As filed with the Securities and Exchange Commission on
January __, 1999
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------------------
ANB CORPORATION
----------------------------------------------
(Exact name of registrant as specified in its charter)
INDIANA 6021
- ------------------------------- -----------------------------
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
35-1612066
------------------------------------
(I.R.S. Employer Identification No.)
120 West Charles Street, Muncie, Indiana 47305, (765) 747-7575
-----------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
James R. Schrecongost Timothy M. Harden, Esq.
Vice Chairman, President and CEO John W. Tanselle, Esq.
ANB Corporation Krieg DeVault Alexander & Capehart, LLP
120 West Charles Street One Indiana Square, Suite 2800
Muncie, Indiana 47305 Indianapolis, Indiana 46204-2017
(765) 747-7575 (317) 636-4341
(Agent for Service) (Copy to)
- ------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
or agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be offering price aggregate offering registration
to be registered registered per unit price fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $ N/A $10,161,797 $2,824.98
$1.00 stated value 841,364 shares
===================================================================================================
</TABLE>
-----------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
FARMERS STATE BANCORP
101 EAST ELM STREET
UNION CITY, OHIO 45390-1711
_______________, 1999
Dear Shareholders:
I am pleased to invite you to attend a special meeting of shareholders
of Farmers State Bancorp on:
_______________, _______________, 1999
_____:_____ __.m.
-------------------------
Union City, Ohio 45390-1711
The purposes of the Special Meeting are (1) to consider and vote upon
the proposed merger between Farmers State Bancorp and ANB Corporation pursuant
to the Agreement and Plan of Merger, dated October 21, 1998, by and between
Farmers and ANB, and to (2) to consider and vote upon such other matters that
may properly come before the meeting. Under the terms of the Agreement, Farmers
will merge with and into ANB, and each outstanding share of Farmers common stock
will be converted into the right to receive 5.4 shares of ANB common stock, as
described in the Agreement. The exchange ratio will be adjusted if, among other
reasons, ANB issues a stock dividend or effects a stock split prior to closing
the merger. A copy of the Agreement is attached to the accompanying Proxy
Statement-Prospectus as Appendix A.
The Board of Directors of Farmers believes that the proposed merger
between ANB and Farmers is in the best interests of the shareholders of Farmers
and the customers and employees of The Farmers State Bank of Union City, Ohio
and the communities which the Bank serves. Your Board of Directors has
unanimously approved the Agreement and recommends that the shareholders approve
it.
The Board of Directors of Farmers has received an opinion of City
Securities Corporation that the consideration to be received by the shareholders
is fair, from a financial point of view. A copy of this opinion is included in
this Proxy Statement-Prospectus as Appendix C.
We have enclosed a Notice of Special Meeting of Shareholders and a
Proxy Statement-Prospectus containing information about the Special Meeting and
the proposed merger. We encourage you to read this document carefully. Also
enclosed is a proxy card so you can vote on the merger without attending the
Special Meeting. Please complete, sign and date the enclosed proxy card and
return it to us as soon as possible in the envelope we have provided. If you
decide to come to the Special Meeting, you may vote your shares in person
whether or not you have mailed us a proxy.
<PAGE>
Please give this matter your careful consideration.
Sincerely,
---------------------------------------
James L. Davis, Chief Executive Officer
<PAGE>
FARMERS STATE BANCORP
101 EAST ELM STREET
UNION CITY, OHIO 45390-1711
NOTICE SPECIAL MEETING OF SHAREHOLDERS
to be held on ____________, 1999
To Our Shareholders:
A Special Meeting of Shareholders of Farmers State Bancorp ("Farmers")
will be held on:
_______________, _______________, 1999
_____:_____ __.m.
-------------------------
Union City, Ohio 45390-1711
The purposes of the Special Meeting are:
1. To consider and vote upon the proposed merger between Farmers and ANB
Corporation, Muncie, Indiana ("ANB") pursuant to the Agreement and Plan
of Merger ("Agreement"), dated October 21, 1998, by and between ANB and
Farmers. Farmers will merge with and into ANB. Under the terms of the
merger, each outstanding share of Farmers common stock will be
converted into the right to receive 5.4 shares of ANB common stock, as
described in the Agreement. The Agreement, which describes the terms of
the merger in detail, is attached as Appendix A to the accompanying
Proxy Statement-Prospectus; and
2. To transact such other business which may properly be presented at the
Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on ____________,
1999 are entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof.
Notice is also given that Farmers shareholders are entitled to assert
dissenters' rights under Ohio law with respect to the proposed merger with ANB,
provided that they comply with the provisions of Sections 1701.84 and 1701.85 of
the Ohio General Corporation Law, as amended. A copy of these statutes are
attached as Appendix B to the accompanying Proxy Statement-Prospectus.
Please do not send your stock certificates at this time. If the merger
is consummated, you will be sent instructions regarding the surrender of your
stock certificates.
BY ORDER OF THE BOARD OF DIRECTORS
JAMES C. GOWER
____________, 1999 SECRETARY
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
PROXY STATEMENT
PROSPECTUS FOR
OF SPECIAL MEETING OF
ANB CORPORATION SHAREHOLDERS
FOR UP TO OF
841,364 SHARES OF COMMON STOCK FARMERS STATE BANCORP
($1.00 STATED VALUE) TO BE HELD ON ____________, 1999
---------------------------
The Board of Directors of ANB Corporation and Farmers State Bancorp
have agreed that ANB will acquire Farmers in a merger transaction ("Merger").
After the Merger, Farmers will no longer exist, but The Farmers State Bank will
become a wholly owned subsidiary of ANB. The Merger will enable the Bank to
offer more products and services to its customers. Farmers' Board of Directors
believes the Merger is in the best interests of the shareholders of Farmers.
As a Farmers shareholder, you will receive 5.4 shares of ANB common
stock, $1.00 stated value, for each share of Farmers common stock you own on the
date of the Merger, subject to certain adjustments, if any. If this exchange
results in you owning a fractional share of ANB common stock, ANB will pay you
cash for the fractional share. The number of shares of ANB common stock you
receive as a result of the Merger will be proportionally increased or decreased
if ANB issues a stock dividend or effects a stock split between now and the
closing date of the Merger. You have dissenter's rights established by Ohio law
that entitle you to receive cash for your shares of Farmers common stock. In
order to exercise your dissenter's rights, you must follow certain procedures,
which are more fully discussed in this Proxy Statement-Prospectus and in
Appendix B. ANB's common stock is traded on the NASDAQ National Market System
under the symbol ANBC.
YOUR VOTE IS VERY IMPORTANT. The Merger cannot be completed unless the
holders of at least 1/2 of the outstanding shares of Farmers approve it. The
special meeting of shareholders to vote on the Merger ("Special Meeting") will
be held on:
_______________, _______________, 1999
_____:_____ ___.m.
-------------------------
Union City, Ohio 45390-1711
This Proxy Statement-Prospectus provides you with detailed information
about the Special Meeting and the Merger. In addition, you may obtain
information about ANB from documents it has filed with the Securities and
Exchange Commission. We encourage you to read this entire document carefully.
--------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT-PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------
SHARES OF ANB COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
--------------------------------------------
THIS PROXY STATEMENT, DATED FEBRUARY __, 1999, WAS FIRST
MAILED TO SHAREHOLDERS ON FEBRUARY __, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY ................................................................. iv
SUMMARY OF SELECTED FINANCIAL DATA -- ANB................................. ix
SUMMARY OF SELECTED FINANCIAL DATA -- FARMERS............................. xi
SUMMARY OF EXISTING AND PRO FORMA PER SHARE INFORMATION................... xvi
FORWARD-LOOKING STATEMENTS................................................ xv
GENERAL INFORMATION....................................................... 1
PROPOSED MERGER........................................................... 2
Description of the Merger........................................ 2
Background of and Reasons for the Merger......................... 2
Fairness Opinion of Financial Advisor to Farmers................. 5
Recommendation of the Board of Directors......................... 10
Exchange of Farmers Common Stock................................. 10
Dissenters' Rights of Farmers' Shareholders...................... 11
Resale of ANB Common Stock by Affiliates of Farmers.............. 12
Conditions to the Merger......................................... 13
Termination...................................................... 14
Restrictions Affecting Farmers................................... 16
Regulatory Approvals............................................. 17
Accounting Treatment for the Merger.............................. 18
Effective Time................................................... 18
Management, Personnel and Employee Benefits After the Merger..... 18
FEDERAL INCOME TAX CONSEQUENCES........................................... 20
Tax Opinion...................................................... 20
Tax Consequences to ANB and Farmers.............................. 21
Tax Consequences to Farmers Shareholders......................... 21
COMPARATIVE PER SHARE DATA................................................ 22
Nature of Trading Market......................................... 22
Dividends........................................................ 24
Existing and Pro Forma Per Share Information..................... 25
ANB CORPORATION PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION (Unaudited).......................................... 27
DESCRIPTION OF ANB........................................................ 33
Business ........................................................ 33
Acquisition Policy............................................... 33
Incorporation of Certain Information by Reference................ 33
i
<PAGE>
DESCRIPTION OF FARMERS.................................................... 34
Business ........................................................ 34
Properties....................................................... 34
Litigation....................................................... 34
Employees........................................................ 35
Management....................................................... 35
Security Ownership of Management................................. 36
Certain Transactions............................................. 37
FARMERS STATE BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
FARMERS.......................................................... 37
Analysis of Results of Operations................................ 38
Analysis of Changes in Net Interest Income....................... 41
New Accounting Matters........................................... 49
Analysis of the Financial Condition &
Results of Operations for the Nine Months
Ended September 30, 1998 and 1997.............................. 51
REGULATORY CONSIDERATIONS................................................. 55
Bank Holding Company Regulation.................................. 55
Capital Adequacy Guidelines for Bank Holding Companies........... 56
Bank Regulation.................................................. 56
Bank Capital Requirements........................................ 57
Branches and Affiliates.......................................... 58
FDICIA ........................................................ 59
Deposit Insurance................................................ 60
Additional Matters............................................... 61
COMPARISON OF COMMON STOCK................................................ 61
Authorized But Unissued Shares................................... 62
Preemptive Rights................................................ 62
Dividend Rights.................................................. 62
Voting Rights.................................................... 63
Dissenters' Rights............................................... 64
Liquidation Rights............................................... 65
Redemption....................................................... 65
Anti-Takeover Provisions......................................... 66
Director Liability............................................... 68
Director Nominations............................................. 68
LEGAL OPINIONS............................................................ 69
EXPERTS ................................................................. 69
OTHER MATTERS............................................................. 69
AVAILABLE INFORMATION..................................................... 70
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 71
ii
<PAGE>
SUMMARY
This summary highlights some of the information contained in this Proxy
Statement-Prospectus. Because this is a summary, it does not contain all the
information that may be important to you. To understand the Merger fully and for
a more complete description of the legal terms of the Merger, you should read
carefully this entire document and the documents we have referred you to.
THE PARTIES TO THE MERGER
ANB CORPORATION
120 West Charles Street
Muncie, Indiana 47305
(765) 747-7600
ANB is a multibank holding company located in Muncie, Indiana. We own and
operate two affiliate banks with 31 offices in eight Indiana counties. As of
September 30, 1998, our total assets were approximately $612 million and our
ratio of total capital to risk-adjusted assets was 12.3%. This capital ratio is
well in excess of applicable regulatory requirements. See "DESCRIPTION OF ANB"
on page _____.
FARMERS STATE BANCORP
101 East Elm Street
Union City, Ohio 45390-1711
(937) 968-3141
Farmers is an Ohio corporation and a bank holding company located in Union City,
Ohio. It owns all of the outstanding shares of common stock of The Farmers State
Bank of Union City, Ohio ("Bank"), which is organized as a state bank chartered
under Ohio law. As of September 30, 1998, Farmers had total assets of
approximately $92.8 million and its ratio of total capital to risk-adjusted
assets was 17.44%. See "DESCRIPTION OF FARMERS" on page _____.
THE MERGER
Description of the Merger. We propose a merger in which Farmers merges into ANB.
When the Merger is completed, Farmers will cease to exist. Following the Merger,
the Bank will be a wholly owned subsidiary of ANB.
Exchange of Farmers Common Stock. As a Farmers shareholder, each of your shares
of Farmers common stock automatically will become exchangeable for 5.4 shares of
ANB's common stock. The total number of shares of ANB common stock you will
receive therefore will be equal to 5.4 times the number of shares of Farmers
common stock you own. The number of shares you may receive as a result of the
Merger is subject to adjustment if, among other reasons, ANB issues a stock
dividend or effects a stock split prior to closing the Merger. ANB will not
issue fractional shares. Instead, you will receive the value of any fractional
share in cash, based upon the market value of ANB's common stock. Following the
Merger, you will be entitled to exchange your shares of Farmers common stock by
sending your Farmers common stock share certificates and a form we will send you
to ANB or its agent, which will then exchange them for shares of ANB's common
stock. For example, if you owned 27 shares of Farmers common stock, after the
Merger you will send in the letter of transmittal and your old Farmers
certificates and in exchange you will receive 145 shares
iii
<PAGE>
of ANB's common stock and a check for the market value of eight-tenths (.8) of
one share. The price at which ANB common stock traded on __________, 1999, as
reported by the NASDAQ National Market System, was $________ per share. See
"PROPOSED MERGER -- Exchange of Farmers Common Stock" on page _____ and Appendix
A to this Proxy Statement.
Reasons for the Merger. In considering the Merger with ANB, the Board of
Directors of Farmers collected and evaluated a variety of economic, financial
and market information regarding ANB, its business and its reputation and future
prospects. In the opinion of the Board of Directors of Farmers, favorable
factors included ANB's management, the compatibility of its markets to those of
the Bank and the attractiveness of ANB's offer from a financial perspective. The
Board also considered the potential benefits of owning ANB common stock. ANB's
common stock is traded in the over-the-counter market and reported on the NASDAQ
National Market System. Farmers common stock has no established public trading
market. The Farmers Board also determined that the Merger would have a positive,
long-term impact on the Bank's customers and employees and the communities
served by the Bank. See "PROPOSED MERGER -- Background of and Reasons for the
Merger" on page _____.
Recommendation of the Board of Directors of Farmers. The Board of Directors of
Farmers believes that the Merger is fair to you and in your best interests and
unanimously recommends that you vote "FOR" the proposal to approve the Merger.
See "PROPOSED MERGER -- Recommendation of the Board of Directors" on page _____.
Conditions to the Merger. The completion of the Merger depends on a number of
conditions being met. In addition to ANB's compliance with the Agreement and
Plan of Merger, these include:
1. Approval of the Agreement and Plan of Merger by the holders of at least
one-half (1/2) of the outstanding shares of Farmers common stock.
2. Receipt of a legal opinion that, for federal income tax purposes, ANB,
Farmers and Farmers' shareholders who exchange their shares for shares of
ANB Common Stock will not recognize any gain or loss as a result of the
Merger, except in connection with the payment of cash instead of fractional
shares. This opinion will be subject to various limitations, and we
recommend that you read the more complete description of tax consequences
provided in this document beginning at page _____.
3. The Merger qualifies for use of the pooling-of-interests method of
accounting.
See "PROPOSED MERGER -- Conditions to Consummation" on page _____.
Termination of the Merger. ANB and Farmers can agree at any time to terminate
the Agreement and Plan of Merger ("Agreement") without completing the Merger,
even if the shareholders of Farmers have approved it. Also, either of us can
decide, without the consent of the other, to terminate the Agreement if:
1. The other party has breached or misrepresented any warranty contained in
the Agreement.
iv
<PAGE>
2. The other party has breached or failed to comply with any covenant
contained in the Agreement.
3. Certain claims, proceedings or litigation have been commenced or
threatened.
4. The Merger has not been completed by September 30, 1999.
See "PROPOSED MERGER -- Termination" on page _____.
Effective Time of the Merger. ANB and Farmers anticipate that the Merger will
be completed during the second quarter of 1999. See "PROPOSED MERGER --
Effective Time" on page _____.
Approval by Banking Regulatory Agencies. The Merger requires the prior approval
of the Board of Directors of the Federal Reserve System and the Ohio Division of
Financial Institutions. ANB will be filing an application with these agencies
for their prior approval of the Merger.
Management, Personnel and Operations After the Merger. After the Merger takes
place, Farmers will no longer exist. The Board of Directors and officers of the
Bank will remain unchanged following the Merger, except that a representative of
ANB will be appointed to the Board of Directors of the Bank. ANB will increase
the size of its Board of Directors and elect a representative of the Board of
Directors of Farmers, who is serving prior to the time the Merger is
consummated. The employees of the Bank will receive the benefits under the
current policies and employee benefit plans of ANB. See "PROPOSED MERGER --
Description of the Merger", "-- Management, Personnel and Operations After the
Merger" on page _____ and "DESCRIPTION OF FARMERS -- Management" on page _____.
Federal Income Tax Consequences to Shareholders of Farmers. In general, we
expect that for federal income tax purposes you will not recognize gain or loss
as a result of the exchange of your shares of Farmers common stock for shares of
ANB common stock. However, if you receive cash in exchange for your shares of
Farmers common stock (in lieu of fractional shares) or if you exercise
dissenter's rights, you will recognize capital gain or loss on such exchange. We
urge you to consult with your tax advisors with respect to the tax consequences
of the Merger to you. See "FEDERAL INCOME TAX CONSEQUENCES" on page _____.
Dissenters' Rights. You have dissenter's rights established by Ohio law which
entitle you to receive cash for your shares of Farmers common stock. In the
event that holders of greater than 10% of the outstanding shares of Farmers
common stock become entitled, by exercise of dissenters' rights or otherwise, to
receive cash instead of ANB common stock, the Merger will not qualify as a
pooling-of-interests transaction for accounting purposes and ANB would have the
right to terminate the Agreement. In order to exercise your dissenter's rights,
you must follow certain procedures, including filing certain notices and not
voting your shares in favor of the Merger. You will not receive any shares of
ANB common stock if you dissent and follow all of the required procedures.
Instead, you will only receive the value of your stock in cash. The relevant
sections of Ohio law governing this process are attached to this document as
Appendix B. See "PROPOSED MERGER -- Rights of Dissenting Shareholders of
Farmers" on page _____.
v
<PAGE>
Resale of ANB Common Stock. Certain resale restrictions apply to the sale or
transfer of shares of ANB common stock issued to directors, executive officers
and 10% shareholders of Farmers in exchange for their shares of Farmers common
stock. See "PROPOSED MERGER -- Resale of ANB Common Stock by Affiliates of
Farmers" on page _____.
Comparative Shareholder Rights. When the Merger is completed, you will become a
shareholder of ANB. As a result, your rights as a shareholder, which are now
governed by Ohio law and the Articles of Incorporation and Code of Regulations
of Farmers, will be governed by Indiana law and ANB's Articles of Incorporation
and By-laws. See "COMPARISON OF COMMON STOCK" on page _____.
Trading Market for Common Stock. There is presently no established public
trading market for shares of Farmers common stock. Shares of ANB common stock
are traded in the over-the-counter market and stock prices are reported on the
NASDAQ National Market System. The closing price of ANB common stock as reported
by the NASDAQ National Market System was $24.25 per share on October 20, 1998,
the business day before the Merger was publicly announced, and was $__________
per share on ____________, 1999. Assuming the Merger had been completed on
____________, 1999, you and the other Farmers shareholders would have received,
in exchange for all of the shares of Farmers common stock, shares of ANB common
stock having a total market value of $__________, which represents $__________
per share of Farmers common stock (including cash received in lieu of any
fractional share interest). See "COMPARATIVE PER SHARE DATA" on page _____.
SPECIAL MEETING
Date, Time and Place of Special Meeting. ____________, 1999, at _____ __.m.,
local time, at ________________ ___________, located at ____________________,
Union City, Ohio 45390-1711.
Purposes of Special Meeting. At the Farmers' special meeting, you will be
asked:
1. to approve the merger of Farmers with ANB; and
2. to act upon any other items that may be submitted to a vote at the Special
Meeting.
See "NOTICE OF SPECIAL MEETING OF SHAREHOLDERS" and the discussions under the
captions "GENERAL INFORMATION" and "PROPOSED MERGER" on pages _____.
Required Shareholder Vote. In order to approve the Merger, the holders of at
least one-half (1/2) of the issued and outstanding shares of Farmers common
stock must vote in its favor.
Directors and executive officers of Farmers beneficially own in the aggregate,
directly and indirectly, approximately 21.7% of the outstanding shares of
Farmers common stock. See "GENERAL INFORMATION", "PROPOSED MERGER -- Conditions
to Consummation" and "DESCRIPTION OF FARMERS -- Security Ownership of
Management" on pages _____, _____ and _____, respectively.
Shares Outstanding and Entitled to Vote. As of _______________, 1999, there
were __________ shares of Farmers common stock outstanding. You can vote at the
vi
<PAGE>
special meeting of Farmers if you owned Farmers common stock at the close of
business on _______________, 1999. See "GENERAL INFORMATION" on page _____.
Proxies. You can revoke your proxy at any time before it is exercised by
delivering a later dated proxy to Farmers or by written notice delivered to the
Secretary of Farmers. See "GENERAL INFORMATION" on page _____.
vii
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- ANB
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial
information relating to ANB. This information should be read in conjunction with
the financial statements and notes incorporated herein by reference.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income - tax equivalent (1) $ 41,013 $ 38,743 $ 36,716 $ 30,356 $ 26,152
Interest expense 17,215 16,396 15,647 11,685 10,507
----------- ----------- ----------- ----------- -----------
Net interest income - tax equivalent (1) 23,798 22,347 21,069 18,671 15,645
Tax equivalent adjustment (1) 1,294 1,319 1,245 1,260 1,221
----------- ----------- ----------- ----------- -----------
Net interest income 22,504 21,028 19,824 17,411 14,424
Provision for loan losses 955 1,089 1,084 277 519
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
loan losses 21,549 19,939 18,740 17,134 13,905
Noninterest income 7,595 7,000 6,541 6,602 6,126
Noninterest expense 18,589 18,139 17,474 16,935 13,188
----------- ----------- ----------- ----------- -----------
Income before income taxes and cumulative
effect of change in accounting method 10,555 8,800 7,807 6,801 6,843
Income taxes 3,548 2,794 2,522 2,031 1,856
----------- ----------- ----------- ----------- -----------
Income before cumulative effect of
change in accounting method 7,007 6,006 5,285 4,770 4,987
Cumulative effect of change in method
of accounting for income tax --- --- --- --- 198
----------- ----------- ----------- ----------- -----------
Net income $ 7,007 $ 6,006 $ 5,285 $ 4,770 $ 5,185
=========== =========== =========== =========== ===========
BALANCE SHEET DATA
Total assets $ 525,490 $ 493,847 $ 483,236 $ 441,586 $ 346,335
Total loans, net 405,274 372,681 346,016 326,105 237,908
Total deposits 411,262 405,845 415,351 380,132 289,492
Federal Home Loan Bank advances 39,615 14,000 2,395 395 395
Shareholders' equity 56,233 51,341 49,471 44,910 41,703
PER SHARE DATA (2)
Net income - basic $ 1.55 $ 1.33 $ 1.16 $ 1.05 $ 1.14
Net income - diluted 1.52 1.31 1.14 1.03 1.12
Cash dividends paid 0.64 0.55 0.46 0.41 0.37
Book value at year-end 12.41 11.43 10.92 9.85 9.17
SELECTED PERFORMANCE RATIOS
Return on assets 1.41 % 1.27 % 1.17 % 1.15 % 1.49 %
Return on equity 13.34 12.29 11.37 11.01 12.99
Equity to assets 10.70 10.40 10.24 10.17 12.04
Net charge-offs to average loans 0.22 0.16 0.26 0.04 0.48
Allowance for loan losses to average loans 0.90 0.94 0.85 0.90 0.57
</TABLE>
(1) Net interest income has been presented on both a tax equivalent and
non-tax equivalent basis. The tax eq ent basis was calculated using a 34%
tax rate for all periods presented. The tax equivalent adjustment
reverses thuival equivalent basis in order to present net interest income
in accordance with generally accepted accounting principlese tax
("GAAP"), as reflected in the consolidated financial statements.
