination Period" shall have the meaning specified in Section
1.3(b).
"Index Group" means the financial institutions listed on the SNL
Midwest Thrift Index, as published by SNL Securities LP, and as to which there
shall not have been a publicly announced proposal since the Starting Date and
before the Determination Date for any such company on such list. In the event
that the common stock of any such company ceases to be publicly traded or a
proposal to acquire any such company is announced after the Starting Date and
before the Determination Date, such company will be removed from the Index
Group, and the weights attributed to the remaining companies will be adjusted
proportionately for purposes of determining the Index Price.
"Index Price," on a given date, means the weighted average of the
closing prices on such dates of the common stocks of the companies comprising
the Index Group.
"Starting Date" means the last trading day immediately preceding the
date of the first public announcement of entry into this Agreement or, if no
trades of Commercial common stock occur on such day then the date most
immediately preceding such day in which a trade of Commercial common stock
occurred.
"Starting Price" means the closing price per share of Commercial
common stock, as reported on the National Market System (as reported by The Wall
Street Journal or, if not reported thereby, another authoritative source) for
the Starting Date or, if no trades of Commercial common stock occur on such day
then the
43
<PAGE>
date most immediately preceding such day in which a trade of Commercial common
stock occurred.
If Commercial or any company belonging to the Index Group declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting Date
and the Determination Date, the prices for the common stock of such company
shall be appropriately adjusted for the purposes of applying this Section
5.4(f).
ARTICLE VI
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
6.1 Termination; Lack of Survival of Representations and Warranties. In
---------------------------------------------------------------
the event of the termination and abandonment of this Agreement pursuant to
Section 5.4 of this Agreement, this Agreement shall become void and have no
effect, except that (i) the provisions of Sections 2.7 and 3.7 (Brokers and
Finders), 4.8 (Publicity), 6.2 (Expenses) and 8.2 (Confidentiality) of this
Agreement shall survive any such termination and abandonment, and (ii) a
termination pursuant to Sections 5.4(c) or 5.4(d) of this Agreement shall not
relieve the breaching party from liability for an uncured intentional and
willful breach of a representation, warranty, covenant, or agreement giving rise
to such termination.
The representations, warranties and agreements of the parties set forth in
this Agreement shall not survive the Acquisition Merger Effective Time, and
shall be terminated and extinguished at the Acquisition Merger Effective Time,
and from and after the Acquisition Merger Effective Time none of the parties
hereto shall have any liability to the other on account of any breach or failure
of any of those representations, warranties and agreement; provided, however,
-------- -------
that the foregoing clause shall not (i) apply to agreements of the parties which
by their terms are intended to be performed after the Acquisition Merger
Effective Time, and (ii) shall not relieve any person for liability for fraud,
deception or intentional misrepresentation.
6.2 Payment of Expenses. 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. The Company shall select the printer and
pay the expenses of printing the Prospectus/Proxy Statement.
44
<PAGE>
ARTICLE VII
CERTAIN POST-MERGER AGREEMENTS
7.1 Registration of Stock Underlying Stock Options. In order to permit
----------------------------------------------
the exercise of options to purchase Commercial common stock which were
originally granted under the Company Option Plans and are to be substituted and
assumed by Commercial under the provisions of Section 1.8 hereof, at and after
the Acquisition Merger Effective Time, Commercial shall take all such actions as
may be necessary or appropriate in order to carry out fully the provisions of
Section 1.8 hereof.
7.2 Reports to the SEC. Commercial shall continue to file all reports and
------------------
data with the SEC necessary to permit the shareholders of Company who may be
deemed "underwriters" (within the meaning of Rule 145 under the 1933 Act) of
Company common stock to sell the Company common stock received by them in
connection with the Merger pursuant to Rules 144 and 145(d) under such Act if
they would otherwise be so entitled.
7.3 Employees.
---------
(a) Employees of the Company or Savings who become employees of
Commercial or the Bank after the Acquisition Merger Effective Time shall be
eligible to participate in all benefit plans sponsored by Commercial or the Bank
to the same extent as other similarly situated Commercial or Bank employees.