(2) Per share amounts have been restated to give retroactive effect to the
1995 stock split.
viii
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- ANB (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months ended September 30,
----------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
RESULTS OF OPERATIONS
Interest income - tax equivalent (1) $ 32,634 $ 30,384
Interest expense 13,885 12,701
----------------- ------------------
Net interest income - tax equivalent (1) 18,749 17,683
Tax equivalent adjustment (1) 997 959
----------------- ------------------
Net interest income 17,752 16,724
Provision for loan losses 387 683
----------------- ------------------
Net interest income after provision for loan losses 17,365 16,041
Noninterest income 6,726 5,580
Noninterest expense 15,163 13,553
----------------- ------------------
Income before income taxes 8,928 8,068
Income taxes 2,972 2,715
----------------- ------------------
Net income $ 5,956 $ 5,353
================= ==================
BALANCE SHEET DATA
Total assets $ 612,496 $ 513,978
Total loans, net 432,989 398,270
Total deposits 497,909 423,077
Federal Home Loan Bank advances 42,145 18,780
Shareholders' equity 60,125 55,083
PER SHARE DATA (2)
Net income - basic $ 1.31 $ 1.19
Net income - diluted 1.28 1.16
Cash dividends paid .53 .47
Book value at period-end 13.19 12.19
SELECTED PERFORMANCE RATIOS
Return on assets 1.48 % 1.45 %
Return on equity 13.99 13.78
Equity to assets 9.82 10.72
Net charge-offs to average loans .06 .19
Allowance for loan losses to average loans .87 .88
</TABLE>
(1) Net interest income has been presented on both a tax equivalent and
non-tax equivalent basis. The tax equivalent basis was calculated using a
34% tax rate for all periods presented. The tax equivalent adjustment
reverses the tax equivalent basis in order to present net interest income
in accordance with generally accepted accounting principles ("GAAP"), as
reflected in the consolidated financial statements.
(2) Per share amounts have been restated to give retroactive effect to the
1995 stock split.
ix
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- FARMERS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary sets forth selected consolidated financial information
relating to Farmers. This summary should be read in conjunction with the
consolidated financial statements and the notes thereto of Farmers contained
elsewhere herein.
The historical financial data as of and for the year ended December 31, 1997
have been derived from the audited financial statements of Farmers included
elsewhere in this Proxy Statement-Prospectus. The historical financial data as
of and for the two years ended December 31, 1996 have been derived from
unaudited financial statements of Farmers included herein. The historical data
for the two years ended December 31, 1994 and 1993 have been derived from
unaudited financial statements of Farmers not included herein. The financial
data as of and for the nine months ended September 30, 1998 and 1997 have been
derived from Farmers unaudited financial statements included herein. The results
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the entire year.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income-tax equivalent (1) $ 7,189 $ 7,051 $ 6,686 $ 6,194 $ 6,279
Interest expense 3,570 3,452 3,279 2,611 2,771
--------- --------- --------- --------- ----------
Net interest income-tax equivalent (1) 3,619 3,599 3,407 3,583 3,508
Tax equivalent adjustment (1) 46 44 41 88 102
--------- --------- --------- --------- ----------
Net interest income 3,573 3,555 3,366 3,495 3,406
Provision for loan losses 72 67 60 125 230
--------- --------- --------- --------- ----------
Net interest income after provision for loan losses 3,501 3,488 3,306 3,370 3,176
Noninterest income 349 362 350 274 336
Noninterest expense 2,262 2,205 2,218 2,239 2,282
--------- --------- --------- --------- ----------
Income before income taxes 1,588 1,645 1,438 1,405 1,230
Income tax expense 554 581 497 449 388
--------- --------- --------- --------- ----------
Net income $ 1,034 $ 1,064 $ 941 $ 956 $ 842
========= ========= ========= ========= ==========
BALANCE SHEET DATA
Total assets $ 90,893 $ 91,097 $ 89,990 $ 85,621 $ 82,418
Investment in debt securities:
Available-for-sale 7,184 5,965 6,179 5,367 ---
Held-to-maturity 11,343 16,396 20,999 23,961 30,071
--------- --------- --------- --------- ----------
Total investments in debt securities 18,527 22,361 27,178 29,328 30,071
Loans 66,291 64,127 57,273 50,816 46,484
Allowance for loan losses 1,109 1,109 1,099 1,045 1,019
Deposits:
Noninterest-bearing 4,899 5,417 6,484 5,988 5,373
Interest-bearing 75,720 74,844 73,997 70,601 67,967
--------- --------- --------- --------- ----------
Total deposits 80,619 80,261 80,481 76,589 73,340
Stockholders' equity 9,504 9,394 8,910 8,456 7,867
PER SHARE DATA
Net income-basic $ 6.63 6.45 5.48 5.54 4.89
Net income-fully diluted 6.63 6.45 5.48 5.54 4.89
Cash dividends paid 2.45 2.25 2.05 1.90 1.65
Book value per common share 61.77 57.37 53.54 49.03 45.62
SELECTED PERFORMANCE RATIOS
Return on assets 1.13% 1.18% 1.08% 1.15 % 1.03%
</TABLE>
x
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Return on equity 10.96 11.59 10.66 11.56 11.07
Equity to assets 10.46 10.31 9.90 9.88 9.55
Net charge-offs to average loans 0.11 0.10 0.01 0.20 0.17
Allowance for loan losses to average loans 1.69 1.88 2.04 2.13 2.19
</TABLE>
(1) Net interest income has been presented on both a tax equivalent and
non-tax equivalent basis. The tax equivalent basis was calculated using a
34% tax rate for all periods presented. The tax equivalent adjustment
reverses the tax equivalent basis in order to present net interest income
in accordance with generally accepted accounting principles ("GAAP"), as
reflected in the consolidated financial statements.
xi
<PAGE>
SUMMARY OF SELECTED FINANCIAL DATA -- FARMERS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
RESULTS OF OPERATIONS
Interest income-tax equivalent (1) $ 5,396 $ 5,372
Interest expense 2,698 2,666
---------------- ----------------
Net interest income-tax equivalent (1) 2,698 2,706
Tax equivalent adjustment (1) 40 34
---------------- ----------------
Net interest income 2,658 2,672
Provision for loan losses 45 61
---------------- ----------------
Net interest income after provision for loan losses 2,613 2,611
Noninterest income 270 261
Noninterest expense 1,734 1,680
---------------- ----------------
Income before income taxes 1,149 1,192
Income tax expense 407 414
---------------- ----------------
Net income $ 742 $ 778
================ ================
BALANCE SHEET DATA
Total assets 92,821 90,638
Investment in debt securities:
Available-for-sale 10,681 6,238
Held-to-maturity 10,187 12,619
---------------- ----------------
Total investments in debt securities 20,868 18,857
Loans 67,092 67,212
Allowance for loan losses 985 1,097
Deposits:
Noninterest-bearing 4,390 4,242
Interest-bearing 77,768 75,981
---------------- ----------------
Total deposits 82,158 80,223
Stockholders' equity 10,032 9,345
PER SHARE DATA
Net income-basic $ 4.82 $ 4.97
Net income-fully diluted 4.82 4.97
Cash dividends paid 1.95 1.80
Book value per common share 65.22 60.61
SELECTED PERFORMANCE RATIOS
Return on assets 1.08% 1.14%
Return on equity 10.11 11.02
Equity to assets 10.81 10.31
Net charge-offs to average loans 0.37 0.15
Allowance for loan losses to average loans 1.48 1.67
</TABLE>
(1) Net interest income has been presented on both a tax equivalent and non-tax
equivalent basis. The tax equivalent basis was calculated using a 34% tax
rate for all periods presented. The tax equivalent adjustment reverses the
tax equivalent basis in order to present net interest income in accordance
with generally accepted accounting principles ("GAAP"), as reflected in the
consolidated financial statements.
xii
<PAGE>
SUMMARY OF EXISTING AND PRO FORMA PER SHARE INFORMATION
The following summary sets forth selected existing and pro forma per
share information relating to ANB and to Farmers. This information should be
read in conjunctions with the pro forma condensed combined financial information
contained elsewhere herein.
<TABLE>
<CAPTION>
As Reported
------------------------------------------------------------------------
Basic Net Diluted Net Cash Book Value
ANB Income Income Dividends at Period End
- ---------------------------------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30,
1998 $ 1.31 $ 1.28 $ 0.53 $ 13.19
Year Ended December 31,
1997 1.55 1.52 0.64 12.41
1996 1.33 1.31 0.55 11.43
1995 1.16 1.14 0.46 10.92
As Reported
------------------------------------------------------------------------
Basic Net Diluted Net Cash Book Value
Farmers Income Income Dividends at Period End
- ---------------------------------------- --------------- --------------- --------------- ---------------
Nine Months Ended September 30,
1998 $ 4.82 $ 4.82 $ 1.95 $ 65.22
Year Ended December 31,
1997 6.63 6.63 2.45 61.77
1996 6.45 6.45 2.25 57.37
1995 5.48 5.48 2.05 53.54
Basic Net Income Diluted Net Income
---------------------------------- ----------------------------------
Farmers Farmers
ANB Pro Equivalent ANB Pro Equivalent
Forma (1) (1) Forma (1) (1)
--------------- --------------- --------------- ---------------
Nine Months Ended September 30,
1998 $ 1.24 $ 6.70 $ 1.22 $ 6.59
Year Ended December 31,
1997 1.50 8.10 1.47 7.94
1996 1.31 7.07 1.29 6.97
1995 1.14 6.16 1.12 6.05
</TABLE>
xiii
<PAGE>
<TABLE>
<CAPTION>
Cash Dividends
----------------------------------
ANB Farmers
Pro Forma (1) Equivalent (1)
--------------- ---------------
<S> <C> <C>
Nine Months Ended September 30, 1998 $ 0.53 $ 2.86
Year Ended December 31,
1997 0.64 3.46
1996 0.55 2.97
1995 0.46 2.48
Book Value at Period End
----------------------------------
ANB Farmers
Pro Forma (1) Equivalent (1)
--------------- ---------------
As of September 30, 1998 $ 13.02 $ 70.31
As of December 31, 1997 12.26 66.20
</TABLE>
- ----------------------------------------
(1) Considers the pending merger with Farmers. See "PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION".
xiv
<PAGE>
FORWARD-LOOKING STATEMENTS
This Proxy Statement-Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of each of ANB and Farmers, as well
as certain information relating to the Merger, including, without limitation:
1. statements relating to the cost savings estimated to result
from the Merger;
2. statements relating to revenues estimated to result from the
Merger;
3. statements relating to the restructuring charges estimated to
be incurred in connection with the Merger;
4. statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "estimates" or similar
expressions.
These forward-looking statements involve certain risks and uncertainties. Actual
results may differ materially from those contemplated by such forward-looking
statements due to, among others, the following factors:
1. expected cost savings from the Merger may not be fully
realized or realized within the expected time frame;
2. revenues following the Merger may be lower than expected, or
deposit attrition, operating costs or customer loss and
business disruption following the Merger may be greater than
expected;
3. competitive pressures among depository and other financial
institutions may increase significantly;
4. changes in the interest rate environment may reduce margins;
5. general economic or business conditions, either nationally or
in the states in which ANB is doing business, may be less
favorable than expected resulting in, among other things, a
deterioration in credit quality or a reduced demand for
credit;
6. legislative or regulatory changes may adversely affect the
business in which ANB is engaged;
7. technological changes (including "Year 2000" data systems
compliance issues) may be more difficult or expensive than
anticipated; and
8. changes may occur in the securities markets.
xv
<PAGE>
GENERAL INFORMATION
This Proxy Statement is furnished to the shareholders of Farmers in
connection with the solicitation by its Board of Directors of proxies for use at
the Special Meeting of Shareholders to be held on ____________, 1999, at
________ __.m., local time, _________________________, located at
________________________, Union City, Ohio 45390-1711. This Proxy Statement is
first being mailed to shareholders of Farmers on February __, 1999.
The purposes of the Special Meeting of Shareholders are to (1) consider
and vote upon the proposed merger between Farmers and ANB and (2) transact such
other business which may properly be presented at the Special Meeting or any
adjournment thereof. In the Merger, Farmers will merge into ANB and the separate
existence of Farmers will cease. Each share of Farmers Common Stock will convert
into the right to receive 5.4 shares of ANB common stock, $1.00 stated value per
share ("ANB Common Stock"), subject to certain adjustments, if any. See
"PROPOSED MERGER."
The affirmative vote of the holders of at least one-half (1/2) of the
outstanding shares of Farmers common stock, $20.00 par value per share ("Farmers
Common Stock"), is required for approval of the Merger. Only holders of Farmers
Common Stock of record at the close of business on ____________, 1999 ("Record
Date") are entitled to notice of, and to vote at, the Special Meeting. There
were __________ shares of Farmers Common Stock outstanding on the Record Date,
which were held of record by approximately 319 shareholders. For each matter to
be voted on at the Special Meeting, each share of Farmers Common Stock is
entitled to one vote.
The cost of soliciting proxies will be borne by Farmers. In addition to
use of the mails, proxies may be solicited personally or by telephone or
telegraph by directors, officers and certain employees of Farmers who will not
be specially compensated for such soliciting.
The shares represented by proxies properly signed and returned will be
voted at the Special Meeting as instructed by the shareholders of Farmers giving
the proxies. In the absence of specific instructions to the contrary, proxies
will be voted FOR approval of the Merger, as described in this Proxy Statement
and in accordance with the recommendation of the Board of Directors of Farmers
with respect to any other matter which may properly be presented at the Special
Meeting. Dissenting Farmers shareholders are entitled to certain appraisal
rights with respect to the Merger. See "PROPOSED MERGER -- Rights of Dissenting
Shareholders of
1
<PAGE>
Farmers". Any shareholder giving a proxy has the right to revoke it at any time
before it is exercised. Therefore, execution of a proxy will not affect a
shareholder's right to vote in person if he or she attends the Special Meeting.
Revocation may be made by a later dated proxy delivered to Farmers by written
notice received by the Secretary of Farmers prior to the Special Meeting, or by
written notice delivered to the Secretary of Farmers at the Special Meeting. To
be effective, any revocation must be received before the proxy is voted.
PROPOSED MERGER
At the Special Meeting, the shareholders of Farmers will consider and
vote upon approval of the Merger, certain features of which are summarized
below. The following summary of certain aspects of the Merger does not purport
to be a complete description of the terms and conditions of the Merger and is
qualified in its entirety by reference to the Agreement, which is attached to
this Proxy Statement as Appendix A and is incorporated herein by reference.
DESCRIPTION OF THE MERGER
In the Merger, Farmers will merge with and into ANB. ANB will be the
surviving corporation in the Merger and the separate corporate existence of
Farmers will cease. As a result, the Bank will become a wholly-owned subsidiary
of ANB.
As of September 30, 1998, Farmers had consolidated assets of $92.8
million, consolidated deposits of $82.2 million, consolidated shareholders'
equity of $10 million and consolidated net income for the nine months then ended
of $742,000. Based upon the pro forma financial information included elsewhere
in this Proxy Statement and assuming that the Merger had been consummated on
September 30, 1998, Farmers represented as of such date 13.2% of the
consolidated assets of ANB, 14.2% of its consolidated deposits, 14.3% of its
consolidated shareholders' equity and, for the nine month period then ended,
11.1% of its consolidated net income. See "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION".
BACKGROUND OF AND REASONS FOR THE MERGER
The opportunities and challenges facing a community bank centered in
Darke County, Ohio have been under review by the Board of Farmers for the past
few years. In September 1997, the Board engaged Young & Associates, Inc.
("Young") to assist it in evaluating growth
2
<PAGE>
opportunities for Farmers. Through this focused process, it became apparent to
the Board that (i) the regulatory burden every commercial bank faces imposes a
special hardship on a community bank that is not operating at a scale to permit
it to efficiently spread the costs of development and implementation of
compliance systems across a large base of revenues; (ii) technological advances
in financial products and services as well as in internal bank systems can be
exploited more efficiently by a larger institution; and (iii) increased
competition resulting from new and bigger financial services competitors
negatively affects the potential for growth of a community bank. Young then
developed an analysis of possible expansion strategies including acquisitions of
banks or branches and de novo branching. The cumulative effect of these and
other factors on creating value for Farmers' shareholders weighed heavily in
favor of changing Farmers' historic course of remaining independent.
In June 1998, the Board formed a special committee of three directors,
namely, C. Daniel Wright, Errol Klem and James L. Davis (the "Committee"), and
charged it with the responsibility to investigate possible affiliations with
other financial institutions. From time to time, Farmers had received various
unsolicited indications of interest in possible affiliations with larger
financial institutions in nearby markets. The Committee began discussions in
earnest with such institutions, as well as with other institutions which were
identified as possible candidates for affiliation and which met the criteria the
Board and the Committee developed for an attractive merger partner, which is
described below.
As a part of its deliberations in June 1998, the Board reaffirmed (i)
its commitment to its various constituencies, including shareholders, customers,
employees, and the communities served by Farmers, especially Union City and
Losantville and (ii) its desire to maximize shareholder value. As a result of
these considerations, the Board developed several criteria to use as a framework
for analysis in considering any merger partner, including the following:
(a) An attractive price, with a clear preference for Farmers'
shareholders to have the ability to receive a merger partner's
stock in a transaction structured to be tax-deferred to
Farmers' shareholders who receive stock;
(b) The likely continuation of the essential nature of the
services offered by Farmers in Union City and Losantville;
(c) Liquidity, through the ownership of the merger partner's stock
as compared to Farmers' stock; and
(d) The avoidance of undue disruption of the employees of Farmers.
3
<PAGE>
The Board decided that Farmers should employ the Indianapolis law firm
of Ice Miller Donadio & Ryan as special legal counsel to assist it in evaluating
its alternatives and negotiating with possible merger partners. In June and July
1998, members of the Committee met with representatives of financial
institutions, some of whom had previously expressed an interest in a merger with
Farmers. In addition, the Committee and legal counsel had discussions with other
possible merger candidates. By the end of July, six different possible merger
candidates had been approached.
In August 1998, the Committee had further, more detailed, discussions
with the two institutions who were regarded preliminarily as the most acceptable
merger partners under the criteria the Board had developed. Each of these
institutions, one of which was ANB, became increasingly interested in a merger
with Farmers and gave the Committee some indication of the range of the bid it
might make. Each was given the opportunity, after signing a confidentiality
agreement, to conduct an initial investigation of Farmers' books and records
relevant to a possible acquisition. By the end of August the Committee believed
that of the two institutions, ANB was prepared to make the more attractive
offer. This was confirmed on September 3, 1998, when the Farmers' Board met with
representatives of ANB and ANB made an offer that provided for a larger amount
of consideration to be paid to Farmers' shareholders. The Farmers' Board
authorized and directed the Committee and its legal counsel to negotiate with
ANB the terms and conditions of a definitive agreement and to submit any such
definitive agreement to the Board for its approval. At ANB's request, Farmers
signed an exclusive dealing agreement whereby Farmers agreed to refrain, for a
limited time period, from negotiating with any other possible merger candidate
while negotiations continued and ANB conducted a more detailed "due diligence
review" of Farmers' books and records.
Concurrently with the negotiation of the definitive agreement, the
Committee and the full Board continued to analyze the offer to merge into ANB.
The Board decided that Farmers should retain the investment banking firm of City
Securities Corporation ("CSC"), headquartered in Indianapolis, which possesses
expertise with respect to valuation of banks and bank holding companies, to (i)
share with the Board its analysis of the offer from the perspective of the
shareholders of Farmers and (ii) provide a letter expressing its opinion as to
the fairness to the shareholders of Farmers, from a financial point of view, of
the terms of the proposed definitive agreement (the "Fairness Opinion"). CSC
reviewed drafts of the definitive agreement and participated in related
discussions and meetings, including the special meeting of the Board of
Directors of Farmers held October 21, 1998. At that meeting, CSC shared with the
Board its
4
<PAGE>
analysis of the offer from the perspective of the shareholders of Farmers, and
it indicated that, based on a number of factors and analyses, CSC believed that
the proposed definitive agreement was fair, from a financial point of view, to
the shareholders of Farmers.
At the October 21st Board meeting, the Board discussed the definitive
agreement in detail. In addition to being advised by CSC, the Board considered
the comments of legal counsel regarding numerous features of the proposed
definitive agreement and the considerations involved in the development of its
provisions. Having concluded that affiliating with ANB and executing and
delivering the definitive agreement were in the best interests of Farmers and
its shareholders, the Board of Directors of Farmers unanimously approved the
definitive agreement and authorized and directed C. Daniel Wright, Errol Klem
and James L. Davis, the three of them acting together, to complete the
negotiation, and to execute the definitive agreement and deliver it to ANB.
Messrs. Wright, Klem, and Davis did so that same day.
FAIRNESS OPINION OF FINANCIAL ADVISOR TO FARMERS
CSC was engaged by Farmers to advise the Farmers Board of Directors as
to the fairness of the consideration, from a financial perspective, to be paid
by ANB to Farmers' shareholders as set forth in the Agreement.
CSC is a recognized investment-banking firm with offices in
Indianapolis, Fort Wayne, South Bend, Anderson and Lafayette, Indiana. As part
of its investment banking business, CSC is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions, private
placements and valuations for estate, corporate and other purposes. CSC does not
have a material financial interest in Farmers or ANB. CSC was selected to advise
the Farmers Board based on its familiarity with the regional financial
institution market and knowledge of the banking industry as a whole.
In connection with its advice as to the fairness of the consideration
paid by ANB, CSC performed certain analyses described herein and verbally
presented the range of values for Farmers resulting from such analyses to the
Farmers Board at a special meeting on October 21, 1998. The analyses have been
updated as of the date of this Proxy Statement/Prospectus and the written
Fairness Opinion is attached as Appendix C to this document. The Fairness
Opinion, which should be read in its entirety, includes a summary of the
assumptions made and information analyzed by CSC in reaching its conclusion.
5
<PAGE>
In arriving at its Fairness Opinion, CSC reviewed certain publicly
available business and financial information relating to Farmers and ANB. CSC
considered certain financial and stock market data of Farmers and ANB, compared
that data with similar data for certain other publicly-held bank holding
companies and considered the financial terms of certain other comparable bank
transactions in Ohio, Indiana, Michigan, Illinois and Kentucky that had recently
been effected. In addition, CSC also considered such other information,
financial studies, analyses and investigations and financial, economic and
market criteria that it deemed relevant. In connection with its review, CSC did
not independently verify the foregoing information and relied on such
information as being complete and accurate in all material respects. Financial
forecasts prepared by CSC were based on assumptions believed by CSC to be
reasonable and to reflect currently available information. CSC did not make an
independent evaluation or appraisal of the assets of Farmers or ANB. CSC took
into consideration discussions Farmers had with other financial institutions
concerning possible affiliation with Farmers.
As a part of preparing the Fairness Opinion, CSC performed a due
diligence review of ANB. As part of the due diligence, CSC reviewed the
following items: reports filed with the SEC by ANB on Forms 8-K, 10-K and 10-Q
for the periods ending December 31, 1997 and year-to-date 1998; the Notice of
the 1998 Annual Meeting and Proxy Statement; reports of independent auditors and
management letters and responses thereto for the year ending December 31, 1997;
board minutes of ANB and its wholly-owned subsidiary and lead bank, American
National Bank and Trust Company of Muncie, Muncie, Indiana ("ANBTC"), from
October 1997 through November, 1998; the most recent regulatory reports of
examinations for ANB and certain subsidiaries issued prior to the date of this
Proxy Statement/Prospectus; the analysis and calculation of the allowance for
loan and lease losses at September 30, 1998; and Uniform Holding Company and
Bank Performance Reports for ANB and ANBTC as of September 30, 1998. CSC also
conducted interviews with certain members of senior management.