Commercial shall honor all accrued vacation leave for the employees of Company
and the Company Subsidiaries following the Acquisition Merger Effective Time.
(b) Commercial agrees that any employees of the Company or Savings
whose employment is terminated at any time after the Acquisition Merger
Effective Time shall be entitled to receive a severance payment in accordance
with Exhibit 7.3(b) attached hereto.
ARTICLE VIII
GENERAL
8.1 Amendments. Subject to applicable law, this Agreement may be amended,
----------
whether before or after any relevant approval of shareholders, by an agreement
in writing executed in the same manner as this Agreement and authorized or
ratified by the Boards of Directors of the parties hereto, provided that, after
-------------
the adoption of the Agreement by the shareholders of the Company, no such
amendment without further shareholder approval may change the amount or form of
the consideration to be received by the Company shareholders in the Merger.
45
<PAGE>
8.2 Confidentiality. All information disclosed hereafter by any party to
---------------
this Agreement to any other party to this Agreement, including, without
limitation, any information obtained pursuant to Sections 4.1 or 4.11 hereof,
shall be kept confidential by such other party and shall not be used by such
other party otherwise than as herein contemplated except to the extent that (i)
it was known by such other party when received, (ii) it is or hereafter becomes
lawfully obtainable for other sources, (iii) it is necessary or appropriate to
disclose to the OTS, the FDIC or any other regulatory authority having
jurisdiction over the parties or their subsidiaries or as may otherwise be
required by law, or (iv) to the extent such duty as to confidentiality is waived
by the other party. In the event of the termination of this Agreement, each
party shall use all reasonable efforts to return upon request to the other
parties all documents (and reproductions thereof) received from such other
parties (and, in the case of reproductions, all such reproductions made by the
receiving party) that include information not within the exceptions contained in
the first sentence of this Section 8.2.
8.3 Governing Law. This Agreement and the legal relations between the
-------------
parties shall be governed by and construed in accordance with the laws of the
State of Nebraska without taking into account a provision regarding choice of
law, except to the extent certain matters may be governed by federal law by
reason of preemption.
8.4 Notices. Any notices or other communications required or permitted
-------
hereunder shall be sufficiently given if sent by registered mail or certified
mail, postage prepaid, addressed, if to Commercial or Company, to
Commercial Federal Corporation
2120 South 72nd Street
Omaha, Nebraska 68124
Attention: William A. Fitzgerald, Chairman of
the Board and Chief Executive
Officer
with a copy to:
Housley Goldberg Kantarian & Bronstein, P.C.
Suite 700
1220 19th Street, N.W.
Washington, DC 20036
Attention: Leonard S. Volin, Esq.
and
46
<PAGE>
Railroad Financial Corporation
110 South Main Street
Wichita, Kansas 67202
Attention: Robert D. Taylor, Chairman of the
Board and President
with a copy to:
Thompson & Mitchell
One Mercantile Center
Suite 3300
St. Louis, Missouri 63101
Attention: Paul F. Pautler, Esq.
or such other address as shall be furnished in writing by any such party, and
any such notice or communication shall be deemed to have been given two business
days after the date of such mailing (except that the notice of change of address
shall not be deemed to have been given until received by the addressee). Notices
may also be sent by telegram, telex, facsimile transmission or hand delivery and
in such event shall be deemed to have been given as of the date received.
8.5 No Assignment. This Agreement may not be assigned by any of the
-------------
parties hereto, by operation of law or otherwise, except as contemplated hereby.
8.6 Headings. The description heading of the several Articles and
--------
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
8.7 Counterparts. This Agreement may be extended in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
8.8 Construction and Interpretation. Except as the context otherwise
-------------------------------
requires, (a) all references herein to any state or federal regulatory agency
shall also be deemed to refer to any predecessor or successor agency, and (b)
all references to state and federal statutes or regulations shall also be deemed
to refer to any successor statute or regulation.