In connection with its opinion, CSC reviewed material bearing upon the
financial operating condition of the Farmers and its wholly owned subsidiary,
The Farmers State Bank (the "Bank"), including, but not limited to: the Annual
Report of Farmers for the year ended December 31, 1997; Consolidated Reports of
Condition and Income FFIEC Form 034 of the Bank for the years ended 1993-1997
and for the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998;
U.S. Corporate Income Tax Return of Farmers for 1997; Uniform Bank
6
<PAGE>
Performance Report of the Bank for December 31, 1997; and other internal
financial and operating information which was provided to CSC by Farmers. CSC
also discussed the foregoing as well as other matters relevant to its inquiry,
including the past and current business operations and acquisitions, results of
regulatory examinations, financial condition, current loan quality and trends,
and future prospects of Farmers with certain officers and representatives of
Farmers. In review of the aforementioned information, CSC took into account its
assessment of general market and financial conditions, its experience in other
similar transactions and its knowledge of the banking industry generally.
In connection with rendering the Fairness Opinion, CSC performed a
variety of financial analyses, including those summarized herein. The summary
does not purport to be a complete description of the analyses performed by CSC
in this regard. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances,
and therefore, such an opinion is not readily susceptible to summary
description. Accordingly, notwithstanding the separate factors summarized below,
CSC 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 analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. In performing its analyses, CSC made
numerous assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond Farmers' or ANB's
control. The analyses performed by CSC are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the process by which
businesses actually may be sold.
Under the terms of the Agreement, each share of common stock of Farmers
outstanding immediately prior to the consummation of the transaction will be
exchanged for five and four-tenths (5.4) shares of ANB common stock. To the
extent ANB's stock price changes, the value of the transaction will change based
on the exchange ratio stated above. The Agreement provides for a potential
increase in the exchange ratio in the event ANB's common stock price declines
below $18.00 per share and significantly underperforms a selected portfolio of
25 bank stocks. Assuming a price of $24.25 per ANB share, which approximates its
trading range immediately prior to the signing of the Agreement, the value of
this transaction is $130.95 per Farmers common share. Assuming a price of $23.75
per ANB share, which approximates its
7
<PAGE>
trading range immediately prior to the date of this Proxy Statement/Prospectus,
the value of this transaction is $128.25 per Company common share. A summary of
the financial analyses leading to CSC fairness opinion is summarized below.
Acquisition Comparison Analysis. CSC analyzed 56 other mergers and
acquisitions that were announced from January 1, 1996 through October 19,1998 in
Indiana, Ohio, Michigan, Kentucky and Michigan involving financial institutions
with assets between $40 million and $150 million. CSC compared the multiple
produced by this transaction on a fully diluted basis to the median multiples
for the transactions analyzed. Set forth below are the median transaction
multiples:
<TABLE>
<CAPTION>
Selected Bank Farmers w/ANB Farmers w/ANB
Acquisitions @ $24.25 @ $23.75
------------------ ------------------- -------------------
<S> <C> <C> <C>
Price/Earnings Multiple 17.4 19.8 19.4
Price/Book Value Multiple 207.2 206.1 201.8
Price/Tangible Book Value Multiple 210.0 206.1 201.8
</TABLE>
CSC's analysis showed that the range of implied valuations of Farmers,
applying the median transaction multiples described above to Farmers' earnings,
book value and tangible book value were $114.47, $131.35 and $133.42 per share.
PRO FORMA MERGER ANALYSIS. CSC considered the impact of the proposed
transaction on Farmers' recent market value and dividend return on a per share
basis. Like many financial institutions of its size and with similar
characteristics, Farmers' common stock has historically traded infrequently on a
private basis at a price slightly below book value. Though there can be no
assurance that ANB common stock will continue to trade at a price approximating
$24.25 or $23.75 at historical volumes, the proposed transaction would
theoretically result in 106.2% and 102.0% improvement in market value,
respectively, and significantly improved liquidity. Though there can be no
assurance of future dividends, Farmers' shareholders would theoretically
experience a 41.2% increase in annual dividend income as a result of the merger.
DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis was
performed by CSC pursuant to which a value of Farmers was determined by (1)
projecting net income over a five year period; (2) determining the amount of
annual excess earnings over the amount necessary to maintain a minimum equity
capital to asset ratio of 6.0%; (3) calculating annual
8
<PAGE>
cash flows by adjusting excess earnings upward for non-cash expenses and
downward for capital expenditures; (4) calculating the "terminal value" at the
end of the five-year period by applying a multiple of 17.4 times the adjusted
excess earnings of the fifth year; (5) discounting the annual cash flows and the
terminal value to present values using an assumed discount rate of 13%; and
adding the present value of the projected annual cash flows to the present value
of the terminal value. The present value per fully diluted share of Farmers'
common stock resulting from this analysis was $79.21.
The terminal value represents the estimated sale or liquidation value
of Farmers. The terminal value multiple assumption is based on the median
multiple of earnings for the comparable transactions in Indiana, Ohio, Michigan,
Illinois and Kentucky discussed earlier. The discount rate assumption of 13%
reflects the assumed rate of return required by holders or buyers of Farmers'
common stock.
ADJUSTED NET ASSET VALUE ANALYSIS. CSC reviewed Farmers' balance sheet
data to determine the amount of material adjustments required to the
shareholders' equity of Farmers based on the differences between the market
value of Farmers' assets and liabilities and their value reflected on Farmers'
financial statements. Off-balance sheet adjustments were considered, but deemed
immaterial. The fair market value per fully diluted share of Farmers' common
stock resulting from this analysis was $71.10.
CSC, in rendering its opinion, has assumed that the transaction will be
accounted for as a pooling-of-interests and that it will be treated as a
non-taxable reorganization without material adverse tax consequences to any of
the parties involved. In addition, CSC has assumed that in the course of
obtaining the necessary regulatory approvals for the transaction, no condition
will be imposed upon Farmers or ANB that will have a materially adverse impact
on the contemplated benefits of the proposed transaction to Farmers, ANB and
their respective shareholders.
The Fairness Opinion is directed only to the question of whether the
consideration to be received by Farmers' shareholders under the Agreement is
fair from a financial point of view and does not constitute a recommendation to
any Farmers shareholder to vote in favor of the Merger. No limitations were
imposed on CSC regarding the scope of its investigation or otherwise by Farmers.
9
<PAGE>
Based on CSC's analysis and subject to the qualifications described
herein, considering all circumstances known to us and based upon other matters
considered relevant, CSC believes that as of the date of CSC's letter attached
as Appendix C, the terms of the Agreement from a financial point of view are
fair to Farmers' shareholders.
Farmers and CSC have entered into an arrangement relating to the
services to be provided by CSC in connection with the Agreement. In regards to
CSC's services in determining an opinion as to the fairness, from a financial
point of view, of the terms of the Agreement, the cost is a contractual $20,000
plus out-of-pocket expenses. In addition, Farmers also has agreed to indemnify
CSC and its officers, directors, employees and agents against all claims,
losses, actions, judgments, damages or expenses, arising from or relating to the
advice and recommendations given and/or the services performed pursuant to the
arrangement, unless such claims, losses, actions, judgments damages or expenses
result from the failure to exercise reasonable or ordinary care, malfeasance, or
gross recklessness of CSC.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF FARMERS HAS CAREFULLY
CONSIDERED AND UNANIMOUSLY APPROVED THE AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
FARMERS APPROVE THE MERGER.
EXCHANGE OF FARMERS COMMON STOCK
Under the terms of the Agreement, shareholders of Farmers of record
upon consummation of the Merger will be entitled to receive 5.4 shares of ANB
Common Stock ("Exchange Ratio"), subject to adjustment, if any, for stock
splits, stock dividends or any similar recapitalization of ANB. As of
____________, 1999, the closing price of ANB Common Stock was $__________ per
share, as reported by the NASDAQ National Market System. If the Merger had been
consummated on that date, the number of shares of ANB Common Stock and cash
exchanged in the Merger would have been __________, plus a cash amount of
$__________, with an aggregate value of approximately $__________.
No fractional shares of ANB Common Stock will be issued to shareholders
of Farmers in connection with the Merger. Each shareholder of Farmers who
otherwise would be entitled to a
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fractional interest in a share of ANB Common Stock as a result of the Exchange
Ratio will be paid a cash amount equal to such fractional interest multiplied by
the market value of ANB Common Stock.
After the effective time of the Merger, stock certificates previously
representing Farmers Common Stock will represent only the right to receive
shares of ANB Common Stock and cash for any fractional shares. Following the
effective time of the Merger and prior to the surrender by holders of Farmers of
their stock certificates to ANB in exchange for ANB Common Stock, such holders
will not be entitled to receive payment of dividends or other distributions
declared on shares of ANB Common Stock. Upon the subsequent exchange of such
certificates, however, any accumulated dividends or other distributions
previously declared and withheld on the shares of ANB Common Stock will be paid,
without interest. At the effective time of the Merger, the stock transfer book
of Farmers will be closed and no transfers of shares of Farmers Common Stock
will thereafter be made. If, after the effective time of the Merger,
certificates representing shares of Farmers Common Stock are presented for
registration or transfer, they will be canceled and exchanged for shares of ANB
Common Stock.
Stock certificates representing shares of ANB Common Stock and any cash
payment for fractional shares (without interest) will be made, after the
effective time of the Merger, to each former shareholder of Farmers within
twenty (20) business days following the shareholder's delivery to ANB of his or
her certificate(s) representing shares of Farmers Common Stock. Instructions as
to delivery of stock certificates of Farmers to ANB will be sent to each
shareholder of Farmers shortly after the effective time of the Merger.
DISSENTERS' RIGHTS OF FARMERS' SHAREHOLDERS
The Ohio General Corporation Law, as amended ("OGCL"), provides
shareholders of merging corporations with certain dissenters' rights. The
dissenters' rights of shareholders of Farmers are set forth in Sections 1701.84
and 1701.85 of the OGCL, a copy of which is attached to this Proxy Statement as
Appendix B. Shareholders will not be entitled to assert dissenters' rights
absent strict compliance with the procedures of Ohio law.
Section 11.65 of the OGCL provides that shareholders of Farmers have
the right to demand payment for the "fair cash value" of their shares of Farmers
Common Stock immediately before the Merger becomes effective. To claim this
right, the shareholder must first:
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<PAGE>
(a) deliver to Farmers not later than ten (10) days after the vote is
taken at the Special Meeting a written demand for payment for the shareholder's
shares if the Merger is consummated; and
(b) not vote in favor of the Merger in person or by proxy.
Dissenting shareholders may send their written notice to James L.
Davis, 101 East Elm Street, Union City, Ohio 45390-1711.
If ANB and the dissenting shareholder have not agreed upon the fair
cash value of the shares within three months after the shareholder delivered the
written demand for payment, ANB or the dissenting shareholder may file a
complaint in the Darke County, Ohio court of common pleas. The court will
determine whether the dissenting shareholder is entitled to be paid the fair
cash value of any shares and, if so, it will appoint an appraiser to recommend a
decision on the amount of the fair cash value. ANB must pay the fair cash value
of the shares that is agreed upon by the parties or fixed by a court within
thirty days after the final determination of the value.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS
ADDRESSES ALL MATERIAL FEATURES OF THE APPLICABLE DISSENTERS' RIGHTS STATUTES
UNDER THE LAWS OF THE STATE OF OHIO BUT DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY THE STATUTORY PROVISIONS ATTACHED HERETO AS
APPENDIX B.
A SHAREHOLDER'S FAILURE TO COMPLY WITH THE STATUTORY REQUIREMENTS FOR
EXERCISING DISSENTERS' RIGHTS WILL RESULT IN A LOSS OF SUCH RIGHTS, AND
SHAREHOLDERS WHO MAY WISH TO EXERCISE DISSENTERS' RIGHTS SHOULD CONSIDER SEEKING
LEGAL COUNSEL.
RESALE OF ANB COMMON STOCK BY AFFILIATES OF FARMERS
No restrictions on the sale or transfer of the shares of ANB Common
Stock issued pursuant to the Merger will be imposed solely as a result of the
Merger, other than restrictions on the transfer of such shares issued to any
shareholder of Farmers who may be deemed to be an "affiliate" of Farmers for
purposes of Rule 145 under the Securities Act. Directors, executive officers and
10% shareholders of Farmers are deemed to be affiliates for purposes of Rule
145.
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The Agreement provides that Farmers will provide ANB with a list
identifying each affiliate of Farmers. The Agreement also requires that each
affiliate of Farmers deliver to ANB, prior to the effective time of the
Agreement, a written agreement to the effect that such affiliate (1) will not
sell, pledge, transfer, dispose of or otherwise reduce the affiliate's market
risk with respect to the shares of Farmers Common Stock directly or indirectly
owned or held by such person during the thirty (30) day period prior to the
effective time of the Merger, and (2) will not sell, pledge, transfer or
otherwise dispose of or reduce the affiliate's market risk with respect to the
shares of ANB Common Stock to be received by such person pursuant to the
Agreement (i) until such time as financial results covering at least thirty (30)
days of combined operations of Farmers and ANB have been published within the
meaning of Section 201.01 of the Commission's Codification of Financial
Reporting Policies and (ii) unless done pursuant to an effective registration
statement under the Securities Act of 1933 or pursuant to Rule 145 or another
exemption from the registration requirements under the Securities Act. The
certificates representing ANB Common Stock issued to affiliates of Farmers in
the Merger may contain a legend indicating these resale restrictions.
This is only a general statement of certain restrictions regarding the
sale or transfer of the shares of ANB Common Stock to be issued in the Merger.
Therefore, those shareholders of Farmers who may be deemed to be affiliates of
Farmers should consult with their legal counsel regarding the resale
restrictions that may apply to them.
CONDITIONS TO THE MERGER
Consummation of the Merger is conditioned upon, among other items:
1. approval of the Merger by the affirmative vote of the holders
of at least one-half (1/2) of the outstanding shares of
Farmers Common Stock;
2. receipt by ANB and Farmers of all applicable regulatory
approvals required for the Merger;
3. receipt of an opinion of counsel with respect to certain
federal income tax matters;
4. receipt by ANB of certain undertakings from affiliates of
Farmers;
5. receipt by ANB and Farmers of certain officers' certificates
and other legal opinions;
13
<PAGE>
6. the accuracy at the effective time of the Merger of
representations and warranties contained in the Agreement;
7. the fulfillment of certain covenants set forth in the
Agreement; 8. issuance by City Securities Corporation a
written fairness opinion dated not later than the mailing date
of this Proxy Statement-Prospectus;
8. issuance by CSC of a written fairness opinion dated not later
than the mailing date of this Proxy Statement - Prospectus.
9. The Merger qualifying for pooling-of-interests accounting
treatment for ANB; and
10. Farmers' shareholders' equity being not less than that amount
as of December 31, 1997.
The conditions to consummation of the Merger are more fully described in the
Agreement. The party entitled to the benefit of such conditions may unilaterally
waive the fulfillment of the requirement, as set forth in the Agreement. See
"PROPOSED MERGER -- Resale of ANB Common Stock by Farmers Affiliates", "--
Regulatory Approvals", "FEDERAL INCOME TAX CONSEQUENCES" and Appendix A.
TERMINATION
Either ANB or Farmers may terminate the Agreement before the Merger is
consummated if, among other reasons:
1. Farmers or ANB has misrepresented or breached any warranty
contained in the Agreement, which has had or would be expected
to have a material adverse effect on the financial condition,
results of operations, business, assets or capitalization of
Farmers, the Bank or ANB;
2. ANB or Farmers has breached or failed to comply with any
covenant set forth in the Agreement;
3. consummation of the Merger has become inadvisable or
impracticable due to the commencement or threat of any claim,
litigation or proceeding against ANB or Farmers or any
subsidiary of ANB or Farmers or any director or officer of any
such entities relating to the Agreement or which is likely to
have a material adverse effect on the financial condition,
results of operations, business, assets or capitalization of
ANB a consolidated basis, or Farmers or the Bank; or
4. consummation of the Merger has not occurred by September 30,
1999.
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<PAGE>
Additionally, ANB may terminate the Agreement before the Merger is
consummated if:
1. Farmers or the Bank has experienced a material adverse change
in its business, assets, capitalization, financial condition
or results of operation as of the effective time of the Merger
compared to that in existence as of December 31, 1997 unless
the changes are caused by financial or market conditions
affecting the banking industry generally in the Bank's market
area; or
2. Farmers' Board of Directors does not approve and recommend the
Agreement or the Merger or has resolved or publicly announced
its intention to do so.
Farmers has the right to terminate the Agreement prior to the
consummation of the Merger, if, among other reasons ,ANB entered into an
agreement that causes the present shareholders of ANB to either own less than
51% of the outstanding voting shares of ANB or lack the ability to elect a
majority of the Board of Directors of ANB.
Additionally, the Agreement establishes an "Index Group, " which
consists of 25 selected financial institution holding companies (which are
listed in Section 9 of the Agreement). At any time during the five-day period
commencing on the day of expiration of the last waiting period for any required
regulatory approvals for the Merger, Farmers is entitled to terminate the Merger
if both of the following conditions are satisfied:
(1) The average of the high asked price of a share of ANB common
stock, as reported on the Nasdaq Stock Market National Market
System for the 30 consecutive trading days immediately
preceding the day of expiration of the last waiting period
with respect to any of the required regulatory approvals for
the Merger, is less than $18.00 (adjusted for, among other
things, any stock splits or dividends or any exchange of
shares); and
(2) the number (the "ANB Ratio") obtained by dividing the average
of the high asked price of a share of ANB common stock, as
reported on the Nasdaq Stock Market National Market System for
the 30 consecutive trading days immediately preceding the day
of expiration of the last waiting period for any of the
required regulatory approvals for the Merger, by $24.00 shall
be less than a specified amount. This specified amount (the
"Index Ratio") is calculated as the sum of the numbers
obtained by multiplying (i) the quotient of (A) the average of
the daily
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<PAGE>
closing sales prices of a share of common stock of each
company comprising the Index Group during the period of 30
trading days ending on the day immediately preceding the day
of expiration of the last waiting period with respect to any
of the required regulatory approvals for the Merger, and (B)
the closing price of the common stock of each company
comprising the Index Group on the trading day immediately
preceding the public announcement of the Agreement, by (ii)
the applicable weighting for such company as set forth in
Section 9 of the Agreement, and then subtracting .200 from
this amount.
If Farmers elects to terminate for this reason, it must give prompt
written notice of this to ANB (also, Farmers may withdraw this notice within the
time specified in the Agreement). During the five-day period commencing with its
receipt of such notice, ANB may, at its option, increase the consideration to be
received by the holders of Farmers common stock hereunder, by adjusting the
Exchange Ratio to equal the lesser of (x) a number equal to a fraction, the
numerator of which is 5.4 multiplied by $24.00, and the denominator of which is
the average of the high asked price of a share of ANB Common Stock, as reported
on the Nasdaq Stock Market National Market System for the 30 consecutive trading
days immediately preceding the day of expiration of the last waiting period with
respect to any of the required regulatory approvals for the Merger, and (y) a
number equal to a fraction, the numerator of which is the Index Ratio multiplied
by 5.4 and the denominator of which is the ANB Ratio. If ANB elects to do this,
it must give, within such five-day period, written notice to Farmers of such
election and the revised Exchange Ratio. If this occurs, no termination will be
considered to have occurred and the Agreement will remain in full force and
effect in accordance with its terms (except as to the adjusted Exchange Ratio).
The Agreement more fully describes the reasons why ANB and Farmers can
terminate the Agreement. Upon termination for any of these reasons, the
Agreement will be of no further force or effect. See Appendix A.
RESTRICTIONS AFFECTING FARMERS
The Agreement contains a number of restrictions regarding the conduct
of business of Farmers pending consummation of the Merger. Among other items,
Farmers may not, without the prior written consent of ANB:
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<PAGE>
1. change its capital stock accounts;
2. distribute or pay any dividends, or authorize a stock split,
except that (A) the Bank may pay cash dividends to Farmers in
the ordinary course of business for payment of reasonable and
necessary business and operating expenses of Farmers and to
provide funds for Farmers dividends and (B) Farmers may pay to
its shareholders its usual and customary quarterly cash
dividend of up to $.70 per share at approximately the same
times during each fiscal quarter which it has historically
declared and paid such dividends;
3. amend its Articles of Incorporation or By-Laws;
4. carry on their business other than substantially in the manner
as conducted as of the date of the Agreement and in the
ordinary course of business; or
5. negotiate or discuss with third parties relative to a merger,
combination or sale of Farmers, except under certain limited
circumstances.
See Appendix A.
REGULATORY APPROVALS
The Merger requires the prior approval of the Board of Governors of the
Federal Reserve System ("Federal Reserve") under the Bank Holding Company Act of
1956, as amended ("BHC Act") and the Ohio Division of Financial Institutions.
ANB will file an application with the Federal Reserve for its prior approval of
the Merger. ANB will file an application with the Ohio Division of Financial
Institutions for its prior approval of the Merger.
Approval of the Merger by the Federal Reserve or the Ohio Division of
Financial Institutions is not to be interpreted as the opinion of such
regulatory authority that the Merger is favorable to the shareholders of Farmers
from a financial point of view or that the regulatory authority has considered
the adequacy of the terms of the Merger. An approval by the Federal Reserve or
the Ohio Division of Financial Institutions in no way constitutes an endorsement
or a recommendation of the Merger by such regulatory authority.
17
<PAGE>
ACCOUNTING TREATMENT FOR THE MERGER
It is anticipated that the Merger will be accounted for as a
"pooling-of-interests" transaction. Under this method of accounting,
shareholders of ANB and Farmers will be deemed to have combined their existing
voting common stock interests. See "SUMMARY OF SELECTED FINANCIAL DATA" and "PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION".
In order for the Merger to qualify for pooling-of-interests accounting
treatment, among other items, 90% or more of the outstanding shares of Farmers
Common Stock must be exchanged for ANB Common Stock. In the event the holders
representing more than 10% of the outstanding shares of Farmers Common Stock
become entitled by the exercise of dissenters' rights or otherwise to receive
cash instead of ANB Common Stock, the Merger would not qualify for
pooling-of-interests method of accounting and ANB would have the right to elect
not to consummate the Merger. See "PROPOSED MERGER -- Dissenters' Rights of
Farmers' Shareholders."
EFFECTIVE TIME
The Merger will become effective at the close of business on the day
specified in the Articles of Merger of Farmers with and into ANB as filed with
the Indiana Secretary of State and a certificate of Merger filed with the Ohio
Secretary of State. The effective time of the Merger will occur on the last
business day of the month following (1) the fulfillment of all conditions
precedent to the Merger set forth in the Agreement and (2) the expiration of all
waiting periods in connection with the bank regulatory applications filed for
approval of the Merger, unless in each case otherwise mutually agreed to by ANB
and Farmers.
ANB and Farmers currently anticipate that the Merger will be
consummated during the second quarter of 1999.
MANAGEMENT, PERSONNEL AND EMPLOYEE BENEFITS AFTER THE MERGER
ANB will be the surviving corporation in the Merger and, upon
consummation of the Merger, Farmers will no longer exist. Consequently, the
directors and officers of Farmers will no longer serve in such capacities after
the effective time of the Merger.