8.9 Entire Agreement. This Agreement, together with the schedules, lists,
----------------
exhibits and certificates required to be delivered hereunder, and any amendment
hereafter executed and delivered in accordance with Section 8.1, constitutes the
entire agreement of the parties, and supersedes any prior written or oral
agreement or understanding among any of the parties hereto pertaining to the
Merger. This Agreement is not intended to confer
47
<PAGE>
upon any other persons any rights or remedies hereunder except as expressly set
forth herein.
8.10 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of the Agreement.
8.11 No Third Party Beneficiaries. Nothing in this Agreement shall
----------------------------
entitle any person (other than the Company, Savings, Commercial or the Bank and
their respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind, except as otherwise expressly provided
herein.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunder duly authorized, all as of the
date set forth above.
COMMERCIAL FEDERAL CORPORATION RAILROAD FINANCIAL CORPORATION
By: /s/ William A. Fitzgerald By: /s/ Robert D. Taylor
------------------------------ ---------------------
Name: William A. Fitzgerald Name: Robert D. Taylor
Title: Chairman of the Board and Title: Chairman of the Board and
Chief Executive Officer Chief Executive Officer
COMMERCIAL FEDERAL BANK, A RAILROAD SAVINGS BANK, FSB
FEDERAL SAVINGS BANK
By: /s/ William A. Fitzgerald By: /s/ Robert D. Taylor
------------------------------ ---------------------
Name: William A. Fitzgerald Name: Robert D. Taylor
Title: Chairman of the Board and Title: Chairman of the Board and
Chief Executive Officer Chief Executive Officer
48
<PAGE>
ANNEX B
<PAGE>
Annex B
August __, 1995
The Board of Directors
Railroad Financial Corporation
110 S. Main Street, Suite 900
Wichita, KS 67202
Members of the Board:
In connection with the proposed merger transaction (the "Merger") pursuant to a
Reorganization and Merger Agreement to be dated April 18, 1995 (the
"Agreement"), whereby Railroad Financial Corp. ("Railroad") shall be merged with
and into Commercial Federal Corporation ("Commercial Federal") you have
requested our opinion as to the fairness, from a financial point of view, to the
holders (the "Shareholders") of Railroad's common stock of the consideration to
be received in the Merger. Pursuant to the Agreement, the consideration to be
received by the Shareholders will consist of Commercial Federal common stock to
be issued in a transaction which we have been advised by management of the
parties will be accounted for as a pooling of interests transaction.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwriting and secondary
distributions of securities, private placements and valuations for estate,
corporate and other purposes. We make a market in Railroad and Commercial
Federal common stock and public debt securities and provide research coverage on
Railroad and Commercial Federal. We acted as a manager of a public offering of
Railroad senior notes in 1992 and as a lead manager of a public offering of
Commercial Federal subordinated notes in 1992. For our services in rendering
this opinion, Railroad will pay Piper Jaffray a fee which is not contingent upon
the consummation of the Merger. Railroad will also indemnify Piper Jaffray
against certain liabilities in connection with its engagement.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed a draft of the Agreement dated April 14, 1995,
audited consolidated financial statements for Railroad for the five years ended
December 31, 1994, unaudited consolidated financial statements for Railroad for
the three month period ended March 31, 1995, audited consolidated financial
statements for Commercial Federal for the five years ended June 30, 1994,
unaudited consolidated financial statements for Commercial Federal for the
three, six and eight month periods ended September 30, 1994, December 31, 1994
and February 28, 1995, respectively, certain internal financial planning
information of Railroad prepared by its management, certain publicly available
information relative to Railroad and Commercial Federal,
<PAGE>
Railroad Financial Corporation
August __, 1995
Page 2
certain other financial and securities data of Railroad and Commercial Federal,
certain financial and securities data of companies deemed similar to Railroad
and Commercial Federal or representative of the business sectors in which they
operate, and the financial terms, to the extent publicly available, of certain
merger transactions. We have had discussions regarding the financial condition,
current operating results, business outlook and prospects for Railroad and
Commercial Federal with members of their respective managements.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided by Railroad and Commercial
Federal or otherwise made available to us and have not attempted independently
to verify such information. We have further relied upon the assurances of
Railroad and Commercial Federal management that the information provided has
been prepared on a reasonable basis and, with respect to financial planning
data, reflects the best currently available estimates, and that Railroad and
Commercial Federal management are not aware of any information or facts that
would make the information provided to us incomplete or misleading.
In arriving at our opinion, we have not performed any appraisals or valuations
of specific assets of Railroad and Commercial Federal, and we express no opinion
regarding the liquidation value of any entity. We have not been authorized by
the Board of Directors of Railroad to solicit, and did not solicit, other
entities for purposes of a business combination with Railroad.
This opinion is based upon the information available to us and facts and
circumstances as they exist and are subject to evaluation on the date hereof.
We are not expressing any opinion herein as to the prices at which shares of
Railroad common stock or Commercial Federal common stock have traded or at which
such shares might trade at any future time.
This opinion is directed to the Railroad Board of Directors and, except with
respect to the inclusion of this opinion in the proxy statement/prospectus to be
used in connection with the Special Meeting of Shareholders of Railroad, to
which we hereby consent, shall not be published or otherwise used, nor shall any
public references to us be made, without our written consent. This opinion is
not intended to be and does not constitute a recommendation to any Shareholder
as to how such Shareholder should vote with respect to the Merger. You have not
requested that we opine as to, and this opinion does not address your
underlying business decision to proceed with or effect the Merger.
<PAGE>
Railroad Financial Corporation
August __, 1995
Page 3
Based upon and subject to the foregoing and based upon such other factors as we
consider relevant, it is our opinion that the consideration to be received by
the Shareholders pursuant to the Agreement is fair, from a financial point of
view, to the Shareholders as of the date hereof.
Sincerely,
PIPER JAFFRAY INC.
<PAGE>
ANNEX C
<PAGE>
ANNEX C
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT dated as of April 18, 1995 between Commercial
Federal Corporation, a Nebraska Corporation ("Commercial"), and Railroad
Financial Corporation, a Delaware Corporation ("Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Commercial and Company have approved
a Reorganization and Merger Agreement (the "Merger Agreement"), dated as of
April 18, 1995, between Commercial and its wholly owned subsidiary, Commercial
Federal Bank, A Federal Savings Bank ("Bank"), and Company and its wholly owned
subsidiary, Railroad Savings Bank, FSB ("Savings"), providing for the
acquisition of the Company by Commercial (the "Acquisition Merger") followed by
the merger of Savings with and into the Bank (the "Bank Merger"). The Merger
Agreement is being executed by the parties simultaneously with this Agreement;
WHEREAS, as a condition to Commercial's entry into the Merger Agreement
and in consideration of such entry, the Company has agreed to grant to
Commercial the option set forth herein;
NOW THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. DEFINITIONS. Capitalized terms defined in the Merger Agreement and
used herein shall have the same meaning as in the Merger Agreement.
2. GRANT OF OPTION. The Company hereby grants to Commercial an
unconditional, irrevocable option (the "Option"), to be exercised in whole or in
part from time to time as provided herein, to purchase shares of authorized and
unissued or treasury shares of Company's common stock in an amount equal to
13.0% of the shares of Company common stock to be outstanding upon exercise of
the Option at a price of $11.875 per share payable in cash as provided in
Section 4 hereof; provided, however, in the event the Company issues or agrees
to issue any shares of common stock (other than as permitted under the Merger
Agreement) at a price less than $11.875 per share (as adjusted pursuant to
Section 6 herein) such price shall be equal to such lesser price (such price, as
adjusted if applicable, the "Option Price"); and provided further, that such
number of shares shall be reduced by the number of shares, if any, beneficially
owned by Commercial as of the date of exercise. The number of shares of Company
common stock subject to option hereunder shall also be subject to adjustment as
provided in Section 6 herein.