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The Bank will become a wholly-owned subsidiary of ANB. The Board of
Directors and officers of the Bank serving at the effective time of the Merger
will continue as the Board of Directors and officers of the Bank after the
effective time of the Merger. Additionally, ANB will appoint a designee to serve
on the Board of Directors of the Bank, and will expand its Board of Directors by
one member and elect a representative of the Board of Directors of Farmers
(serving immediately prior to the effective time of the Merger) who is a
mutually acceptable representative. Following the effective time of the Merger,
ANB, as the sole shareholder of Bank, will have the ability to elect the Board
of Directors and officers of the Bank. The current officers of the Bank will
continue in their respective positions after the Merger, until the Board of
Directors of the Bank determines otherwise.
Full-time officers or employees of the Bank as of the effective time of
the Merger who continue as full-time officers or employees of the Bank or any
other subsidiary of ANB after the effective time of the Merger will receive
substantially the same employee benefits on substantially the same terms and
conditions that ANB may offer to similarly situated officers and employees of
its banking subsidiaries from time to time. ANB has agreed to increase the
annual salary of certain officers of the Bank by $2,000 when the officers are no
longer covered by a group health insurance plan for which the employer pays 100%
of the premium. In addition, years of service of an employee of the Bank prior
to the effective time of the Merger will be credited to each such employee for
purposes of eligibility under ANB's employee welfare benefit plans and for
purposes of eligibility and vesting, but not for accrual or contributions, under
the ANB Corporation Employees' Pension Plan ("ANB Pension Plan") and the ANB
Corporation Savings and Incentive Plan ("ANB 401(k) Plan").
Those officers and employees of Farmers or the Bank who otherwise meet
the eligibility requirements of the ANB Pension Plan or ANB 401(k) Plan, based
upon their age and years of service to the Bank, will become participants under
the ANB Pension Plan and the ANB 401(k) Plan on the January 1st which coincides
with or next follows the effective time of the Merger. Those officers and
employees who do not meet the eligibility requirements of the ANB Pension Plan
and the ANB 401(k) Plan on such date will become participants thereunder on the
first "plan entry date" (as defined in the ANB Pension Plan or the ANB 401(k)
Plan) which coincides with or next follows the date on which such eligibility
requirements are satisfied.
The Farmers State Bank Directors' Deferred Compensation Plan will be
merged with and into the ANB Corporation Directors' Deferred Compensation Plan
effective as of the effective
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time of the Merger. The Farmers State Bank of Union City, Ohio Employees' 401(k)
Plan ("Farmers 401(k) Plan") will be merged with the ANB 401(k) Plan. All
account balances maintained under the Farmers 401(k) Plan will become fully
vested on the day on which the effective time of the Merger occurs. Until such
Plans are merged, Farmers may continue to make contributions to the Farmers
401(k) Plan with contributions in comparable amounts to past contributions to
such Plan. All benefits accrued under the Farmers State Bank of Union City, Ohio
Employees' Pension Plan ("Farmers Pension Plan") will become fully vested on the
effective date of the Merger. Participants in the Farmers Pension Plan will
continue to accrue benefits under the Farmers Pension Plan through the date the
Farmers Pension Plan is terminated or merged. The Board of Directors of ANB has
the discretion to determine whether to terminate the Farmers Pension Plan and
distribute all vested accrued benefits to participants or to merge the Farmers
Pension Plan into the ANB Pension Plan.
In addition, the holders of any outstanding options, warrants,
agreements or subscription rights relating to any shares of Farmers common stock
must exercise their rights prior to the effective date of the Merger. Further,
the trustees of the Farmers State Bancorp Employee Stock Option Plan must take
the necessary actions to terminate this plan prior to the effective time of the
Merger. Finally, The Farmers State Bank of Union City Policy Concerning Medical
Insurance Payments for Retirees and Disabled Employees and The Farmers State
Bank Group Life Insurance Plan must be terminated effective as of December 31,
1999.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion only summarizes certain federal income tax
aspects of the Merger. This discussion does not cover all federal income tax
consequences relating to the Merger and does not contain any information with
respect to state, local or other tax laws.
TAX OPINION
ANB and Farmers have requested the law firm of Krieg DeVault Alexander
& Capehart, LLP to render an opinion to the effect that the Merger constitutes a
tax-free reorganization for federal income tax purposes under the Internal
Revenue Code of 1986, as amended ("Code") to ANB and Farmers and to the
shareholders of Farmers, except with respect to cash received by Farmers'
shareholders (i) for fractional share interests of ANB Common Stock or (ii)
pursuant to the exercise of dissenters' rights.
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The opinion rendered by Krieg DeVault Alexander & Capehart, LLP will be
based upon the assumption of certain facts to be stated in the opinion. Under
the Agreement, the obligations of each of ANB and Farmers to consummate the
Merger is conditioned upon the receipt of an opinion of counsel substantially to
the effect as set forth above.
TAX CONSEQUENCES TO ANB AND FARMERS
The merger of Farmers with and into ANB constitutes a statutory merger
under applicable law. Consequently, based upon the assumption of certain facts
to be stated in the opinion, the merger of Farmers with and into ANB should
constitute a tax-free reorganization. As a result, ANB and Farmers will
recognize neither gain nor loss as a result of the Merger for federal income tax
purposes.
TAX CONSEQUENCES TO FARMERS SHAREHOLDERS
A. Farmers Shareholders Receiving Solely ANB Common Stock
------------------------------------------------------
A Farmers shareholder who receives solely ANB Common Stock in exchange
for all of the shares of Farmers Common Stock actually owned by the shareholder
will not recognize any gain or loss upon such exchange for federal income tax
purposes. See paragraph C. below for a discussion of the tax consequences of
receiving cash in lieu of fractional share interests of ANB Common Stock.
B. Dissenting Farmers Shareholders Receiving Solely Cash
-----------------------------------------------------
The transaction will result in income being recognized for federal
income tax purposes for Farmers shareholders who dissent to the Merger and
receive solely cash in exchange for their shares of Farmers Common Stock. A
shareholder who receives solely cash for the shareholder's shares of Farmers
Common Stock through the exercise of dissenters' rights and, as a result of the
surrender of all of the shareholder's shares of Farmers Common Stock, owns no
Farmers Common Stock either directly or through the constructive ownership rules
of Section 318 of the Code, would recognize capital gain or loss (assuming that
the Farmers Common Stock is held by such shareholder as a capital asset) equal
to the difference between the amount of the cash received and the shareholder's
tax basis of its shares of Farmers Common Stock.
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C. Cash Received in Lieu of Fractional Shares
------------------------------------------
A Farmers shareholder who receives cash in lieu of a fractional share
interest of ANB Common Stock will be treated as having received such fraction of
a share of ANB Common Stock and then as having received cash in redemption of
the fractional share interest, subject to the provisions of Section 302 of the
Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN VERIFIED
WITH THE INTERNAL REVENUE SERVICE, IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED UPON THE FEDERAL INTERNAL REVENUE CODE AS IN EFFECT ON THE DATE OF THIS
PROXY STATEMENT WITHOUT CONSIDERATION OF ANY STATE LAWS OR THE PARTICULAR FACTS
OR CIRCUMSTANCES OF ANY SHAREHOLDER OF FARMERS. THE ABOVE DISCUSSION MAY NOT BE
APPLICABLE WITH RESPECT TO SHARES ACQUIRED PURSUANT TO THE EXERCISE OF STOCK
OPTIONS OR OTHERWISE RECEIVED AS COMPENSATION. SHAREHOLDERS ARE URGED TO CONSULT
WITH THEIR TAX ADVISOR WITH RESPECT TO ALL TAX CONSEQUENCES OF THE MERGER TO
THEM, INCLUDING THE EFFECT OF FEDERAL, STATE AND LOCAL TAX LAWS AND ANY OTHER
TAX CONSEQUENCES.
COMPARATIVE PER SHARE DATA
NATURE OF TRADING MARKET
Shares of ANB Common Stock are traded in the over-the-counter market
and share prices are reported by the NASDAQ National Market System under the
symbol "ANBC". On October 20, 1998, the business day immediately preceding the
public announcement of the Merger, the closing price of ANB Common Stock
reported by the NASDAQ National Market System was $24.25 per share. On
____________, 1999, the closing price of ANB Common Stock reported by the NASDAQ
National Market System was $____________ per share. The following table sets
forth, for the periods indicated, the high and low per share closing prices of
ANB Common Stock as reported by the NASDAQ National Market System.
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HIGH LOW
---- ---
1996
----
First Quarter $ 16.50 $ 15.50
Second Quarter 17.50 16.50
Third Quarter 18.00 17.50
Fourth Quarter 21.00 18.00
1997
----
First Quarter $ 19.75 $ 18.50
Second Quarter 19.50 18.00
Third Quarter 21.875 19.50
Fourth Quarter 26.25 21.50
1998
----
First Quarter $ 29.625 $ 26.00
Second Quarter 29.00 27.875
Third Quarter 28.125 25.625
Fourth Quarter 25.75 22.25
1999
----
First Quarter (as of $ 24.1875 $ 23.75
January 25, 1999)
There is no established trading market for the Common Stock of Farmers.
Farmers is not aware of the prices at which its Common Stock has been sold or
purchased in private trades.
<TABLE>
<CAPTION>
FARMERS
-------
NUMBER OF TOTAL
SHARES NUMBER OF
HIGH LOW TRADED TRADES
------------------ ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
1996 $ 54.50 $ 51.50 3,043 22
1997 59.00 56.00 10,285 12
1998 63.00 60.00 193 4
1999 No trades No trades 0 None
</TABLE>
As of the Record Date, there were 319 holders of record of Farmers
Common Stock.
23
<PAGE>
DIVIDENDS
The following table sets forth the per share cash dividends paid on
shares of ANB Common Stock and Farmers Common Stock since January 1, 1996.
ANB Farmers
Common Stock (1) Common Stock (2)
-------------------- --------------------
1996
----
First Quarter $ 0.125 $ 0.55
Second Quarter 0.125 0.55
Third Quarter 0.15 0.55
Fourth Quarter 0.15 0.60
1997
----
First Quarter $ 0.15 $ 0.60
Second Quarter 0.15 0.60
Third Quarter 0.17 0.60
Fourth Quarter 0.17 0.65
1998
----
First Quarter $ 0.17 $ 0.65
Second Quarter 0.17 0.65
Third Quarter 0.19 0.65
Fourth Quarter 0.19 0.70
1999
----
First Quarter (as of
January 25, 1999) $ 0.00 0.00
- -----------------------------
(1) There can be no assurance as to the amount of future dividends that may
be declared or paid on shares of ANB Common Stock since dividend
policies are subject to the discretion of the Board of Directors of
ANB, general business conditions and dividends paid to ANB by its
affiliate banks. For certain restrictions on the payment of dividends
on shares of ANB Common Stock, see "COMPARISON OF COMMON STOCK --
Dividend Rights".
(2) The Agreement provides that Farmers may continue to pay its customary
quarterly dividends of up to $.70 per share at approximately the same
times during each fiscal quarter which it has historically declared and
paid such dividends. The Bank may pay cash dividends to Farmers in the
ordinary course of business for payment of reasonable and necessary
business and operating expenses of Farmers and to provide funds for
Farmers' dividends. See "DESCRIPTION OF FARMERS -- Business".
24
<PAGE>
EXISTING AND PRO FORMA PER SHARE INFORMATION
The following table sets forth certain historical, pro forma and
equivalent per share information. The data is based on historical financial
statements and the pro forma financial information included on pages 28 through
34 and has been restated to give effect to all stock splits. Equivalent per
share data is calculated by multiplying the pro forma ANB information by the
Exchange Ratio under the Agreement of 5.4 shares of ANB Common Stock for each
share of Farmers Common Stock.
<TABLE>
<CAPTION>
As Reported
------------------------------------------------------------------------
Book Value
Basic Net Diluted Net Cash at Period
ANB Income Income Dividends End
- ---------------------------------------- --------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30,
1998 $ 1.31 $ 1.28 $ 0.53 $ 13.19
Year Ended December 31,
1997 1.55 1.52 0.64 12.41
1996 1.33 1.31 0.55 11.43
1995 1.16 1.14 0.46 10.92
As Reported
------------------------------------------------------------------------
Book Value
Basic Net Diluted Net Cash at Period
Farmers Income Income Dividends End
- ---------------------------------------- --------------- --------------- ---------------- --------------
Nine Months Ended September 30,
1998 $ 4.82 $ 4.82 $ 1.95 $ 65.22
Year Ended December 31,
1997 6.63 6.63 2.45 61.77
1996 6.45 6.45 2.25 57.37
1995 5.48 5.48 2.05 53.54
25
<PAGE>
Basic Net Income Diluted Net Income
---------------------------------- ----------------------------------
Farmers Farmers
ANB Pro Equivalent ANB Pro Equivalent
Forma (1) (1) Forma (1) (1)
--------------- --------------- ---------------- --------------
Nine Months Ended September 30,
1998 $ 1.24 $ 6.70 $ 1.22 $ 6.59
Year Ended December 31,
1997 1.50 8.10 1.47 7.94
1996 1.31 7.07 1.29 6.97
1995 1.14 6.16 1.12 6.05
</TABLE>
<TABLE>
<CAPTION>
Cash Dividends
-------------------------------------------
ANB Pro Farmers
Forma (1) Equivalent (1)
------------------- --------------------
<S> <C> <C>
Nine Months Ended September 30, 1998 $ 0.53 $ 2.86
Year Ended December 31,
1997 0.64 3.46
1996 0.55 2.97
1995 0.46 2.48
Book Value at Period End
-----------------------------------
ANB Farmers
Pro Forma (1) Equivalent (1)
--------------- ----------------
As of September 30, 1998 $ 13.02$ $ 70.31
As of December 31, 1997 12.26 66.20
Market Value of Common
Stock
-----------------------------------
Farmers
ANB Equivalent
--------------- ----------------
As of October 20, 1998 (2) $ 24.25$ $ 130.95
</TABLE>
- ----------------------------------------
(1) Considers the pending merger with Farmers. See "PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION".
(2) Represents the last business day prior to the public announcement of
the proposed merger with Farmers.
26
<PAGE>
ANB CORPORATION
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying financial statements present a Pro Forma Condensed
Combined Balance Sheet of ANB as of September 30, 1998 and Pro Forma Condensed
Combined Statements of Income for the nine months ended September 30, 1998 and
for the years ended December 31, 1997, 1996 and 1995.
The Pro Forma Condensed Combined Statements of Income for the nine
months ended September 30, 1998 and the years ended December 31, 1997, 1996 and
1995 are presented giving effect to the Merger as of January 1 of each of the
years presented.
The pro forma information is based upon historical consolidated
financial statements of ANB and its subsidiaries and the historical financial
statements of Farmers and its subsidiary. The assumptions give effect to the
Merger under the pooling-of-interests method of accounting. The information has
been prepared in accordance with the rules and regulations of the SEC and is
provided for comparative purposes only. The information does not purport to be
indicative of the results that actually would have occurred had the mergers been
effected on January 1 of the periods presented.
27
<PAGE>
ANB CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(Unaudited - Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma
Adjustments Condensed
-------------------------- Combined
ANB Farmers Debit Credit Balance Sheet
------------- -------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 57,256 $ 3,344 $ 109(1) $ 60,709
Investment securities available for sale 82,276 10,681 92,957
Investment securities held to maturity 10,187 10,187
Net loans 432,989 66,107 499,096
Premises and equipment 12,620 1,272 13,892
Goodwill and core deposit intangibles 11,868 11,868
Other assets 15,487 1,230 16,717
------------- -------------- ---------------
Total assets $ 612,496 $ 92,821 $ 109 $ 705,426
============= ============== ============ ===============
LIABILITIES
Deposits $ 497,909 $ 82,158 $ 580,067
Short-term borrowings 6,833 137 6,970
Federal Home Loan Bank advances 42,145 42,145
Other liabilities 5,484 494 5,978
------------- -------------- ---------------
Total liabilities 552,371 82,789 635,160
------------- -------------- ---------------
STOCKHOLDERS' EQUITY
Common stock, $1 stated value; $20 par value;
pro forma combined $1 stated value; issued
shares - 4,557,313; 172,500; pro forma
combined 5,398,677 4,557 3,450 $ 2,648(2) $ 40(1) 5,399
Additional paid-in capital 8,278 1,589 69(1) 11,575
1,639(2)
Retained earnings 45,827 5,838 51,665
Treasury stock (1,009) 1,009(2)
Accumulated other comprehensive income 1,463 164 1,627
------------- -------------- ------------ ----------- ---------------
Total stockholders' equity 60,125 10,032 2,648 2,757 70,266
------------- -------------- ------------ ----------- ---------------
Total liabilities and stockholders' equity $ 612,496 $ 92,821 $ 2,648 $ 2,757 $ 705,426
============= ============== ============ =========== ===============
Book value per share $ 13.19 $ 65.22 $ 13.02
</TABLE>
(1) Represents the cash proceeds from the exercise of Farmers State Bancorp
stock options and related stockholders' equity.
(2) Represents the acquisition adjustment that includes the elimination of
155,808 net outstanding shares of Farmers State Bancorp common stock (including
2,000 shares issued upon the exercise of stock options) and the issuance of
841,364 shares of ANB Corporation common stock in the merger. The value of the
issued shares compared to the eliminated shares is allocated as follows:
$841,364 to common stock and the balance to capital surplus after elimination of
treasury stock.
28
<PAGE>
ANB CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited - Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma
Condensed
Combined
Statement of
ANB Farmers Income
------------- ------------- --------------
<S> <C> <C> <C>
Interest income $ 31,637 $ 5,356 $ 36,993
Interest expense 13,885 2,698 16,583
------------- ------------- --------------
Net interest income 17,752 2,658 20,410
Provision for loan losses 387 45 432
------------- ------------- --------------
Net interest income after provision for loan losses 17,365 2,613 19,978
Other income 6,726 270 6,996
Other expenses 15,163 1,734 16,897
------------- ------------- --------------
Income before income tax expense 8,928 1,149 10,077
Income tax expense 2,972 407 3,379
------------- ------------- --------------
Net income $ 5,956 $ 742 $ 6,698
============= ============= ==============
Basic earnings per share $ 1.31 $ 4.82 $ 1.24
Diluted earnings per share 1.28 4.82 1.22
</TABLE>
29
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited - Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma
Condensed
Combined
Statement of
ANB Farmers Income
--------------- --------------- ----------------
<S> <C> <C> <C>
Interest income $ 39,719 $ 7,143 $ 46,862
Interest expense 17,215 3,570 20,785
--------------- --------------- ----------------
Net interest income 22,504 3,573 26,077
Provision for loan losses 955 72 1,027
--------------- --------------- ----------------
Net interest income after provision for loan losses 21,549 3,501 25,050
Other income 7,595 349 7,944
Other expenses 18,589 2,262 20,851
--------------- --------------- ----------------
Income before income tax expense 10,555 1,588 12,143
Income tax expense 3,548 554 4,102
--------------- --------------- ----------------
Net income $ 7,007 $ 1,034 $ 8,041
=============== =============== ================
Basic earnings per share $ 1.55 $ 6.63 $ 1.50
Diluted earnings per share 1.52 6.63 1.47
</TABLE>
30
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited - Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma
Condensed
Combined
Statement of
ANB Farmers Income
------------- ------------- --------------
<S> <C> <C> <C>
Interest income $ 37,424 $ 7,007 $ 44,431
Interest expense 16,396 3,452 19,848
------------- ------------- --------------
Net interest income 21,028 3,555 24,583
Provision for loan losses 1,089 67 1,156
------------- ------------- --------------
Net interest income after provision for loan losses 19,939 3,488 23,427
Other income 7,000 362 7,362
Other expenses 18,139 2,205 20,344
------------- ------------- --------------
Income before income tax expense 8,800 1,645 10,445
Income tax expense 2,794 581 3,375
------------- ------------- --------------
Net income $ 6,006 $ 1,064 $ 7,070
============= ============= ==============
Basic earnings per share $ 1.33 $ 6.45 $ 1.31
Diluted earnings per share 1.31 6.45 1.29
</TABLE>
31
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(Unaudited - Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma
Condensed
Combined
Statement of
ANB Farmers Income
------------- ------------- --------------
<S> <C> <C> <C>
Interest income $ 35,471 6,645 42,116
Interest expense 15,647 3,279 18,926
------------- ------------- --------------
Net interest income 19,824 3,366 23,190
Provision for loan losses 1,084 60 1,144
------------- ------------- --------------
Net interest income after provision for loan losses 18,740 3,306 22,046
Other income 6,541 350 6,891
Other expenses 17,474 2,218 19,692
------------- ------------- --------------
Income before income tax expense 7,807 1,438 9,245
Income tax expense 2,522 497 3,019
------------- ------------- --------------
Net income $ 5,285 $ 941 $ 6,226
============= ============= ==============
Basic earnings per share $ 1.16 $ 5.48 $ 1.14
Diluted earnings per share 1.14 5.48 1.12
</TABLE>
32
<PAGE>
DESCRIPTION OF ANB
BUSINESS
ANB is a multibank holding company with two affiliate banks located in
Indiana and engages in the business of commercial banking and trust and asset
management. ANB provides its commercial banking trust and asset management
products and services through 31 affiliated offices in eight Indiana counties.
As of September 30, 1998 ANB had consolidated assets of $612.5 million. ANB
conducts its business through its financial institution and trust subsidiaries,
American National Bank and Trust Company of Muncie, American National Trust and
Investment Management Company and Peoples Loan and Trust Bank. The subsidiaries
provide a broad range of financial services to their customers.
ANB anticipates that it will continue its policy of geographic
expansion through strategic mergers with additional commercial banks and
thrifts. See "DESCRIPTION Of ANB -- Acquisition Policy".
The principal activity of ANB is to own, manage and supervise its
affiliate banks and its non-bank subsidiaries, each of which is held by ANB as a
separate wholly-owned subsidiary. The primary sources of ANB's revenues are
dividends and fees received from its subsidiaries. There are various legal
limitations on the extent to which the affiliate banks may finance, pay
dividends to or otherwise supply funds to ANB. See "REGULATORY CONSIDERATIONS"
and "COMPARISON OF COMMON STOCK -- Dividend Rights".
ACQUISITION POLICY
ANB anticipates that it will continue its policy of geographic
expansion through consideration of acquisitions of financial institutions
located in Indiana and Ohio, although there can be no assurance of this.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The foregoing information concerning ANB does not purport to be
complete. For additional information, see the documents filed by ANB and listed
under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in this Proxy Statement
which are specifically incorporated herein by reference.
33
<PAGE>
DESCRIPTION OF FARMERS
BUSINESS
Farmers is an Ohio corporation which was incorporated in 1984 and which
is a registered bank holding company owning all of the issued and outstanding
common stock of the Bank. Farmers' principal office is located in Union City,
Ohio, and its business consists primarily of the ownership, supervision and
control of the Bank. The common stock of the Bank is Farmers' principal asset,
and dividends paid by the Bank are Farmers' principal source of income.
The Bank is a state banking corporation organized in 1916 under the
laws of the State of Ohio. The Bank provides various commercial and consumer
banking services to its customers located primarily in Darke and Mercer
Counties, Ohio and Randolph County in Indiana. These services include accepting
demand, savings, and time deposits; making agricultural, commercial, consumer,
and real estate loans; administering trusts and estates; and providing other
services relating to the general business of banking, such as, for example, safe
deposit facilities.
PROPERTIES
The main office of Farmers and the Bank is located at 101 East Elm
Street, Union City, Ohio, which is owned by the Bank. The Bank also owns and
operates a branch located in Randolph County, Indiana.
LITIGATION
There is no litigation of a material nature in which Farmers or the
Bank is a party or in which any of their respective property is subject, other
than ordinary routine litigation incidental to their normal business. Further,
there is no material legal proceeding in which any director, executive officer,
principal shareholder or associate of any such person or affiliate is a party or
has a material interest adverse to Farmers or the Bank. None of the ordinary
routine litigation in which Farmers or the Bank is involved is expected to have
a material adverse impact upon the financial condition or results of operations
of Farmers or the Bank.