3. EXERCISE OF OPTION. (a) Subject to compliance with applicable law
and regulation, the Option may be exercised, in whole or part, at any time or
from time to time only upon or after the occurrence of a Purchase Event. As used
herein, "Purchase Event" shall mean when:
1
<PAGE>
(i) the Company or Savings shall have entered into an agreement with a
person (other than Commercial or any of its affiliates) to (a) merge or
consolidate with, or enter into any similar transaction with, the Company
or Savings, (b) purchase, lease or otherwise acquire all or substantially
all of the assets of the Company or Savings, or (c) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange or any
similar transaction) securities representing 10 percent or more of the
voting power of the Company or Savings; or
(ii) any person (other than Commercial or its affiliates) shall have
acquired beneficial ownership of 25% or more of the outstanding shares of
the Company's common stock or shall have merged, consolidated with or
entered into a similar transaction with the Company or any of the Company
Subsidiaries or shall have purchased, leased or otherwise acquired all or
substantially all of the Company's or any Company Subsidiary's assets.
The Company shall notify Commercial promptly in writing of the occurrence
of any transaction or event which constitutes a Purchase Event. If more than
one of the transactions, offers or events giving rise to a Purchase Event under
this subsection (a) is undertaken or effected by the same person or occurs at
the same time, then all such transactions and events shall give rise only to one
Purchase Event, which Purchase Event shall be deemed continuing for all purposes
hereof until all such transactions are terminated or abandoned by such person
and all such events have ceased or ended. As used in this Section 3(a),
"person" shall have the meaning specified in Section 3(a)(9), and "beneficial
ownership" shall have the meaning specified in Section 13(d)(3), of the
Securities Exchange Act of 1934.
(b) To exercise the Option, Commercial or its transferee(s) shall send
to the Company a written notice (an "Exercise Notice," the date of which is
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 20 business days from the Notice
Date for the closing of such purchase with respect to such exercise (the "Option
Closing Date"); provided that if prior notification to or approval of any
federal or state regulatory agency is required in connection with such purchase,
Commercial, or its transferee(s), and the Company shall promptly file the
required notice or application for approval and expeditiously process the same,
and the period of time that otherwise would run pursuant to this sentence shall
run instead from the date on which the last required notification period has
expired or been terminated or such approvals have been obtained and any
requisite waiting periods shall have passed. Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(c) The Option shall expire and terminate, to the extent not previously
exercised, upon the earlier of:
(i) the Acquisition Merger Effective Time;
2
<PAGE>
(ii) the date on which the Merger Agreement is terminated (other
than a termination based upon (A) a willful breach by the Company or
Savings of any of its or their covenants or agreements provided under the
Merger Agreement or (B) the failure of the Company or Savings to obtain
shareholder approval of the transactions contemplated by the Merger
Agreement) if prior thereto a Purchase Event or a Proposal (as
hereinafter defined) has not occurred or has not been made;
(iii) 18 months after the later of (A) the occurrence of a Purchase
Event or (B) the making of a Proposal (as hereinafter defined); provided,
however, if a Proposal shall be made (during the term of this Agreement)
prior to the occurrence of a Purchase Event and subsequent thereto a
Purchase Event occurs then this Option shall be further extended to
expire upon the expiration of 12 months from the date of occurrence of
such Purchase Event;
(iv) 18 months after the termination of the Merger Agreement for
the reasons set forth in clauses (A) and (B) in the parenthetical portion
of Section 3(c)(ii) herein; or
(v) such other dates as to which the holders of the Option and
the Company shall agree.
For purposes of this Agreement, a "Proposal" means a proposal by any
person (other than Commercial or its affiliates), by public announcement or
written communication, or in any application to any federal or state regulatory
authority, to (a) acquire, merge, consolidate with, or enter into any similar
transactions with the Company or Savings, (b) purchase, lease or otherwise
acquire all or substantially all of the assets of the Company or Savings, or (c)
purchase or otherwise acquire (including by way of merger, consolidation, share
exchange or any similar transaction) securities representing more than 15% of
the voting power of the Company.
Notwithstanding the foregoing, if a holder of all or part of the Option
provides the Company with an Exercise Notice relating to all or part of the
shares of the Company common stock covered by the Option, the Company tenders
performance of its obligations hereunder on the Option Closing Date specified
therein but such holder fails to tender performance of its obligations hereunder
on such Option Closing Date, then the portion of the Option to be exercised by
such holder on such Option Closing Date as specified in the Exercise Notice
shall expire and terminate effective at 5:00 p.m., Eastern time on such Option
Closing Date.