34
<PAGE>
EMPLOYEES
As of December 31, 1998, the Bank had thirty-seven (37) full-time
equivalent employees to whom it provides a variety of benefits. Management of
the Bank considers its relations with its employees to be good. As of the same
date, Farmers had two (2) employees who are officers of both Farmers and the
Bank, neither of whom is separately compensated by Farmers for his services to
Farmers.
MANAGEMENT
The following table contains certain information about each director
and executive officer of Farmers as of the date of this Proxy
Statement-Prospectus:
DIRECTORS:
<TABLE>
<CAPTION>
Served as Director
Name Age Principal Occupation for Last 5 Years Continuously since (1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clyde Bateman 43 Farmer 1992 (1992)
Gene R. Bennett 71 Insurance Agent 1988 (1988)
James L. Davis 65 Executive Vice President and Chief Executive 1984 (1982)
Officer of Farmers, and President and Chief
Executive Officer of Bank
Lyle Gilbert 62 Insurance Agent 1991 (1991)
James C. Gower 59 Secretary of Farmers, and Executive Vice 1990 (1990)
President of Bank
Errol Klem 60 President of Farmers and Businessman 1988 (1988)
C. Daniel Wright 64 Chairman of the Board of Farmers, retired 1984 (1964)
Businessman
</TABLE>
(1) Years in parenthesis relate to service as a director of the Bank. All of
Farmers directors are also directors of the Bank.
All Farmers' directors hold office for staggered two-year terms or
until their respective successors are duly elected and qualified. All Farmers'
executive officers hold office for a term of one year or until their respective
successors are duly elected and qualified. There are no arrangements or
understandings between any of the directors or executive officers and any other
persons according to which any of Farmers' or the Bank's directors or executive
officers have been selected for their respective positions.
35
<PAGE>
In accordance with the Agreement and in connection with the first
annual meeting of the shareholders of ANB after the Merger, ANB shall cause all
necessary corporate action to be taken to cause one (1) of the current members
of the Board of Directors of Farmers to be nominated for election as a member of
ANB's Board of Directors for a three-year term. See "PROPOSED MERGER --
Management After the Merger."
EXECUTIVE OFFICERS:
Name Age Office and Experience
- --------------------------------------------------------------------------------
James L. Davis 65 President and Chief Executive Officer of Bank
since 1991 and an employee of Bank since 1953,
Executive Vice President and Chief Executive
Officer of Farmers since 1991.
James C. Gower 59 Executive Vice President of Bank since 1991 and
an employee of Bank since 1958, Secretary of
Farmers since 1991.
SECURITY OWNERSHIP OF MANAGEMENT
The table below sets forth, as of December 31, 1998, the total number
of shares of Farmers Common Stock beneficially owned by each director and
executive officer of Farmers, by all directors and executive officers as a group
and by each person known to management to own more than 5% of the outstanding
shares of Farmers Common Stock.
Amount and Nature Percent
Beneficial Owner of Beneficial Ownership of Class(1)
- -----------------------------------------------------------------------------
Clyde Bateman (2) 220 *
Gene R. Bennett (3) 626 *
James L. Davis (4) 2,480 1.6%
Lyle Gilbert 475 *
David S. Golub 9,966 6.4%
Mark S. Golub 9,966 6.4%
James C. Gower (5) 3,572 2.3%
Errol Klem (6) 1,983 1.3%
C. Daniel Wright (7) 4,494 2.9%
Directors and Executive Officers as a
Group (9 persons) 33,782 21.7%
36
<PAGE>
* Represents less than 1% of the outstanding shares of common stock of
Farmers.
(1) Based upon 155,808 shares of Farmers Common Stock outstanding. The
information contained in this table is based upon information furnished
to Farmers by the persons named and the shareholder records of Farmers.
(2) Mr. Bateman beneficially owns 90 shares directly and 85 shares jointly
with his wife, Christine Bateman. Mr. Bateman beneficially owns 15
shares jointly with each of his children, Emily, Molly and Jonathan
Bateman.
(3) Mr. Bennett beneficially owns 425 shares directly, and Mr. Bennett's
wife, Roberta Bennett, beneficially owns 201 shares directly. Mr.
Bennett disclaims any beneficial interest in his wife's shares.
(4) Mr. Davis beneficially owns 900 shares directly, and Mr. Davis' wife,
Lois Davis, beneficially owns 580 shares directly. Mr. Davis disclaims
any beneficial interest in his wife's shares. Mr. Davis has options to
acquire an additional 1,000 shares.
(5) Mr. Gower beneficially owns 1,300 shares directly, and Mr. Gower's
wife, Kay Gower, beneficially owns 750 shares directly, in which Mr.
Gower disclaims any beneficial interest. Additionally, Mr. Gower
beneficially owns 380 shares jointly with his wife and 142 shares
jointly with his son, Aaron Gower. Mr. Gower has options to acquire an
additional 1,000 shares.
(6) Mr. Klem beneficially owns 1,125 shares directly, and Mr. Klem's wife,
Patricia Klem, beneficially owns 523 shares directly, in which Mr. Klem
disclaims any beneficial interest. Additionally, Mr. Klem beneficially
owns 335 shares jointly with his wife.
(7) Mr. Wright beneficially owns 4,416 shares directly, and Mr. Wright's
wife, Sara Wright, beneficially owns 78 shares directly, in which Mr.
Wright disclaims any beneficial interest.
CERTAIN TRANSACTIONS
From time to time, the Bank has made loans to one or more of its
directors and executive officers. Such transactions have been made on
substantially the same terms, including interest rates and collateral on loans,
as those prevailing at the time for comparable transactions with other persons
and did not notice more than the normal risk of collectibility or present other
unfavorable features.
FARMERS STATE BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FARMERS
FOR JANUARY 1, 1995 - DECEMBER 31, 1997
The following discussion and analysis is intended to cover the
significant factors affecting the consolidated financial statements of Farmers
and its subsidiary, The Farmers State
37
<PAGE>
Bank, from January 1, 1995 through December 31, 1997. It is designed to provide
a more comprehensive review of the operating results and financial position than
could be obtained from an analysis of the financial statements alone. It should,
however, be read in conjunction with the financial statements and notes included
elsewhere herein.
Certain statements in this section constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements of Farmers to differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements.
ANALYSIS OF RESULTS OF OPERATIONS
NET INCOME. Net income for 1997 was $1,034,000 compared to $1,064,000,
which was reported for 1996. Net income for 1996 was higher by $123,000 when
compared to the $941,000 in net income recorded for 1995. Generally, a 2.5%
increase in 1997 operating expenses caused the slight decline in net income from
1996 to 1997, and an increase in net interest income from 1995 to 1996 primarily
contributed to the increase in net income for 1996.
Basic and diluted earnings per common share for 1997, 1996 and 1995 was
$6.63, $6.45 and $5.48, respectively.
The following table presents certain key performance ratios for the last three
years:
1997 1996 1995
- -------------------------------------------------------------------------------
Return on average assets 1.13% 1.18% 1.08%
Return on average equity 10.96 11.59 10.66
Net interest spread 3.58 3.62 3.55
Net interest margin (fully taxable equivalent) 4.15 4.21 4.12
NET INTEREST INCOME. Net interest income is Farmers' largest component
of income and represents the difference between interest and fees earned on
loans, investments and other earning assets, and the interest paid on
interest-bearing liabilities. An increase or decrease in net interest income is
the combined result of volume and rate changes for both earning assets and
38
<PAGE>
interest-bearing liabilities. Loan volume increases were the principal factor in
increasing the level of net interest income, particularly in 1996 over 1995.
Farmers experienced a decrease in the volume of investment securities,
particularly in 1997, reducing interest income and offsetting an interest income
increase related to loan volume. Interest expense rose in 1996 and 1997 over
1995 due to volume and rate increases.
Net interest income on a tax-equivalent basis for 1997 and 1996 totaled
$3,619,000 and $3,599,000 compared to $3,407,000 for 1995. The increases in net
interest income from loan volume were reduced significantly due to modest
increases in the volume of deposits and rates paid on deposits. In addition,
loan rates declined from 8.98% for 1996 to 8.83% for 1997 causing a decline in
net interest income.
Total interest income on a tax-equivalent basis of $7,189,000 for 1997
was $138,000 higher than the $7,051,000 earned in 1996. The increase for 1996
over 1995 was $365,000. The yield on earning assets rose from 8.08% for 1995 to
8.24% for 1996 and to 8.25% for 1997. Net volume increases in earnings assets
generally caused the increase in total interest income.
Interest expense rose from $3,279,000 for 1995 to $3,452,000 and
$3,570,000 for 1996 and 1997, respectively. Approximately 65% of the increase
for each period was due to volume increases in deposits.
Average earning assets increased to $87.135 million for 1997, from
$85.568 million for 1996 and $82.787 million for 1995. Average interest-bearing
liabilities were $76.447 million for 1997 compared to $74.756 million for 1996
and $72.449 million for 1995. Substantially all of the increases in
interest-bearing liabilities were due to deposit growth.
The following table is a summary of total interest income and expense,
net interest income/spread and net interest margin. The spread is the difference
between the rates earned on earning assets less the rates paid on
interest-bearing deposits. The net interest margin is a percent computed by
dividing net interest income on a fully-taxable equivalent basis by average
earning assets and represents a measure of basic income on earning assets held
by Farmers.
39
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
Year Ended December 31 Amount Rate Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest income
Loans receivable $ 5,808 8.83% $ 5,294 8.98% $ 4,741 8.79%
Investment securities 1,297 6.57 1,709 6.65 1,879 6.78
Federal funds sold 76 5.38 47 5.37 66 5.86
Deposits with financial institutions 8 4.88 1 5.26
--------- ---------- ---------- ---------- ---------- ----------
Total interest income 7,189 8.25 7,051 8.24 6,686 8.08
--------- ---------- ---------- ---------- ---------- ----------
Total interest expense
Deposits 3,555 4.67 3,437 4.61 3,264 4.52
Short-term borrowings 15 5.58 15 5.34 15 5.68
--------- ---------- ---------- ---------- ---------- ----------
Total interest expense 3,570 4.67 3,452 4.62 3,279 4.53
--------- ---------- ---------- ---------- ---------- ----------
Net interest income/spread $ 3,619 3.58% $ 3,599 3.62% $ 3,407 3.55%
========= ========== ========== ========== ========== ==========
Net interest margin 4.15% 4.21% 4.12%
========== ========== ==========
Adjustment of interest on tax-exempt $ 46 $ 44 $ 41
securities and loans to a tax-
equivalent basis
</TABLE>
The following table presents net interest income components on a
tax-equivalent basis and reflects changes between periods attributable to
movement in either the average balance or average interest rate for both
earning assets and interest-bearing liabilities. The volume differences
were computed as the difference in volume between the current and prior
year multiplied times the prior year's interest rate, while the interest
rate changes were computed as the difference in rate between the current
and prior year multiplied times the volume of the prior year. Volume/rate
variances have been allocated on the basis of the absolute relationship
between volume variances and rate variances.
40
<PAGE>
ANALYSIS OF CHANGES IN NET INTEREST INCOME.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996
Compared to Year Ended Compared to Year Ended
December 31, 1996 December 31, 1995
----------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- -------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total interest income
Loans receivable $ 606 $ (92) $ 514 $ 450 $ 103 $ 553
Investment securities (392) (20) (412) (134) (36) (170)
Federal funds sold 29 29 (14) (5) (19)
Deposits with financial
institutions 7 7 1 1
---------- ---------- ---------- ---------- --------- ----------
Total interest income 250 (112) 138 303 62 365
Total interest expense
Deposits 79 39 118 105 68 173
Short-term borrowings (1) 1 1 (1)
---------- ---------- ---------- ---------- --------- ----------
Total interest expense 78 40 118 106 67 173
---------- ---------- ---------- ---------- --------- ----------
Change in net interest income
(fully taxable equivalent
basis) $ 172 $ (152) 20 $ 197 $ (5) 192
========== ========== ========== =========
Taxable equivalent adjustment (2) (3)
---------- ----------
Change in net interest income $ 18 $ 189
========== ==========
</TABLE>
PROVISION FOR LOAN LOSSES. During 1997, 1996 and 1995, Farmers provided
$72,000, $67,000 and $59,500, respectively, to replenish the allowance for loan
losses for charge-offs recorded, and to maintain an adequate balance for
potential losses that may exist in the portfolio. Net charge-offs in 1997 were
$72,000, compared to $57,000 in 1996 , and $6,000 in 1995.
SUMMARY OF LOAN LOSS EXPERIENCE. The following table summarizes the
loan loss experience for the years indicated:
41
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
Balance at January 1 $ 1,109 $ 1,099 $ 1,046 $ 1,012 $ 863
---------- ---------- ---------- ---------- ----------
Loan charge-offs
Commercial and agricultural 15 17 10 24 36
Real estate mortgage 8 --- --- 45 87
Installment 76 56 18 92 5
Total charge-offs 99 73 28 161 128
---------- ---------- ---------- ---------- ----------
Loan recoveries
Commercial and agricultural 4 3 8 26 14
Real estate mortgage --- --- --- 8 25
Installment 23 13 14 29 8
---------- ---------- ---------- ---------- ----------
Total recoveries 27 16 22 63 47
---------- ---------- ---------- ---------- ----------
Net charge-offs 72 57 6 98 81
---------- ---------- ---------- ---------- ----------
Provision for loan losses 72 67 60 132 230
---------- ---------- ---------- ---------- ----------
Balance at December 31 $ 1,109 $ 1,109 $ 1,099 $ 1,046 $ 1,012
========== ========== ========== ========== ==========
Percentage of net charge-offs to average loans .11% .10% .01% .20% .17%
========== ========== ========== ========== ==========
</TABLE>
The following table presents nonaccrual loans and 90 days or more past
due loans for the years indicated:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 8 $ 19 $ --- $ --- $ 107
90 days or more past due 666 412 342 644 427
Restructured loans --- --- --- --- ---
Total $ 674 $ 431 $ 342 $ 644 $ 534
---------- ---------- ---------- ---------- ----------
Percent of total loans 1.02% .67 % .60% 1.26 % 1.15%
========== ========== ========== ========== ==========
</TABLE>
Loans with principal or interest contractually past due but not yet
paid are reviewed at regular intervals by management and are placed on a
nonaccrual status when scheduled payments remain unpaid for 90 days, unless the
loan is adequately secured and in the process of collection. Interest income on
nonaccrual loans is recorded when actually received (cash basis) in contrast to
the accrual basis, which records interest over the period in which it is earned,
regardless of when it is received. Loans are charged to the allowance for loan
losses when
42
<PAGE>
deemed uncollectible by management, unless sufficient collateral exists to
adequately secure the loan.
Management designates certain loans for internal monitoring purposes on
a watch list. Loans may be placed on management's watch list as a result of
delinquent status, concern about the borrower's financial condition or the value
of the collateral securing the loan, substandard classification during
regulatory examinations, or simply as a result of management's desire to monitor
more closely a borrower's financial condition and performance. Also, watch list
loans may include credits which, although adequately secured and performing,
reflect a past delinquency problem or unfavorable financial trends exhibited by
the borrower. Loans on the watch list considered classified by management
totaled $1,070,000 at December 31, 1997.
Impaired loans are those loans for which full payment in accordance
with the contractual terms is not expected. Loans designated as impaired during
1997 were not considered significant.
The allowance for loan losses is maintained at a level considered
adequate by management to absorb potential loan losses as determined by
evaluations of the loan portfolio on a continuing basis. This evaluation by
management includes consideration of past loan loss experience, changes in the
composition of the loan portfolio, the volume and condition of the loan
portfolio, as well as the financial condition of specific borrowers and current
economic conditions.
During the process of evaluating the level of the allowance, nonaccrual
and delinquent loans and loans on the watch list or considered impaired are
reviewed to determine the amount of potential losses that may be incurred.
Potential losses on other loans being monitored are also considered as well as
the maintaining of a general allowance for all other loans not specifically
being monitored.
The allowance for loan losses at year-end 1997 and 1996 approximated
$1,109,000. Total loans at the end of these periods were $66,291,000 and
$64,127,000, and the ratio of the allowance for loan losses to total loans was
1.67% and 1.73%.
Based on management's analysis of the composition of the loan portfolio
and current economic conditions, management considers the current allowance for
loan losses to be adequate.
43
<PAGE>
OTHER INCOME. The following table shows the components of other income
for 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
(In Thousands)
<S> <C> <C> <C>
Fiduciary activities $ 24 $ 18 $ 16
Service charges on deposit accounts 240 251 227
Other income 85 93 96
Investment securities gains 11
------------- ------------- --------------
Total other income $ 349 $ 362 $ 350
============= ============= ==============
</TABLE>
Other income is comprised of income items not directly related to
Farmers' interest-earning assets. Other income excluding investment securities
gains increased by $23,000 from 1995 to 1996. From 1996 to 1997, other income
decreased $13,000. These levels of service charges and other income generally
reflect no changes in fees' structure during the periods and only natural
variations that can occur in assessment of fees.
OTHER EXPENSES. The following table shows the components of other
expenses for 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
(In Thousands)
<S> <C> <C> <C>
Salaries and employee benefits $ 1,216 $ 1,203 $ 1,189
Premises and equipment expenses 323 300 269
Directors' fees 96 96 91
Deposit insurance expense 9 4 88
Franchise tax 122 115 113
Printing and office supplies 81 81 84
Other operating expenses 415 407 384
------------- ------------- --------------
Total other expenses $ 2,262 $ 2,206 $ 2,218
============= ============= ==============
</TABLE>
Other expenses are noninterest operating expenses of Farmers. Total
other expenses increased by $56,000, or 2.5% from 1996 to 1997. Excluding the
decrease in deposit insurance expense, other expenses increased from 1995 to
1996 by $72,000 or 3.4%.
44
<PAGE>
Increases to premises and equipment expenses primarily reflect
increased depreciation and maintenance related to data processing equipment
purchased.
Deposit insurance premiums declined sharply for 1996 and 1997 due to a
lower assessment rate on deposits by the Federal Deposit Insurance Corporation.
Beginning with the final two quarters in 1995, the Federal Deposit Insurance
Corporation lowered the rate assessed on deposits insured by the Bank Insurance
Fund resulting in the reductions in expense.
As a result of no significant changes in operations, certain other
categories increased by modest inflationary increases.
INCOME TAX. The effective tax rates for 1997, 1996 and 1995 were 34%,
35.3% and 34.6%, respectively. The change in income tax expense is generally due
to changes in income upon which applicable federal and state income taxes are
calculated.
BALANCE SHEET ANALYSIS. Total assets decreased slightly from
$91,097,000 at December 31, 1996 to $90,893,000 at December 31, 1997. Loans and
federal funds sold increased while investment securities decreased.
The loan portfolio at December 31, 1997 of $66,291,000 increased by
$2,164,000 for the year, an increase of 3.4% over the 1996 year end portfolio of
$64,127,000. Real estate loans increased in 1997 while consumer loans decreased.
Real estate loans were 63.4% and 61.3% of the loan portfolio at December 31,
1997 and 1996, respectively. The increase in real estate loans occurred in both
1-4 family loans and loans secured by farmland. Farmers' concentration in real
estate loans provides for lower risk than other loan categories and has
contributed significantly to the overall growth in the loan portfolio.
Commercial and agricultural production loans were 13.8% and 14.4% of the loan
portfolio at December 31, 1997 and 1996, respectively. Loan growth is consistent
with the demand in Farmers' market area.
45
<PAGE>
The following table presents a summary of loans by type:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1997 1996
--------------- ----------------
(In Thousands)
<S> <C> <C>
Commercial and agricultural $ 9,769 $ 9,811
Real estate 44,244 40,944
Installment 12,278 13,372
--------------- ----------------
Total loans $ 66,291 $ 64,127
=============== ================
</TABLE>
The following table presents loan maturities at December 31, 1997:
<TABLE>
<CAPTION>
Within 1-5 Over 5
1 Year Years Years Total
------------- -------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $ 8,503 $ 797 $ 469 $ 9,769
Real estate 2,853 9,960 31,431 44,244
Installment 4,995 7,283 12,278
------------- -------------- ------------- -------------
Total loans $ 16,351 $ 18,040 $ 31,900 $ 66,291
============= ============== ============= =============
</TABLE>
Variable rate and fixed rate loans totaled $ 49,667,000 and $
16,624,000, respectively, at December 31, 1997.
Maturities in the investment securities portfolio for 1997 primarily
funded the growth in loans. The investment securities portfolio totaled
$18,527,000 at December 31, 1997, down from $22,361,000 at the prior year end.
Included in the portfolio at year-end 1997 were securities held to maturity of
$11,343,000 and securities available for sale of $7,184,000.
Investment securities classified as available for sales are reported at
fair value, with unrealized gains and losses excluded from earnings, but
reported as a separate component of stockholders' equity. As a result of a
management decision to maintain greater liquidity and flexibility within the
portfolio, the available-for-sale category of investment securities rose while
the held-to-maturity category of the portfolio declined. The investment
portfolio totals included net unrealized gains totaling $74,000 at December 31,
1997.
46
<PAGE>
Maturities and weighted average yields of investment securities at
December 31, 1997 are as follows (based on contract maturities and on a fully
taxable equivalent basis):
<TABLE>
<CAPTION>
1 Year or Less 1-5 Years 5-10 Years Over 10 Years Total
----------------- ----------------- ----------------- ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- ------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 1,302 6.06 % $ 3,591 6.75 % $ 4,893 6.57 %
U.S. agencies 1,003 6.34 $ 498 6.62 % 1,501 6.43
State and municipals 325 7.48 458 7.12 $ 7 7.48 % 790 7.27
------- ------- ------- -------- -------- --------
1,302 6.06 4,919 6.71 956 6.86 7 7.48 7,184 6.62
Held to maturity
U.S. Treasury 2,609 7.02 5,757 6.58 8,366 6.72
U.S. agencies 500 6.25 500 6.87 1,000 6.56
State and municipals 86 5.93 1,891 6.70 1,977 6.67
2,695 6.98 8,148 6.59 500 6.87 11,343 6.69
------- ------- ------- -------- --------
Total $ 3,997 6.68 $ 13,067 6.64 $ 1,456 6.87 $ 7 7.48 $ 18,527 6.66
======= ======= ======= ======== ========
21.6 % 70.5 % 7.9 % 100.0 %
======= ======= ======= ========
</TABLE>
Farmers experienced minimal growth in deposits in 1997, as total
deposits were approximately $80,619,000. There was a decline of approximately
$1,505,000 in noninterest-bearing and other deposit categories bearing lesser
rates of interest, while the category of certificates of deposit rose during
1997. Total certificate of deposits were $54,082,000, an increase of $1,863,000
over 1996. Farmers has generally relied on deposits to fund its earning assets.
Total certificates of deposits of $100,000 or more were $6,798,000 at December
31, 1997, compared to $6,439,000 at year-end 1996.
LIQUIDITY. Liquidity is a measure of Farmers' ability to meet its
customers' present and future deposit withdrawals and/or increased loan demand.
Farmers manages its liquidity through a coordinated asset/liability management
program.
Liquidity is provided by projecting credit demand and other needs and
then maintaining sufficient cash and assets readily convertible into cash to
meet these requirements. Farmers has provided for its liquidity needs through
limited growth in core deposits, maturing loans, investments in its securities
portfolio and by maintaining adequate balances in cash and cash equivalents. At
December 31, 1997, Farmers had $5,722,000 or 6.3% of total assets in investment
securities maturing within one year and federal funds sold. An additional
$5,881,000 was held in securities available for sale. This is considered by
management to be adequate in view of projected liquidity needs.
47
<PAGE>
Cash flows have generally been provided by operations, net maturities
or sales of investments securities and certificates of deposit. Cash has been
used to fund increases in loans, decreases in deposits other than certificates
of deposits, purchases of treasury stock and payment of dividends.
CAPITAL. Farmers has a strong capital base to support its current
operations and future growth opportunities. Stockholders' equity was $9,504,000
at December 31, 1997 compared to $8,456,000 at January 1, 1995. Net income
retained after payment of dividends approximating 35 - 37% of net income, less
treasury stock purchased, has increased capital for the three-year period ended
December 31, 1997.
At December 31, 1997 the Bank's leverage capital ratio was 10.3%, which
was 6.3% greater than the requirement for adequately capitalized institutions.
The Bank's total risk-based capital ratio at December 31, 1997 was 17.1%, which
is 9.1 % above the level considered "adequately capitalized" under the current
regulatory guidelines.
INFLATION. Changing prices of goods, services and capital affect the
financial position of every business enterprise. The level of market interest
rates and the price of funds loaned or borrowed fluctuate due to changes in the
rate of inflation and various other factors, including government monetary
policy. Fluctuating interest rates affect the Bank's net interest income and
loan volume. Farmers and the Bank's other expenses, such as employee salaries
and benefits, reflect the effects of escalating prices as well as increased
levels of operation and other factors. As the inflation rate increases, the
purchasing power of the dollar decreases. Those holding fixed-rate monetary
assets incur a loss, while those holding fixed-rate monetary liabilities enjoy a
gain. The nature of a bank holding company's operations is such that there will
be an excess of monetary assets over monetary liabilities and thus, a bank
holding company will tend to suffer from an increase in the rate of inflation
and benefit from a decrease.
YEAR 2000 COMPLIANCE. Many businesses will face a potentially serious
information systems (computer) problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the year 2000. This problem could force computers to either
shut down or provide incorrect data or information. Farmers has begun the
process of identifying any changes that may be required to its computer programs
and hardware to become year 2000 compliant. While Farmers believes it is taking
all appropriate steps to assure year 2000 compliance, it is dependent on vendor
compliance to some extent. Farmers is requiring its systems and software vendors
to represent that the services and
48
<PAGE>
products provided are, or will be, year 2000 compliant, and contemplates a
program of testing compliance. Farmers estimates that its costs related to year
2000 compliance will not be material.
NEW ACCOUNTING MATTERS.
EARNINGS PER SHARE. In 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 128, Earnings Per Share, and specified the
computation, presentation, and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
Statement No. 128 was issued to simplify the computation of EPS and replaces
Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the Basic EPS
computation to the numerator and denominator of the Diluted EPS computation.
Statement No. 128 is effective for financial statement periods (both
interim and annual) ending after December 15, 1997. Farmers adopted Statement
No. 128 for 1997.
REPORTING COMPREHENSIVE INCOME. During 1997, the FASB issued Statement
No. 130, Reporting Comprehensive Income, establishing standards for the
reporting of comprehensive income and its components in financial statements.
Enterprises that have no items of other comprehensive income in any period
presented are excluded from the scope of this Statement. Statement No. 130 is
effective for interim and annual periods beginning after December 15, 1997.
Earlier application is permitted. Farmers will adopt Statement No. 130 for
1998, which requires disclosure of comprehensive income.
EMPLOYERS' DISCLOSURES ABOUT PENSION AND OTHER POSTRETIREMENT BENEFITS.
SFAS No. 132, which amends FASB Statements No. 87, 88, and 106, was issued in
February, 1998. While this statement does not change the measurement or
recognition of pension or other postretirement benefit plans, it revises
employers' disclosures about pension and other postretirement benefit plans.
Some of the provisions of the Statement include:
o The standardization of the disclosure requirements for
pensions and other postretirement benefits to the extent
practicable.
o A requirement for additional information on changes in the
benefit obligations and fair values of plan assets that will
facilitate financial analysis.
49
<PAGE>
o The elimination of certain disclosures that are no longer as
useful as they were when FASB Statements No. 87, Employers'
Accounting for Pension, No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits, and No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions,
were issued.
o Suggested combined formats for presentation of pension and
other postretirement benefit disclosures.
This statement is effective for fiscal years beginning after December 15, 1997.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 requires companies to record derivatives on the balance sheet at their fair
value. SFAS No. 133 also acknowledges that the method of recording a gain or
loss depends on the use of the derivative. If certain conditions are met, a
derivative may be specifically designed as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction.
The new Statement applies to all entities. If hedge accounting is
elected by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge.
SFAS No. 133 amends SFAS No. 52 and supercedes SFAS Nos. 80, 105, and
119. SFAS No. 107 is amended to include the disclosure provision about the
concentrations of credit risk from SFAS No. 105. Several Emerging Issues Task
Force consensuses are also changed or nullified by the provisions of SFAS No.
133.
SFAS No. 133 will be effective for all fiscal years beginning after
June 15, 1999. The impact on Farmers' operations is not expected to be material.
50
<PAGE>
FARMERS STATE BANCORP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The following discussion and analysis reviews the consolidated
operating results and financial condition of Farmers and its subsidiary, The
Farmers State Bank, as of September 30, 1998 and for the nine months ended
September 30, 1998 and 1997. This discussion should be read in conjunction with
the consolidated financial statements, notes thereto and other financial
information presented herein.
NET INCOME. Net income for the first nine months of 1998 was $741,859
compared to $778,152 for the first nine months of 1997. An increase in operating
expenses primarily caused earnings to decrease by $36,293 or 4.9%.
Farmers' annualized return on average assets for the first nine months
of 1998 was 1.08%, a decrease of 6 basis points compared to the first nine
months of 1997 and a 5 basis point decrease from the 1997 year-end return on
average assets of 1.13%.
The annualized return on average equity for the first nine months of
1998 was 10.11% compared to 11.02% for the same period in 1997.
NET INTEREST INCOME. Net interest income is the difference between
interest and fees earned on earning assets and interest paid on interest-bearing
liabilities. It is the largest and most critical component of Farmers' earnings
and is impacted by both rates and volume of earning assets and interest-bearing
liabilities. Farmers' net interest income, reported on a fully tax equivalent
basis was $2,698,000 for the nine months ended September 30, 1998 compared to
$2,706,000 for the same nine month period in 1997. The net interest margin,
expressed as a percent of earning assets, was 4.10% for the first nine months of
1998, down five basis points from 4.15% reported for the first nine months of
1997.
Total interest income increased by $24,000 due primarily to a volume
increase in loans. Slight volume and rate increases for deposits primarily
caused total interest expense to increase by $32,000.
An analysis of total interest income, total interest expense, net
interest income/spread and net interest margin follows:
51
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------------------------------------------------
1998 1997
------------------------------ -----------------------------
Amount Rate Amount Rate
-------------- ------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Total interest income
Loans receivable $ 4,376 8.77 % $ 4,328 8.81 %
Investment securities 967 6.47 991 6.56
Federal funds sold 53 5.48 48 5.39
Deposits with financial institutions 5 5.42
-------------- ------------- ------------- -------------
Total interest income 5,396 8.20 5,372 8.24
-------------- ------------- ------------- -------------
Total interest expense
Deposits 2,691 4.69 2,654 4.64
Short-term borrowings 7 5.52 12 5.57
-------------- ------------- ------------- -------------
Total interest expense 2,698 4.69 2,666 4.65
-------------- ------------- ------------- -------------
Net interest income/spread $ 2,698 3.51 % $ 2,706 3.59 %
============== ============= ============= =============
Net interest margin (annualized) 4.10 % 4.15 %
============= =============
Adjustment of interest on tax- $ 40 $ 34
exempt securities and loans to a
tax-equivalent basis
</TABLE>
PROVISION FOR LOAN LOSSES. Farmers' provision for loan losses was
$45,000 for the nine months ended September 30, 1998 compared to $61,500 for the
same period in 1997.
Net charge-offs during the first nine months of 1998 were $168,255
compared to net charge-offs of $73,025 for the comparable period in 1997. During
1998, Farmers charged off $49,622 in commercial and agricultural loans, $5,712
in mortgage loans and $112,921 in consumer installment loans. The 1998
charge-offs included an unusually large amount due to bankruptcies, and an
agricultural loan of $40,000. Management will continue to review the allowance
for loan losses quarterly and adjust the provision accordingly.
52
<PAGE>
OTHER INCOME AND EXPENSES. Total other income increased by $9,188 or
3.5% during the first nine months of 1998 compared to the same period one year
ago. Fees generated from fiduciary activities decreased by $9,017 for the first
nine months of 1998 compared to the same period in 1997. Other categories
increased from 1997 to 1998 due to increased activity for services for which
Farmers assesses fees.
Total other expenses increased by $54,029 or 3.2% for the first nine
months of 1998 compared to the same period in 1997. Salaries and employee
benefits increased by $84,121 or 9.4%. Merit increases in compensation for
officers and employees and an increase in employee benefits for health insurance
primarily resulted in the 1998 increase. No significant change occurred in the
number of Farmers' full time equivalent employees.
Directors' fees decreased from $72,000 for the nine months of 1997 to
$46,500 for the comparable period for 1998. The merger in late 1997 of Farmers'
subsidiary in Losantville, Indiana into its subsidiary in Union City, Ohio
caused the reduction in the amount of fees being paid. Franchise tax recorded by
Farmers decreased by $46,157 in 1998 compared to 1997 due to applying enacted
apportionment procedures to the Ohio franchise tax base.
INCOME TAXES. Income tax expense, including both federal income tax and
the Indiana franchise tax decreased by $6,390 for the first nine months of 1998
compared to 1997. Income before income tax decreased causing income tax expense
to decrease. The effective tax rate for the period ending September 30, 1998 was
35.4% compared to 34.7% for the comparable period in 1997.
BALANCE SHEET. Farmers' total assets increased to $92,820,901 from
$90,893,365 reported at year-end 1997.
Total loans were $67,092,279 at September 30, 1998, an increase of
$801,003 over the year-end level of $66,291,276. Generally loans by category
remained the same with the increase occurring in the mortgage loan component of
the loan portfolio. Real estate loans continue to be the largest asset category
of Farmers. Farmers continues to emphasize loan growth in accordance with its
strategic plan and in accordance with credit policies.
Total deposits of Farmers at September 30, 1998 increased by $1,538,945
from the level reported at year-end 1997 with the increase occurring in
interest-bearing deposits.
53
<PAGE>
ALLOWANCE FOR LOAN LOSSES AND NONPERFORMING LOANS. Farmers'
nonperforming loans at September 30, 1998, which include nonaccrual loans of
$1,000 and loans past due 90 days or more of $1,497,000, increased $824,000 from
year-end 1997. Total nonperforming loans were $1,498,000 compared to $674,000 at
year-end 1997. Total nonperforming loans represented 2.23% of total loans at
September 30, 1998, compared to 1.02% at December 31, 1997. The increase in
nonperforming loans at September 30, 1998 was primarily in the real estate loan
category which includes loans secured by farmland. Management is monitoring
these larger farmland mortgage loans that are delinquent and does not expect to
incur any significant losses related to these loans.
The allowance for loan losses at September 30, 1998 was $985,492
compared to $1,108,747 at year-end 1997. The allowance equaled 65.8% of
nonperforming loans at September 30, 1998, compared to 113.8% at December 31,
1997. The ratio of the allowance to outstanding loans at September 30, 1998 was
1.47%.
CAPITAL RESOURCES. Stockholders' equity, including net unrealized gains
on securities available for sale of $163,694, increased from $9,504,302 at
December 31, 1997 to $10,031,912 at September 30, 1998. Book value per share was
$65.22 at September 30, 1998 compared to $61.77 at year-end 1997.
At September 30, 1998, the Bank's Tier I risk based capital ratio was
16.2% and its leverage capital ratio was 10.6%. The Bank currently exceeds all
capital requirements mandated by regulatory authorities.
54
<PAGE>
REGULATORY CONSIDERATIONS
BANK HOLDING COMPANY REGULATION
ANB and Farmers are registered as bank holding companies and are
subject to the regulations of the Federal Reserve under the BHC Act. Bank
holding companies are required to file periodic reports with and are subject to
periodic examination by the Federal Reserve. The Federal Reserve has issued
regulations under the BHC Act requiring a bank holding company to serve as a
source of financial and managerial strength to its subsidiary banks. It is the
policy of the Federal Reserve that, pursuant to this requirement, a bank holding
company should stand ready to use its resources to provide adequate capital
funds to its subsidiary banks during periods of financial stress or adversity.
Additionally, under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), a bank holding company is required to guarantee the compliance
of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized, or (ii) the amount
that is necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under the BHC Act, the
Federal Reserve has the authority to require a bank holding company to terminate
any activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the Federal Reserve's determination that such
activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
ANB and Farmers are prohibited by the BHC Act from acquiring direct or
indirect control of more than 5% of the outstanding shares of any class of
voting stock or substantially all of the assets of any bank or savings
association or merging or consolidating with another bank holding company
without prior approval of the Federal Reserve. Additionally, ANB and Farmers are
prohibited by the BHC Act from engaging in or from acquiring ownership or
control of more than 5% of the outstanding shares of any class of voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be a
proper incident thereto. The BHC Act does not place territorial restrictions on
the activities of such nonbanking-related activities.
55
<PAGE>
CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES
Bank holding companies are required to comply with the Federal
Reserve's risk-based capital guidelines which require a minimum ratio of total
capital to risk-weighted assets (including certain off-balance sheet activities
such as standby letters of credit) of 8%. At least half of the total required
capital must be "Tier 1 capital," consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interest in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The remainder ("Tier 2
capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance. In addition to the risk-based capital
guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio
under which the bank holding company must maintain a minimum level of Tier 1
capital to average total consolidated assets of 3% in the case of bank holding
companies which have the highest regulatory examination ratings and are not
contemplating significant growth or expansion. All other bank holding companies
are expected to maintain a ratio of at least 1% to 2% above the stated minimum.
The following are ANB's and the Bank's regulatory capital ratios as of
September 30, 1998. (As Farmers has less than $150 million in assets, it is not
subject to the Federal Reserve's capital ratio requirements. Therefore, the
Bank's capital ratios are provided below.)
ANB Bank
-------------------- ----------------------
Tier 1 Capital: 11.42 16.19
Total Capital: 12.30 17.44
Leverage Ratio: 8.65 10.62
BANK REGULATION
American National Bank and Trust Company of Muncie, a national bank, is
supervised, regulated and examined by the OCC. Peoples Loan and Trust Bank,
another subsidiary bank of ANB, is a state bank chartered in Indiana, and is
supervised, regulated and examined by the Indiana Department of Financial
Institutions. The Bank is chartered in Ohio and, therefore, is supervised,
regulated and examined by the Ohio Division of Financial Institutions. In
addition, Peoples is a member of the Federal Reserve and, therefore, is
supervised and regulated by the Federal Reserve. The Bank will continue to be
supervised, regulated and examined by the Ohio
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Division of Financial Institutions following consummation of the Merger. The
Bank also is supervised and regulated by the FDIC because it is not a member of
the Federal Reserve. Each regulator has the authority to issue cease-and-desist
orders if it determines that activities of the bank regularly represent an
unsafe and unsound banking practice or a violation of law.
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires banks, among other things to make deposited funds available
within specified time periods.
Insured state-chartered banks are prohibited under FDICIA from engaging
as principal in activities other than equity investments that are not permitted
for national banks, unless (i) the FDIC determines that the activity would pose
no significant risk to the appropriate deposit insurance fund, and (ii) the bank
is, and continues to be, in compliance with all applicable capital standards.
Further, an insured state bank may not acquire or retain as principal any equity
investment that is not permitted for national banks unless the investment comes
within certain regulatory exceptions.
BANK CAPITAL REQUIREMENTS
The FDIC and the OCC have adopted risk-based capital ratio guidelines
to which state-chartered banks and national banks under their respective
supervision are subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. Risk-based capital
ratios are determined by allocating assets and specified off-balance sheet
commitments to four risk weighted categories, with higher levels of capital
being required for the categories perceived as representing greater risk.
Like the capital guidelines established by the Federal Reserve, these
guidelines divide a bank's capital into two tiers. Banks are required to
maintain a total risk-based capital ratio of 8%. The FDIC or OCC may, however,
set higher capital requirements when a bank's particular circumstances warrant.
Banks experiencing or anticipating significant growth are expected to maintain
capital ratios, including tangible capital positions, well above the minimum
levels.
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In addition, the FDIC and OCC established guidelines prescribing a
minimum Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as
specified in the guidelines). These guidelines provide for a minimum Tier 1
leverage ratio of 3% for banks that meet certain specified criteria, including
that they have the highest regulatory rating and are not experiencing or
anticipating significant growth. All other banks are required to maintain a Tier
1 leverage ratio of 3% plus an additional 100 to 200 basis points.
Both of ANB's affiliate banks as well as the Bank exceed the risk-based
capital guidelines of the FDIC and OCC as of September 30, 1998.
The Federal Reserve, the OCC and the FDIC issued a joint policy
statement providing guidance in sound practices for managing interest rate risk.
The statement sets forth the factors the federal regulatory examiners use to
determine the adequacy of a bank's capital for interest rate risk exposure.
These qualitative factors include the adequacy and effectiveness of the bank's
internal interest rate risk management process and the level of interest rate
exposure. Other qualitative factors that are considered include the size of the
bank, the nature and complexity of its activities, the adequacy of its capital
and earnings in relation to the bank's overall risk profile and its earnings
exposure to interest rate movements.
The interagency supervisory policy statement describes the
responsibilities of a bank's board of directors in implementing a risk
management process and the requirements of the bank's senior management in
ensuring the effective management of interest rate risk. Further, the statement
specifies the elements that a risk management process must contain.
The capital requirements described above are minimum requirements.
Higher capital levels will be required by the federal banking regulators if
warranted by the particular circumstances or risk profiles of individual
institutions. For example, the regulations of both the FDIC and the OCC provide
that additional capital may be required to take adequate account of the risks
posed by concentrations of credit and nontraditional activities, interest rate
risk and the bank's ability to manage such risks.
BRANCHES AND AFFILIATES
Branching by ANB affiliate banks in Indiana is subject to the
jurisdiction, and requires the prior approval of, the bank's primary federal
regulatory authority and, if the branching bank is a state bank, of the Indiana
Department of Financial Institutions.
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ANB's affiliate banks and the Bank are subject to the Federal Reserve
Act, which restricts financial transactions between banks and affiliated
companies. The statute limits credit transactions between a bank and its
executive officers and its affiliates, prescribes terms and conditions for bank
affiliate transactions deemed to be consistent with safe and sound banking
practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
FDICIA
FDICIA requires, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to banks which do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective
action provisions of FDICIA. Among other things, the regulations define the
relevant capital measures for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a
leverage ratio of 5% or greater, and is not subject to a regulatory order,
agreement or directive to meet and maintain a specific capital level for any
capital measure. An institution is deemed to be "adequately capitalized" if it
has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based
capital ratio of 4% or greater, and generally a leverage ratio 4% or greater. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8%, or a Tier 1 risk-based capital ratio of less than
4% and generally a leverage ratio of less than 4%, and "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are
required to submit a capital restoration plan. A bank's compliance with such
plan is required to be guaranteed by any company that controls the
undercapitalized institution as described above. If an "undercapitalized" bank
fails to submit an acceptable plan, it is treated as if it is significantly
undercapitalized. "Significantly undercapitalized" banks are subject to one or
more of a number of requirements and restrictions, including an order by the
FDIC to sell sufficient voting stock to
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become adequately capitalized, requirements to reduce total assets and cease
receipt of deposits from correspondent banks, and restrictions on compensation
of executive officers. "Critically undercapitalized" institutions may not,
beginning 60 days after becoming "critically undercapitalized", make any payment
of principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any transaction outside the ordinary
course of business. In addition, "critically undercapitalized" institutions are
subject to appointment of a receiver or conservator.
DEPOSIT INSURANCE
The deposits of each of ANB's affiliate banks and Bank are insured up
to regulatory limits by the FDIC and, accordingly, are subject to deposit
insurance assessments to maintain the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF") administered by the FDIC. The FDIC
has adopted regulations establishing a permanent risk-related deposit insurance
assessment system. Under this system, the FDIC places each insured bank in one
of nine risk categories based on (i) the bank's capitalization and (ii)
supervisory evaluations provided to the FDIC by the institution's primary
federal regulator. Each insured bank's insurance assessment rate is then
determined by the risk category in which it is classified by the FDIC.
Effective January 1, 1997, the annual insurance premiums on bank
deposits insured by the BIF and the SAIF vary between $0.00 per $100 of deposits
for banks classified in the highest capital and supervisory evaluation
categories to $0.27 per $100 of deposits for banks classified in the lowest
capital and supervisory evaluation categories.
The Deposit Insurance Funds Act of 1996 provides for assessments to be
imposed on insured depository institutions with respect to deposits insured by
the BIF and the SAIF (in addition to assessments currently imposed on depository
institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost
of financing corporation ("FICO") funding. The FDIC established the FICO
assessment rates effective January 1, 1997 at $0.013 per $100 annually for
BIF-assessable deposits and $0.0648 per $100 annually for SAIF-assessable
deposits. The FICO assessments does not vary depending upon a depository
institution's capitalization or supervisory evaluations.
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ADDITIONAL MATTERS
In addition to the matters discussed above, ANB's affiliate banks and
the Bank are subject to additional regulation of their activities, including a
variety of consumer protection regulations affecting their lending, deposit and
collection activities and regulations affecting secondary mortgage market
activities.
The earnings of financial institutions are also affected by general
economic conditions and prevailing interest rates, both domestic and foreign and
by the monetary and fiscal policies of the United States Government and its
various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, state legislatures and
various regulatory agencies, including those referred to above. It cannot be
predicted with certainty whether such legislation of administrative action will
be enacted or the extent to which the banking industry in general or ANB and its
affiliate banks in particular would be affected thereby.
COMPARISON OF COMMON STOCK
The rights of holders of Farmers Common Stock who receive ANB Common
Stock in the Merger will be governed by the laws of the State of Indiana, the
state in which ANB is incorporated, and by ANB's Articles of Incorporation, as
amended ("ANB's Articles of Incorporation") and ANB's By-Laws, as amended
("ANB's By-Laws"). The rights of the shareholders of Farmers are presently
governed by the laws of the State of Ohio, the state in which Farmers is
incorporated, and by Farmers' Articles of Incorporation and Code of Regulations.
The rights of the shareholders of Farmers differ in certain respects from the
rights they would have as ANB shareholders, including for ANB anti-takeover
measures and the vote required for the amendment of significant provisions of
the articles of incorporation and for the approval of significant corporate
transactions. The following summary comparison of ANB Common Stock and Farmers
Common Stock includes all material features of such shares but does not purport
to be complete and is qualified in its entirety by reference to ANB's and
Farmers' Articles of Incorporation and their By-Laws.
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AUTHORIZED BUT UNISSUED SHARES
ANB's Articles of Incorporation authorize the issuance of 20,000,000
shares of ANB Common Stock, of which ____________ shares were outstanding as of
_______________, 1999. The remaining authorized but unissued shares of common
stock may be issued upon authorization of the Board of Directors of ANB without
prior shareholder approval. ANB has 250,000 shares of preferred stock
authorized. These shares are available to be issued, without prior shareholder
approval, in classes with relative rights, privileges and preferences determined
for each class by the Board of Directors of ANB. No shares of preferred stock
are presently outstanding. The issuance of additional shares of ANB Common Stock
or the issuance of ANB preferred stock may adversely affect the interests of ANB
shareholders.