4. PAYMENT AND DELIVERY OF CERTIFICATES. (a) At the closing referred
to in Section 3 hereof, Commercial, or its transferee(s), shall pay to the
Company the aggregate purchase price for the shares purchased pursuant to the
exercise of the Option in immediately available funds by a write transfer to a
financial institution designated by the Company. Commercial, or its
transferee(s), shall pay all transfer taxes imposed by virtue of the assignment
of the Option or such portion to it. Any other transfer taxes shall be paid by
the Company.
3
<PAGE>
(b) At any closing relating to an exercise of the Option,
simultaneously with the delivery of cash by Commercial, or its transferee(s), as
provided in subsection (a) with respect to the Option, the Company shall deliver
to Commercial, or its transferee(s), a certificate or certificates representing
the number of shares purchased by Commercial, or its transferee(s) and, if the
Option should be exercised in part only, a new Option evidencing the rights of
Commercial or any subsequent transferee(s) thereof to purchase the balance of
the shares purchasable hereunder.
Commercial acknowledges that the certificates evidencing such stock shall
bear the following legend:
"The transfer of the shares represented by this
certificate is subject to resale restrictions arising
under the Securities Act of 1933, as amended, and certain
provisions of an agreement between the registered holder
hereof and the Company, a copy of which agreement is on
file at the principal office of the Company. A copy of
such agreement will be provided without charge to the
holder hereof upon receipt by the Company of a written
request."
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 Commercial or any subsequent transferee(s) shall have delivered to the
Company a copy of a letter from the staff of the Securities and Exchange
Commission, or an opinion of counsel, in form and substance reasonably
satisfactory to the Company, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(c) If, following the occurrence of a Purchase Event, Commercial, or
any subsequent transferee(s), seeks to sell or otherwise dispose of the Option
or shares of common stock received or receivable upon exercise thereof and it or
its transferee(s) shall then be required under applicable law or regulation to
have such Option or common stock registered with a government agency before
making such sale or disposition, then, in such event, the Company shall, upon
the written request of Commercial or its transferee(s), file with such agency as
promptly as practicable after receiving such request, an appropriate
registration statement under such law or regulation registering (i) the Option
granted hereby, and (ii) the shares of common stock received or receivable upon
exercise of the Option in accordance with such written request of Commercial, or
its transferee(s). The Company will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be
4
<PAGE>
reasonably necessary to effect such sales or other dispositions. Commercial, or
any subsequent transferee, shall have the right to demand two such
registrations; provided, however, that the Company shall be required to bear the
-------- -------
expenses related only to the first such registration, and Commercial or any
subsequent transferee shall bear such expenses to the extent related to the
second. The foregoing notwithstanding, if, at the time of any request by
Commercial or any subsequent transferee for registration as provided above, the
Company is in registration with respect to an underwritten public offering of
shares of Company 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 Commercial's or any
subsequent transferee's(s') Option or shares with respect thereto would
interfere with the successful marketing of the shares of Company common stock
offered by the Company, the number of shares otherwise to be covered in the
registration statement contemplated hereby may be reduced; and provided,
--------
however, that after any such required reduction the number of shares to be
-------
included in such offering for the account of Commercial or any subsequent
transferee shall constitute at least 25% of the total number of shares to be
issued by Commercial or any subsequent transferee and the Company in the
aggregate; and provided further, however, that if such reduction occurs, then
-------- -------
the Company shall file a registration statement for the balance as promptly as
practical and no reduction shall thereafter occur. Commercial or any subsequent
transferee(s) shall provide all information reasonably requested by the Company
for inclusion in any registration statement to be filed hereunder. If requested
by Commercial, in connection with any such registration, the Company will 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.