Farmers' Articles of Incorporation authorizes the issuance of 172,500
shares of Farmers Common Stock, $20.00 par value per share, 153,808 of which
were issued and outstanding as of September 30, 1998. Following the Merger, all
of the outstanding shares of Farmers Common Stock will convert to the right to
receive 5.4 shares of ANB Common Stock, except for shares with respect to which
dissenters' rights have been exercised.
PREEMPTIVE RIGHTS
As permitted by Indiana law, ANB's Articles of Incorporation do not
provide for preemptive rights to subscribe for any new or additional ANB Common
Stock or other securities. Preemptive rights may be granted to ANB's
shareholders if ANB's Articles of Incorporation are amended accordingly. Under
Farmers' Articles of Incorporation, shareholders of Farmers do not have
preemptive rights to subscribe for any new or additional Farmers Common Stock or
other securities.
DIVIDEND RIGHTS
The holders of common stock of ANB and Farmers are entitled to
dividends and other distributions when, as and if declared by their respective
Boards of Directors out of funds legally available therefor. With respect to
ANB, a dividend may not be paid if, after giving it effect, (1) ANB would not be
able to pay its debts as they become due in the usual course of business, or (2)
ANB's total assets would be less than the sum of its total liabilities plus,
unless ANB's Articles of Incorporation permitted otherwise, the amount that
would be needed to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
dividend if ANB were to be dissolved at the time of the dividend. With
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respect to Farmers, a dividend may not be paid if, after giving it effect, (i)
Farmers would be insolvent, or (ii) the net assets of Farmers would be less than
zero or less than the maximum amount payable at the time of distribution to
shareholders having preferential rights in liquidation if Farmers was then to be
liquidated.
The amount of dividends, if any, that may be declared by ANB in the
future will necessarily depend upon many factors, including, without limitation,
future earnings, capital requirements, business conditions and capital levels of
subsidiaries (since ANB is primarily dependent upon dividends paid by its
subsidiaries for its revenues), the discretion of ANB's Board of Directors and
other factors that may be appropriate in determining dividend policies.
ANB's national bank subsidiaries and its Indiana-chartered affiliate
bank may pay cash dividends on their common stock to ANB only out of adjusted
retained net profits for the year in which the dividend is paid and the two
preceding years.
Dividends paid by ANB's affiliate banks will ordinarily be restricted
to a lesser amount than is legally permissible because of the need for the banks
to maintain adequate capital consistent with the capital adequacy guidelines
promulgated by the banks' principal federal regulatory authorities. See
"REGULATORY CONSIDERATIONS". If a bank's capital levels are deemed inadequate by
the regulatory authorities, payment of dividends to its parent holding company
may be prohibited without prior regulatory approval. None of ANB's affiliate
banks are currently subject to such a restriction.
VOTING RIGHTS
The holders of the outstanding shares of ANB Common Stock and Farmers
Common Stock are entitled to one vote per share on all matters presented for
shareholder vote, except shareholders of Farmers have cumulative voting rights
in the election of directors. Shareholders of ANB do not have cumulative voting
rights in the election of directors.
Ohio law generally requires that an agreement of merger or
consolidation be approved by a shareholder vote of two-thirds of the votes
entitled to be cast at the shareholders meeting, subject to provisions in the
corporation's articles of incorporation requiring a lower or higher percentage
vote requirement not less than a majority of the outstanding shares entitled to
vote. Indiana law generally require that mergers, consolidations, sales, leases,
exchanges or other dispositions of all or substantially all of the assets of a
corporation be approved by the
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affirmative vote of a majority of the issued and outstanding shares entitled to
vote at the shareholders meeting, subject in each case to provisions in the
corporation's articles of incorporation requiring a higher percentage vote for
certain transactions. ANB's Articles of Incorporation provide that certain
business combinations may, under certain circumstances, require approval of more
than a simple majority of the issued and outstanding shares of ANB Common Stock.
See "COMPARISON OF COMMON STOCK -- Anti-Takeover Provisions".
Both Indiana and Ohio law require shareholder approval for most
amendments to a corporation's articles of incorporation -- under Indiana law, by
a majority of a quorum present at a shareholders' meeting (and, in certain
cases, a majority of all shares held by any voting group entitled to vote) and
under Ohio law, by two-thirds of all shares entitled to vote unless the
corporation's articles of incorporation require a lower or higher percentage
vote, but not less than a majority of the shares entitled to vote. Both Indiana
and Ohio law permit a corporation in its articles of incorporation to prescribe
a higher shareholder vote for certain amendments to the articles of
incorporation, and Ohio law permits a corporation in its articles of
incorporation to prescribe a lower shareholder vote for certain amendments to
the articles of incorporation, but not lower than a majority of the outstanding
shares entitled to vote. ANB's Articles of Incorporation require a
super-majority shareholder vote of two-thirds (2/3) of the outstanding shares of
ANB Common Stock for the amendment of certain significant provisions, if the
Board of Directors has not unanimously recommended the amendment.
DISSENTERS' RIGHTS
The holders of Indiana business corporations possess dissenters' rights
in connection with certain mergers and other significant corporate actions.
Under Indiana law, a shareholder is entitled to dissent from and obtain payment
of the fair value of the shareholder's shares in the event of (1) consummation
of a plan of merger, if shareholder approval is required and the shareholder is
entitled to vote thereon, (2) consummation of a plan of share exchange by which
the shareholder's shares will be acquired, if the shareholder is entitled to
vote thereon, (3) consummation of a sale or exchange of all, or substantially
all, the property of the corporation other than in the usual course of business,
if the shareholder is entitled to vote thereon, (4) approval of a control share
acquisition under Indiana law, and (5) any corporate action taken pursuant to a
shareholder vote to the extent the articles of incorporation, by-laws or a
resolution of the Board of Directors provides that voting or non-voting
shareholders are entitled to dissent and obtain payment for their shares.
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The dissenters' rights provisions described above do not apply,
however, to the holders of shares of any class or series with respect to a
merger, share exchange or sale or exchange of property if the shares of that
class or series were registered on a United States securities exchange
registered under the Securities Exchange Act of 1934 or traded on the NASDAQ
National Market System or a similar market. As of the date of this Proxy
Statement, shares of ANB Common Stock are traded on the NASDAQ National Market
System and, therefore, ANB shareholders presently are not entitled to assert
dissenters' rights under Indiana law with respect to any of the transactions
discussed above.
With respect to dissenters' rights of the shareholders of Farmers under
Ohio law in connection with Merger, see the discussion under the caption
"PROPOSED MERGER -- Dissenters' Right of Farmers Shareholders"
LIQUIDATION RIGHTS
In the event of any liquidation or dissolution of ANB, the holders of
shares of ANB Common Stock are entitled to receive pro rata with respect to the
number of shares held by them any assets distributable to shareholders, subject
to the payment of ANB's liabilities and any rights of creditors and holders of
shares of ANB preferred stock then outstanding. In the event of any liquidation,
dissolution or winding up of Farmers, Farmers' Articles of Incorporation are
silent with respect to what shareholders are entitled to receive upon
liquidation or dissolution. Under Ohio law, a shareholder may request that a
court determine the assets available for distribution among shareholders and
determine the right of shareholders in and to the assets of the corporation.
REDEMPTION
Under Indiana law, ANB may redeem or acquire shares of ANB Common Stock
with funds legally available therefor, and shares so acquired constitute
authorized but unissued shares. ANB may not redeem or acquire shares of ANB
Common Stock if, after giving such redemption or acquisition effect, ANB would
not be able to pay its debts as they become due in the usual course of business,
or ANB's total assets would be less than the sum of its total liabilities plus,
unless ANB's Articles of Incorporation permitted otherwise, the amount that
would be needed to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those whose stock is
being redeemed or acquired if ANB were to be dissolved at the time of the
redemption or acquisition. Under Ohio law, Farmers may not
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redeem or repurchase shares of Farmers Common Stock if immediately after such
transaction its assets will be less than its liabilities plus its stated
capital, or if there is reasonable ground to believe that by such redemption or
repurchase Farmer will be rendered insolvent.
In addition, ANB and Farmers must give prior notice to the Federal
Reserve if the consideration to be paid by them for any redemption or
acquisition of their respective shares, when aggregated with the consideration
paid for all redemptions or acquisitions for the preceding twelve (12) months,
equals or exceeds 10% of their respective consolidated net worth.
ANTI-TAKEOVER PROVISIONS
The anti-takeover measures applicable to ANB and Farmers, as described
below, may have the effect of discouraging or rendering it more difficult for a
person or other entity to acquire control of ANB or Farmers. These measures may
have the effect of discouraging certain tender offers for shares of ANB Common
Stock or Farmers Common Stock which might otherwise be made at premium prices or
certain other acquisition transactions which might be viewed favorably by a
significant number of shareholders.
Indiana Law. Under the business combinations provision of Indiana law,
any 10% shareholder of an Indiana corporation, with a class of voting shares
registered under Section 12 of the Exchange Act or which has specifically
adopted this provision in the corporation's articles of incorporation, is
prohibited for a period of five (5) years from completing a business combination
with the corporation unless, prior to the acquisition of such 10% interest, the
board of directors of the corporation approved either the acquisition of such
interest or the proposed business combination. Further, the corporation and a
10% shareholder may not consummate a business combination unless all provisions
of the articles of incorporation of the corporation are complied with and a
majority of disinterested shareholders approve the transaction or all
shareholders receive a price per share determined in accordance with the
business combinations provision of Indiana law.
An Indiana corporation may elect to remove itself from the protection
provided by the Indiana business combinations provision, but such an election
remains ineffective for eighteen (18) months and does not apply to a combination
with a shareholder who acquired a 10% ownership position prior to the effective
time of the election. ANB is covered by the business combinations provision of
Indiana law and Farmers is not covered. The constitutional validity
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of the business combinations provision of Indiana law has in the past been
challenged and has been upheld by the United States Supreme Court.
In addition to the business combinations provision, Indiana law also
contains a "control share acquisition" provision which, although different in
structure from the business combinations provision, may have a similar effect of
discouraging or making more difficult a hostile takeover of an Indiana
corporation. This provision also may have the effect of discouraging premium
bids for outstanding shares. Indiana law provides that, unless otherwise
provided in an Indiana corporation's articles of incorporation or by-laws,
certain acquisitions of shares of the corporation's common stock will be
accorded voting rights only if a majority of the disinterested shareholders
approves a resolution granting the potential acquiror the ability to vote such
shares. Upon disapproval of the resolution, the shares held by the acquiror
shall be redeemed by the corporation at the fair value of the shares as
determined by the control share acquisition provision.
This provision does not apply to a plan of merger and merger, if the
corporation complies with the applicable merger provisions and is a party to the
agreement of merger or plan of share exchange. ANB is subject to the control
share acquisition provision.
ANB's Articles of Incorporation. In addition to the protections
provided by Indiana law, ANB's Articles of Incorporation include the business
combination provisions of Indiana law, which were discussed above. Further, this
provision cannot be altered, amended or repealed without the affirmative vote of
the holders of at least two-thirds (2/3) of the issued and outstanding shares of
ANB Common Stock entitled to vote thereon, unless the Board of Directors
unanimously approves the amendment.
ANB's Articles of Incorporation also include a provision requiring the
Board of Directors to consider non-financial factors in the evaluation of
business combinations and tender or exchange offers. This provision requires
two-thirds (2/3) affirmative vote of the issued and outstanding shares of ANB
Common Stock entitled to vote thereon in order to be altered, amended or
repealed, unless the Board of Directors unanimously recommends the amendment.
Ohio Law and Farmers' Articles of Incorporation. Under the business
combinations provision of the OGCL, any interested shareholder (defined as a
shareholder owning at least 10% of the outstanding shares of common stock) of an
Ohio corporation is prohibited for a period of three (3) years following the
date on which the shareholder becomes an interested
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shareholder from engaging in any business combination with the corporation
unless (i) the board of directors approves the business combination prior to the
shareholder becoming an interested shareholder, or (ii) one of several other
conditions regarding a shareholder holding 10% or more beneficial ownership in
the company is satisfied.
Farmers is not covered by the Ohio statute's business combinations
provision, but it could elect to be covered through an amendment to its Articles
of Incorporation.
DIRECTOR LIABILITY
Under Indiana law, a director of ANB will not be liable to shareholders
for any action taken as a director, or any failure to take any action, unless
(1) the director has breached or failed to perform his duties as a director in
good faith with the care an ordinarily prudent person in a like position would
exercise under similar circumstances and in a manner the director reasonably
believes to be in the best interests of the corporation and (2) such breach or
failure to perform constitutes willful misconduct or recklessness.
Under Ohio law, Farmers may indemnify or agree to indemnify a director
of Farmers who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by reason of the fact that he is or was
a director of Farmers against expenses actually and reasonably incurred by the
director in connection with the defense or settlement of such action or suit, if
the director acted in good faith and in a manner the director reasonably
believed to be in or not opposed to the best interests of the corporation. A
director may be liable for his negligence or misconduct in the performance of
his duty to the corporation.
DIRECTOR NOMINATIONS
ANB's By-Laws require that all nominations for election as directors of
ANB shall be made in accordance with the By-Laws. Under the By-Laws, a
shareholder who desires to nominate an individual for election to the Board of
Directors must make the nomination in writing and deliver or mail the nomination
to ANB's President not less than ten days nor more than 50 days prior to any
meeting at which directors will be elected.
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LEGAL OPINIONS
Certain legal matters in connection with the Agreement will be passed
upon for ANB by the law firm of Krieg DeVault Alexander & Capehart, LLP, One
Indiana Square, Suite 2800, Indianapolis, Indiana 46204, and for Farmers by the
law firm of Ice Miller Donadio & Ryan, One American Square, Box 82001,
Indianapolis, Indiana 46282-0002.
EXPERTS
The consolidated financial statements of ANB and its subsidiaries
incorporated into this Proxy Statement have been audited by Olive LLP,
independent auditors, to the extent and for the years indicated in their report
thereon, and have been so incorporated into this Proxy Statement in reliance
upon the report of Olive LLP and upon the authority of such firm as experts in
auditing and accounting.
The consolidated financial statements of Farmers as of and for the
fiscal year ended December 31, 1997 included in this Proxy Statement have been
audited by Olive LLP, independent auditors, to the extent and for the year
indicated in their report thereon. Such consolidated financial statements have
been included in this Proxy Statement in reliance upon such report and upon the
authority of such firm as experts in auditing and accounting.
Representatives of Olive LLP are not expected to be at the Special
Meeting.
OTHER MATTERS
The Special Meeting is called for the purposes set forth in the Notice
attached to this Proxy Statement - Prospectus. The Board of Directors of Farmers
knows of no other matters for action by shareholders at the Special Meeting
other than the matters described in the Notice. However, the enclosed proxy will
confer discretionary authority to the persons named therein with respect to any
such matters, none of which are known to the Board of Directors of Farmers as of
the date hereof, which may properly come before the Special Meeting. It is the
intention of the persons named in the proxy to vote pursuant to the proxy with
respect to such matters in accordance with the recommendation of the Board of
Directors of Farmers.
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AVAILABLE INFORMATION
ANB is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission ("SEC"). Such reports, proxy statements and other information may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding ANB and the address of that site is
(http://www.sec.gov). ANB common stock is quoted on the NASDAQ National Market
System and reports, proxy statements and other information concerning ANB are
available for inspection and copying at prescribed rates at the office of the
National Association of Securities Dealers, Inc., 1735 K Street, Washington,
D.C. 20006.
ANB has filed with the SEC a Registration Statement on Form S-4 under
the Securities Act of 1933, as amended ("Securities Act"), with respect to the
shares of ANB Common Stock to be issued in connection with its merger with
Farmers. This Proxy Statement does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. Reference is made to the Registration
Statement, including the exhibits filed as a part thereof or incorporated
therein by reference, which can be inspected and copied at prescribed rates at
the public reference facilities maintained by the SEC at the addresses set forth
above.
All information contained in this Proxy Statement with respect to
Farmers and its affiliates has been supplied by Farmers, and all information
contained in this Proxy Statement with respect to ANB and First National has
been supplied by ANB.
70
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement-Prospectus incorporates by reference documents
relating to ANB which are not presented in the Proxy Statement-Prospectus or
delivered to you with this document. The following documents previously filed by
ANB (SEC File No. 0-18925) with the SEC pursuant to the Exchange Act are
incorporated herein by reference:
1. ANB's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
2. ANB's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
3. ANB's Annual Report to Shareholders for the fiscal year ended
December 31, 1997.
4. The description of ANB's common stock contained in the
Registration Statement on Form 8-A dated December 6, 1990,
including any amendment or report filed for the purpose of
updating such description.
These documents (excluding unincorporated exhibits) are available,
without charge, to any person, including any beneficial owner, to whom this
Proxy Statement-Prospectus is delivered, upon written or oral request to the
following: ANB Corporation, 120 West Charles Street, Muncie, Indiana 47305,
(765) 747-7575, Attn: Larry L. Thomas, Chief Financial Officer. In order for you
to receive these documents prior to the shareholders' meeting, you should make
your request by __________________, 1999. All documents subsequently filed by
ANB pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to
the date on which the Special Meeting is held shall be deemed to be incorporated
by reference into this Proxy Statement and to be a part hereof from the date of
filing 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 Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
71
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY OF THE SECURITIES OFFERED BY THIS PROXY
STATEMENT, NOR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR
PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES COVERED HEREBY AT ANY TIME
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF ANB OR FARMERS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROXY STATEMENT.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FARMERS STATE BANCORP
PAGE
- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INDEPENDENT AUDITOR'S REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997............................. F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheet as of December 31, 1997 and
1996 (Unaudited)................................................. F-2
Consolidated Statement of Income for the years ended
December 31, 1997, 1996 (Unaudited) and 1995 (Unaudited)......... F-3
Consolidated Statement of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996 (Unaudited) and
1995 (Unaudited)................................................. F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 (Unaudited) and 1995 (Unaudited)......... F-5
Notes to Consolidated Financial Statements........................... F-6
FINANCIAL STATEMENTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997 (UNAUDITED)
Consolidated Condensed Balance Sheet
as of September 30, 1998 and December 31, 1997................... F-29
Consolidated Condensed Statement of Income
for the nine months ended September 30, 1998 and 1997............ F-30
Consolidated Condensed Statement of Changes in Stockholders' Equity
for the nine months ended September 30, 1998 and 1997............ F-32
Consolidated Condensed Statement of Cash Flows
for the nine months ended September 30, 1998 and 1997............ F-33
Notes to Consolidated Financial Statements........................... F-35
73
<PAGE>
Independent Auditor's Report
To the Stockholders and
Board of Directors
Farmers State Bancorp
Union City, Ohio
We have audited the consolidated balance sheet of Farmers State Bancorp and
subsidiary as of December 31, 1997, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of Farmers
State Bancorp and subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Olive LLP
Indianapolis, Indiana
December 28, 1998
F-1
<PAGE>
FARMERS STATE BANCORP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,913,886 $ 2,448,792
Federal funds sold 1,725,000 800,000
-------------- ---------------
Cash and cash equivalents 4,638,886 3,248,792
Investment securities
Available for sale 7,183,825 5,965,137
Held to maturity (fair value of $11,467,000 and $16,568,000) 11,343,052 16,395,516
-------------- ---------------
Total investment securities 18,526,877 22,360,653
Loans, net of allowance for loan losses of $1,108,747 and $1,108,730 65,182,529 63,018,449
Premises and equipment 1,390,225 1,252,791
Interest receivable 881,296 941,877
Foreclosed assets 40,000
Other assets 233,552 274,105
-------------- ---------------
Total assets $ 90,893,365 $ 91,096,667
============== ===============
LIABILITIES
Deposits
Noninterest bearing $ 4,899,200 $ 5,417,032
Interest bearing 75,720,226 74,843,902
-------------- ---------------
Total deposits 80,619,426 80,260,934
Short-term borrowings 385,906 1,039,339
Interest payable 241,973 241,080
Other liabilities 141,758 161,242
-------------- ---------------
Total liabilities 81,389,063 81,702,595
-------------- ---------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $20 par value
Authorized and issued -- 172,500 shares 3,450,000 3,450,000
Additional paid-in capital 1,588,568 1,587,263
Retained earnings 5,395,765 4,744,814
Treasury stock, at cost -- 18,625 and 8,760 shares (1,004,011) (449,396)
Unrealized gain on securities available for sale 73,980 61,391
-------------- ---------------
Total stockholders' equity 9,504,302 9,394,072
-------------- ---------------
Total liabilities and stockholders' equity $ 90,893,365 $ 91,096,667
============== ===============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FARMERS STATE BANCORP
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 5,799,599 $ 5,287,305 $ 4,733,059
Investment securities
Taxable 1,143,692 1,567,459 1,745,440
Tax exempt 116,013 104,573 100,731
Federal funds sold 75,745 46,587 66,003
Deposits with financial institutions 7,774 964
-------------- -------------- ---------------
Total interest income 7,142,823 7,006,888 6,645,233
-------------- -------------- ---------------
INTEREST EXPENSE
Deposits 3,555,179 3,436,612 3,264,096
Short-term borrowings 15,118 15,422 15,255
-------------- -------------- ---------------
Total interest expense 3,570,297 3,452,034 3,279,351
-------------- -------------- ---------------
NET INTEREST INCOME 3,572,526 3,554,854 3,365,882
Provision for loan losses 72,000 67,000 59,500
-------------- -------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,500,526 3,487,854 3,306,382
-------------- -------------- ---------------
OTHER INCOME
Fiduciary activities 23,568 18,359 16,063
Service charges on deposit accounts 240,009 251,359 227,339
Net realized gains on sales of available-for-sale securities 10,531
Other income 85,289 92,748 96,355
-------------- -------------- ---------------
Total other income 348,866 362,466 350,288
-------------- -------------- ---------------
OTHER EXPENSES
Salaries and employee benefits 1,215,934 1,202,821 1,189,225
Premises and equipment expenses 322,794 299,814 268,680
Directors' fees 96,000 96,000 90,600
Deposit insurance expense 9,157 4,000 88,221
Franchise tax 121,732 115,314 113,041
Printing and office supplies 81,112 80,795 84,552
Other expenses 414,870 407,034 383,938
-------------- -------------- ---------------
Total other expenses 2,261,599 2,205,778 2,218,257
-------------- -------------- ---------------
INCOME BEFORE INCOME TAX 1,587,793 1,644,542 1,438,413
Income tax 553,915 581,024 497,014
-------------- -------------- ---------------
NET INCOME $ 1,033,878 $ 1,063,518 $ 941,399
============== ============== ===============
BASIC EARNINGS PER SHARE $ 6.63 $ 6.45 $ 5.48
============== ============== ===============
DILUTED EARNINGS PER SHARE $ 6.63 $ 6.45 $ 5.48
============== ============== ===============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FARMERS STATE BANCORP
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Paid-in Retained
Common Stock Capital Earnings
- -------------------------------------------------------------------------------------------------------------------------------
Shares
Outstanding Amount
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1995 (UNAUDITED) 172,500 $ $3,450,000 $ 1,586,558 $ 3,460,942
Net income 941,399
Cash dividends declared ($2.05 per share) (350,172)
Sale of 312 shares of treasury stock 116
Purchase of 6,365 shares of treasury stock
Net change in unrealized gain on available-for-sale securities
------------- ------------- ------------- -------------
BALANCES, DECEMBER 31, 1995 (UNAUDITED) 172,500 3,450,000 1,586,674 4,052,169
Net income 1,063,518
Cash dividends declared ($2.25 per share) (370,873)
Sale of 94 shares of treasury stock 589
Purchase of 2,749 shares of treasury stock
Net change in unrealized gain on available-for-sale securities
------------- ------------- ------------- -------------
BALANCES, DECEMBER 31, 1996 (UNAUDITED) 172,500 3,450,000 1,587,263 4,744,814
Net income 1,033,878
Cash dividends declared ($2.45 per share) (382,927)
Sale of 210 shares of treasury stock 1,305
Purchase of 10,075 shares of treasury stock
Net change in unrealized gain on available-for-sale securities
------------- ------------- ------------- -------------
BALANCES, DECEMBER 31, 1997 172,500 $ 3,450,000 $ 1,588,568 $ 5,395,765
============= ============= ============= =============
Unrealized
Gain (Loss)
Treasury On Securities
Stock Available For Sale Total
- ----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------ -------------
BALANCES, JANUARY 1, 1995 (UNAUDITED) $ (2,945) $ (38,169) $ 8,456,386
Net income 941,399
Cash dividends declared ($2.05 per share) (350,172)
Sale of 312 shares of treasury stock 15,800 15,916
Purchase of 6,365 shares of treasury stock (321,103) (321,103)
Net change in unrealized gain on available-for-sale securities 167,145 167,145
------------- -------------- -------------
BALANCES, DECEMBER 31, 1995 (UNAUDITED) (308,248) 128,976 8,909,571
Net income 1,063,518
Cash dividends declared ($2.25 per share) (370,873)
Sale of 94 shares of treasury stock 9,742 10,331
Purchase of 2,749 shares of treasury stock (150,890) (150,890)
Net change in unrealized gain on available-for-sale securities (67,585) (67,585)
------------- -------------- -------------
BALANCES, DECEMBER 31, 1996 (UNAUDITED) (449,396) 61,391 9,394,072
Net income 1,033,878
Cash dividends declared ($2.45 per share) (382,927)
Sale of 210 shares of treasury stock 10,605 11,910
Purchase of 10,075 shares of treasury stock (565,220) (565,220)
Net change in unrealized gain on available-for-sale securities 12,589 12,589
------------- ------------- -------------
BALANCES, DECEMBER 31, 1997 $ (1,004,011) $ 73,980 $ 9,504,302
============= ============== =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Farmers State Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
FARMERS STATE BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,033,878 $ 1,063,518 $ 941,399
Adjustments to reconcile net income to net cash provided by
operating activities
Investment securities amortization, net 86,301 128,720 149,004
Provision for loan losses 72,000 67,000 59,500
Investment securities gains (10,531)
Depreciation and amortization 173,580 151,697 139,528
Deferred income tax 25,764 (816) 8,281
Net change in
Interest receivable 60,581 89,395 (64,757)
Interest payable 893 (21,477) 49,516
Other assets and liabilities (11,180) 6,688 (10,965)
------------- ------------- --------------
Net cash provided by operating activities 1,441,817 1,484,725 1,260,975
------------- ------------- --------------
INVESTING ACTIVITIES
Purchases of securities held to maturity (1,096,287) (808,782) (792,202)
Proceeds from maturities of securities held to maturity 6,076,703 5,300,000 3,625,000
Purchases of securities available for sale (2,440,290) (1,123,748) (1,501,000)
Proceeds from sale of securities available for sale 426,525
Proceeds from maturities of securities available for sale 1,226,423 1,218,540 505,000
Net change in loans (2,276,080) (6,911,691) (6,460,628)
Purchases of premises and equipment (311,014) (151,371) (144,348)
------------- ------------- --------------
Net cash provided (used) by investing activities 1,179,455 (2,477,052) (4,341,653)
------------- ------------- --------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, interest-bearing demand
and savings deposits (1,504,597) (1,310,304) (667,612)
Certificates of deposit 1,863,089 1,089,896 4,560,275
Short-term borrowings (653,433) 844,465 (78,407)
Cash dividends (382,927) (370,873) (350,172)
Sale of treasury stock 11,910 10,331 15,916
Purchase of treasury stock (565,220) (150,890) (321,103)
------------- ------------- --------------
Net cash provided (used) by financing activities (1,231,178) 112,625 3,158,897
------------- ------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,390,094 (879,702) 78,219
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,248,792 4,128,494 4,050,275
------------- ------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,638,886 $ 3,248,792 $ 4,128,494
============= ============= ==============
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 3,569,404 $ 3,563,511 $ 3,229,835
Income tax paid 499,062 574,625 482,672
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Farmers State Bancorp ("Company") and
its wholly owned subsidiary, The Farmers State Bank ("Bank"), conform to
generally accepted accounting principles and reporting practices followed by the
banking industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is a bank holding company whose principal activity is the ownership
and management of the Bank. The Bank operates under a state bank charter and
provides full banking services, including trust services. As a state bank, the
Bank is subject to regulation by the Division of Financial Institutions, State
of Ohio and the Federal Deposit Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives deposits
from customers located primarily in Darke County, Ohio; Randolph County,
Indiana; and surrounding counties. The Bank's loans are generally secured by
specific items of collateral including real property, consumer assets and
business assets. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon economic conditions in the agricultural industry.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and Bank after elimination of all material intercompany
transactions.