5. REPRESENTATIONS. The Company hereby represents and warrants to,
and covenants with, Commercial as follows:
(a) The Company has taken all necessary corporate action to
authorize and reserve for issuance the full number of shares of the
Company's common stock issuable upon exercise of the Option, and shall
continue to reserve such shares until this Agreement is terminated as
provided herein. The Company has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company
and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and
delivered by the Company. This Agreement is the valid and legally binding
obligation of the Company;
(b) The shares to be issued upon due exercise, in whole or in
part, of the Option, when paid for as provided herein, 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 preemptive rights;
5
<PAGE>
(c) The Company 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 the Company; and
(d) The Company will promptly take all action as may from time to
time be required (including (x) complying with all premerger
notification, reporting and waiting period requirements specified in 15
U.S.C. (S)18a and regulations promulgated thereunder and (y) in the
event, under the Home Owners' Loan Act, as amended ("HOLA"), 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 OTS, the Federal Reserve Board or to any state regulatory
authority is necessary before the Option may be exercised, cooperating
fully with Commercial or any transferee(s) hereof in preparing such
applications or notices and providing such information to the OTS or the
Federal Reserve Board or such state regulatory authority as they may
require) in order to permit Commercial or any transferee(s) hereof to
exercise the Option and duly and effectively to issue shares of Company
common stock pursuant hereto; and (iv) promptly to take all action
provided herein to protect the rights of Commercial or any transferee(s)
hereof against dilution.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any
change in the Company's common stock by reason of stock dividends, split-ups,
mergers, recapitalization, combinations, exchanges of shares or the like, the
number of shares subject to the Option and its purchase price per share shall be
adjusted appropriately so that the economic value of the Option is unaltered.
7. MISCELLANEOUS.
(a) Expenses. Except as provided in Section 4(a), 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.
(b) Entire Agreement. Except as otherwise expressly provided
herein, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of
its rights or obligations under this Agreement to any other person, without the
express written consent of the
6
<PAGE>
other party, except that Commercial may assign in whole or in part the Option
and other benefits or obligations hereunder without limitation (i) if a Purchase
Event has occurred or (ii) at any time to any of its wholly owned subsidiaries;
provided, that prior to any such assignment, Commercial shall give written
notice of the proposed assignment to the Company, and within 24 hours of receipt
of such notice of a bona fide proposed assignment, the Company may purchase the
Option at a price and on terms at least as favorable to Commercial as are set
forth in the notice of assignment.
8. NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by Federal Express, Express Mail, another service which provides
overnight delivery, telegram or telex or other facsimile transmission addressed
as follows:
If to Commercial, then to: Commercial Federal Corporation
2120 South 72nd Street
Omaha, Nebraska 68124
Attention: William A. Fitzgerald, Chairman
and Chief Executive Officer
with copies to: Housley Goldberg Kantarian & Bronstein, P.C.
Suite 700
1220 19th Street, N.W.
Washington, DC 20036
Attention: Leonard S. Volin, Esq.
If to the Company, then to: Railroad Financial Corporation
110 South Main Street
Wichita, Kansas 67202
Attention: Robert D. Taylor, Chairman of the
Board and President
with copies to: Thompson & Mitchell
One Mercantile Center
Suite 3300
St. Louis, Missouri 63101
Attention: Paul F. Paulter, Esq.
Any notice hereunder shall be deemed delivered when received at the
address of such party set forth above (or to such other address as such party
hereto shall advise the other in writing).
7
<PAGE>
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
10. SPECIFIC PERFORMANCE. The parties agree that damages would be an
adequate remedy for a breach of the provisions of this Agreement by the Company
and that this Agreement may be enforced by Commercial through injunctive or
other equitable relief. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Nebraska without regard to
principles of conflicts of laws thereof.
12. SUCCESSORS. This Agreement shall inure to the benefit and be
binding upon any corporate or other successor of either party hereto (which
shall include but not be limited to any corporate reorganization of the
ownership of either party).
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the day and year first written above.
COMMERCIAL FEDERAL CORPORATION
By: /s/ William A. Fitzgerald
---------------------------------------
Title: Chairman and CEO
RAILROAD FINANCIAL CORPORATION
By: /s/ Robert D. Taylor
---------------------------------------
Title: Chairman and CEO
8