F-6
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
INVESTMENT SECURITIES - Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity and marketable equity securities
are classified as available for sale. Securities available for sale are carried
at fair value with unrealized gains and losses reported separately in
stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. A loan is impaired when, based on
current information or events, it is probable that the Company will be unable to
collect all amounts due (principal and interest) according to the contractual
terms of the loan agreement. Loan payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The Company
considers its investment in one-to-four family residential loans and installment
loans to be homogeneous and therefore excluded from separate identification of
evaluation of impairment. The accrual of interest on impaired and nonaccrual
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
ALLOWANCE OF LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
F-7
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1997, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the areas within which the banking subsidiary operates would increase the
likelihood of additional losses due to credit and market risks and could create
the need for additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
FORECLOSED ASSETS are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired, any required adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.
TREASURY STOCK is stated at cost. Cost is determined by the first-in, first-out
method.
STOCK OPTIONS are granted for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. The
Company accounts for and will continue to account for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and, accordingly, recognizes no compensation expense for the stock option
grants.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiary.
F-8
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
EARNINGS PER SHARE have been computed based upon the weighted average common and
potential common shares outstanding during each year.
RECLASSIFICATIONS of certain amounts in the consolidated financial statements
have been made to such statements previously presented.
NOTE 2 -- RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash or on deposit with the
Federal Reserve Bank. The required reserve at December 31, 1997 and 1996
(unaudited), was $125,000 and $190,000, respectively.
NOTE 3 -- INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
December 31 Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury $ 4,808 $ 86 $ 1 $ 4,893
Federal agencies 1,489 12 1,501
State and municipal 775 15 790
------------- ------------- ------------- --------------
Total $ 7,072 $ 113 $ 1 $ 7,184
============= ============= ============= ==============
Held to maturity
U.S. Treasury $ 8,366 $ 109 $ 3 $ 8,472
Federal agencies 1,000 1,000
State and municipal 1,977 19 1 1,995
------------- ------------- ------------- --------------
Total $ 11,343 $ 128 $ 4 $ 11,467
============= ============= ============= ==============
</TABLE>
F-9
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
December 31 Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Available for sale
U. S. Treasury $ 5,319 $ 94 $ 7 $ 5,406
Federal agencies 200 3 203
State and municipal 325 3 1 327
Mortgage-backed securities 28 1 29
------------- ------------- ------------- --------------
Total $ 5,872 $ 101 $ 8 $ 5,965
============= ============= ============= ==============
Held to maturity
U.S. Treasury $ 13,328 $ 173 $ 19 $ 13,482
Federal agencies 698 15 713
State and municipal 2,160 14 15 2,159
Corporate obligations 210 4 214
------------- ------------- ------------- --------------
Total $ 16,396 $ 206 $ 34 $ 16,568
============= ============= ============= ==============
</TABLE>
The amortized cost and fair value of securities held to maturity and available
for sale at December 31, 1997, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------------ ------------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
One year or less $ 1,300 $ 1,303 $ 2,694 $ 2,711
After one year through five years 4,830 4,925 8,142 8,248
After five years through ten years 942 956 500 500
After ten years 7 8
------------- ------------- ------------- --------------
Totals $ 7,072 $ 7,184 $ 11,343 $ 11,467
============= ============= ============= ==============
</TABLE>
F-10
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Proceeds from sales of securities available for sale during 1995 (unaudited)
were $426,525. Gross gains of $10,531 were realized on those sales.
Securities with a carrying value of approximately $5,207,000 and $7,015,000 were
pledged at December 31, 1997 and 1996 (unaudited) to secure certain deposits.
The tax expense for securities gains was $4,200 for 1995 (unaudited).
NOTE 4 -- LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
December 31 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Commercial and industrial loans $ 3,629 $ 3,774
Real estate loans (includes $12,680 and $11,594 secured by farmland) 42,036 39,283
Construction loans 2,208 1,661
Agricultural production financing and other loans to farmers 5,532 5,464
Individuals' loans for household and other personal expenditures 12,183 13,211
Tax-exempt loans 608 573
Other loans 96 161
-------------- ---------------
66,292 64,127
Allowance for loan losses 1,109 1,109
-------------- ---------------
Total loans $ 65,183 $ 63,018
============== ===============
</TABLE>
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Allowance for loan losses
Balance, January 1 $ 1,109 $ 1,099 $ 1,045
Provision for losses 72 67 60
Loans charged off (99) (73) (28)
Recoveries on loans 27 16 22
-------------- -------------- ---------------
Balances, December 31 $ 1,109 $ 1,109 $ 1,099
============== ============== ===============
</TABLE>
F-11
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders, and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other customers, and did not, in the opinion of management, involve more than
normal credit risk or present other unfavorable features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
Balances, January 1, 1997 $ 2,511
New loans, including renewals 1,446
Payments, etc., including renewals (889)
---------------
Balances, December 31, 1997 $ 3,068
===============
NOTE 5 -- PREMISES AND EQUIPMENT
December 31 1997 1996
- -------------------------------------------------------------------
(Unaudited)
Land $ 215 $ 215
Buildings 1,163 1,071
Equipment 1,088 869
--------------- ---------------
2,466 2,155
Accumulated depreciation (1,076) (902)
--------------- ---------------
Total $ 1,390 $ 1,253
=============== ===============
F-12
<PAGE>
Farmers State Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
NOTE 6 -- DEPOSITS
December 31 1997 1996
- -----------------------------------------------------------------------------
(Unaudited)
Noninterest-bearing demand $ 4,899 $ 5,417
Interest-bearing demand 13,601 13,810
Savings accounts 8,037 8,815
Certificates of $100,000 or more 6,798 6,439
Other certificates of deposit 47,284 45,780
--------------- ---------------
Total $ 80,619 $ 80,261
=============== ===============
Certificates maturing in years ending December 31
1998 $ 25,977
1999 20,482
2000 6,864
2001 759
---------------
$ 54,082
===============
Deposits from related parties held by the Bank at December 31, 1997 totaled
$860,000.
NOTE 7 -- SHORT-TERM BORROWINGS
December 31 1997 1996
- ---------------------------------------------------------------------------
(Unaudited)
U.S. Treasury demand notes $ 386 $ 314
Federal funds purchased 725
----------- -----------
Total short-term borrowings $ 386 $ 1,039
=========== ===========
F-13
<PAGE>
Farmers State Bancorp
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
NOTE 8 -- INCOME TAX
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Income tax expense
Currently payable
Federal $ 452 $ 500 $ 424
State 76 82 65
Deferred
Federal 23 (1) 7
State 3 1
-------------- ------------- --------------
Total income tax expense $ 554 $ 581 $ 497
============== ============= ==============
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $ 540 $ 559 $ 489
State income tax 52 54 44
Tax exempt interest (39) (36) (35)
Other 1 4 (1)
-------------- ------------- --------------
Actual tax expense $ 554 $ 581 $ 497
============== ============= ==============
</TABLE>
F-14
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
December 31 1997 1996
- ----------------------------------------------------------------------
(Unaudited)
Assets
Allowance for loan losses $ 207 $ 207
---------- ----------
Liabilities
Depreciation 66 60
Accretion of investment discounts 29 23
Pension plan 28 19
Securities available for sale 38 32
Other 32 28
---------- ----------
Total liabilities 193 162
---------- ----------
$ 14 $ 45
=========== ==========
No valuation allowance was necessary at any time during 1997, 1996 and 1995.
NOTE 9 -- EMPLOYEE BENEFITS
The Company's defined-benefit pension plan covers substantially all of its
employees. The benefits are based primarily on years of service and employees'
pay near retirement. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. Pension expense was $27,000 for 1997, $29,000 for 1996 (unaudited) and
$21,000 for 1995 (unaudited).
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheet:
F-15
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
December 31 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Actuarial present value of
Accumulated benefit obligation including vested benefits of $665 and
$565 $ 724 $ 625
============= ==============
Projected benefit obligation for service rendered to date $ (867) $ (732)
Plan assets at fair value, primarily insurance investments contracts,
Company stock and Bank interest-bearing deposits 943 845
------------- --------------
Plan assets in excess of projected benefit obligation 76 113
Unrecognized net loss from experience different than that assumed 100 43
Unrecognized net asset at September 30, 1991 being recognized over 20
years (93) (100)
------------- --------------
Prepaid pension cost included in other assets $ 83 $ 56
============= ==============
Plan assets at estimated fair value related to the Company
Company common stock $ 62 $ 52
Bank interest-bearing deposits 159 108
</TABLE>
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Pension expense includes the following components
Service cost - benefits earned during the year $ 31 $ 32 $ 24
Interest cost on projected benefit obligation 54 52 47
Actual return on plan assets (54) (51) (51)
Net amortization and deferral (4) (4) 1
------------- ------------- --------------
$ 27 $ 29 $ 21
============= ============= ==============
Assumptions used in the accounting were
Discount rate 7.50% 7.50% 8.25%
Rate of increase in compensation 3.00% 3.00% 3.00%
Expected long-term rate of return on assets 6.00% 6.00% 6.00%
</TABLE>
F-16
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Company has a retirement savings 401(k) plan in which substantially all
employees may participate. Beginning in 1997, the Company matches employees'
contributions at the rate of 100 percent for the first 3 percent of base salary
contributed by participants. The expense for this plan was $23,300 for 1997.
The Company also has an informal stock purchase plan under which the Company
allows employees to purchase up to five shares of common stock of the Company on
a quarterly basis. During 1997, 1996 (unaudited) and 1995 (unaudited), the
Company sold 110, 94 and 102 shares, respectively, under the plan.
NOTE 10 -- POSTRETIREMENT PLAN
The Company sponsors a defined-benefit postretirement plan that covers both
salaried and nonsalaried employees. The plan provides medical benefits to
eligible retirees. Participants are eligible for full benefits upon retirement
at age 62 and 15 years of service or age 65.
The Company continues to fund benefit costs on a pay-as-you-go basis, and for
1997, 1996 (unaudited) and 1995 (unaudited), the Company made benefit payments
totaling $4,800, $4,000 and $3,800. The following table sets forth the plan's
funded status, and amounts recognized in the consolidated balance sheet:
<TABLE>
<CAPTION>
December 31 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Accumulated postretirement benefit obligation
Fully eligible active participants $ 21 $ 19
Retirees 43 42
Other participants 83 70
------------- --------------
Accumulated postretirement benefit obligation 147 131
Unrecognized net gain from past experience different from that assumed and
from changes in assumptions 43 53
Unrecognized transition obligation (110) (117)
------------- --------------
Accrued postretirement benefit cost $ 80 $ 67
============= ==============
</TABLE>
F-17
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Service cost $ 4 $ 5 $ 4
Interest cost on accumulated postretirement benefit obligation 9 9 10
Net amortization of prior service cost (2) (2) (2)
Amortization of transition obligation over 20 years 7 8 8
------------- ------------- --------------
Net periodic postretirement benefit cost $ 18 $ 20 $ 20
============= ============= ==============
</TABLE>
At December 31, 1997 and 1996 (unaudited), there were no plan assets. A 10.5%
increase in the per capita cost of covered health care benefits was assumed for
1998; the rate was assumed to decrease gradually to 6.0% until 2007 and remain
at that level thereafter. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.5% for 1997. Increasing
the assumed health care cost trend rates by one percentage point would increase
the accumulated postretirement benefit obligation as of December 31, 1997, by
$1,000 and the aggregate of the service and interest cost components of
postretirement expense for the year then ended by less than $1,000.
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the consolidated balance sheet.
F-18
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
1997 1996
- -------------------------------------------------------------------------------
(Unaudited)
Commitments to extend credit $ 5,440 $ 5,342
Standby letters of credit 55 55
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Company and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Company.
NOTE 12 -- DIVIDEND AND CAPITAL RESTRICTIONS
Without prior approval, current regulations allow the Bank to pay dividends to
the Company not exceeding net profits (as defined) for the current year plus
those for the previous two years. As a result of this restriction, net assets of
the Bank not available for payment of dividends to the
F-19
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Company were approximately $8,766,000 as of December 31, 1997. Total net assets
of the Bank at such date were $9,444,000. As a practical matter, the Bank
restricts dividends to a lesser amount because of the need to maintain an
adequate capital structure.
NOTE 13 -- MERGER OF COMPANY SUBSIDIARIES
During 1997, the Company merged its two subsidiaries, The Farmers State Bank in
Union City, Ohio and The Farmers State Bank in Losantville, Indiana with The
Farmers State Bank in Union City, Ohio being the remaining bank.
NOTE 14 -- REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and are assigned to a capital category. The
assigned capital category is largely determined by three ratios that are
calculated according to the regulations: total risk adjusted capital, Tier 1
capital, and Tier 1 leverage ratios. The ratios are intended to measure capital
relative to assets and credit risk associated with those assets and off-balance
sheet exposures of the entity. The capital category assigned to an entity can
also be affected by qualitative judgments made by regulatory agencies about the
risk inherent in the entity's activities that are not part of the calculated
ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At December 31, 1997 and 1996
(unaudited), the Bank is categorized as well capitalized and met all subject
capital adequacy requirements. There are no conditions or events since December
31, 1997 that management believes have changed the Bank's classification.
F-20
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
Required for To be Well
Actual Adequate Capital1 Capitalized(1)
------------------- ------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total capital1 (to risk-weighted
assets) Bank $ 10,115 17.1 % $ 4,732 8.0 % $ 5,919 10.0 %
Tier 1 capital1 (to risk-weighted
assets) Bank 9,370 15.8 2,366 4.0 3,549 6.0
Tier 1 capital1 (to average assets)
Bank) 9,370 10.3 3,653 4.0 4,566 5.0
AS OF DECEMBER 31, 1996 (UNAUDITED)
Total capital1 (to risk-weighted
assets) Bank 9,947 17.5 4,556 8.0 5,695 10.0
Tier 1 capital1 (to risk-weighted
assets) Bank 9,233 16.2 2,278 4.0 3,417 6.0
Tier 1 capital1 (to average assets)
Bank 9,233 10.1 3,655 4.0 4,568 5.0
</TABLE>
(1) As defined by regulatory agencies
NOTE 15 -- STOCK OPTION PLAN
Under the Company's stock option plan, which is accounted for in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations, the Company grants eligible employees
stock option awards which vest and become fully exercisable upon death,
disability, retirement or Company reorganization (as defined). During 1996
(unaudited), the Company authorized the grant of options for up to 5,000 shares
of the Company's common stock and granted options for 2,000 shares. The exercise
price of each option was equal to the market price of the Company's stock on the
date of grant; therefore, no compensation expense was recognized.
F-21
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro
forma disclosures of net income and earnings per share as if the Company had
accounted for its employee stock options under that Statement. The fair value of
each option grant was estimated on the grant date using a present value
calculation with the following assumptions:
1996
--------------
(Unaudited)
Risk-free interest rate 6.2%
Dividend yield 4.1%
Weighted-average expected life of the options 5.5 years
Under SFAS No. 123, compensation cost is recognized in the amount of the fair
value of the options and amortized to expense over the options' vesting period.
The pro forma effect on net income and earnings per share of this statement are
as follows:
<TABLE>
<CAPTION
1997 1996
------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Net income As reported $ 1,034 $ 1,064
Pro forma 1,033 1,063
Basic earnings per share As reported 6.63 6.45
Pro forma 6.63 6.45
Diluted earnings per share As reported 6.63 6.45
Pro forma 6.63 6.45
</TABLE>
F-22
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The following is a summary of the status of the Company's stock option plan and
changes in that plan as of and for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Options Shares Exercise Price Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Outstanding, beginning of year 2,000 $54.50
Granted 2,000 $54.50
------------- -------------
Outstanding, end of year 2,000 54.50 2,000 54.50
============= =============
Options exercisable at year end --- ---
Weighted-average fair value of options granted
during the year $ 4.37
</TABLE>
As of December 31, 1997, the options outstanding have a weighted-average
remaining contractual life of 4.5 years.
F-23
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 16 -- EARNINGS PER SHARE
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------
Weighted-
Average Per-Share
Income Shares Amount
----------- ------------ ------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 1,034 155,830 $ 6.63
EFFECT OF DILUTIVE STOCK OPTIONS 60
----------- ------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders and assumed
conversions $ 1,034 155,890 $ 6.63
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
------------------------------------------
Weighted-
Average Per-Share
Income Shares Amount
----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 1,064 164,936 $ 6.45
EFFECT OF DILUTIVE STOCK OPTIONS ---
----------- ------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders and assumed $ 1,064 164,936 $ 6.45
conversions
=========== ============ ============
</TABLE>
F-24
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Options to purchase 2,000 shares of common stock at $54.50 per share were
outstanding at December 31, 1996, but were not included in the computation of
diluted EPS because the options' exercise price equaled the average market price
of the common shares.
<TABLE>
<CAPTION>
Year Ended December 31, 1995
------------------------------------------
Weighted-
Average Per-Share
Income Shares Amount
----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 941 171,694 $ 5.48
EFFECT OF DILUTIVE SECURITIES ---
----------- ------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders and assumed $ 941 171,694 $ 5.48
conversions
=========== ============ ============
</TABLE>
NOTE 17 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS -- The fair value of cash and cash equivalents
approximates carrying value.
SECURITIES AND MORTGAGE-BACKED SECURITIES -- Fair values are based on quoted
market prices.
LOANS -- The fair value for loans is estimated using discounted cash flow
analyses using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
F-25
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
INTEREST RECEIVABLE/PAYABLE -- The fair values of interest receivable/payable
approximate carrying values.
DEPOSITS -- The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. Fair values for certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected maturities on such time
deposits.
SHORT-TERM BORROWINGS -- Fair value approximates carrying value.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ -----------------------------
Carrying Carrying Fair
December 31 Amount Fair Value Amount Value
- ------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 4,639 $ 4,639 $ 3,249 $ 3,249
Investment securities available for
sale 7,184 7,184 5,965 5,965
Investment securities held to maturity 11,343 11,467 16,396 16,568
Loans, net 65,183 65,520 63,018 63,293
Interest receivable 881 881 942 942
LIABILITIES
Deposits 80,619 81,200 80,261 80,785
Short-term borrowings 386 386 1,039 1,039
Interest payable 242 242 241 241
</TABLE>
F-26
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 18 -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
December 31 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 53 $ 67
Investment in common stock of subsidiary 9,444 9,294
Other assets 7 33
------------- --------------
Total assets $ 9,504 $ 9,394
============= ==============
STOCKHOLDERS' EQUITY $ 9,504 $ 9,394
============= ==============
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
Year Ended December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Income - dividends from subsidiary $ 910 $ 534 $ 677
Expenses - other 22 16 15
-------------- ------------- --------------
Income before income tax and equity in undistributed
income of subsidiary 888 518 662
Income tax expense (9) (5) (6)
-------------- ------------- --------------
Income before equity in undistributed income of subsidiary 897 523 668
Equity in undistributed income of subsidiary 137 541 273
-------------- ------------- --------------
Net Income $ 1,034 $ 1,064 $ 941
============== ============= ==============
</TABLE>
F-27
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating Activities
Net income $ 1,034 $ 1,064 $ 941
Adjustments to reconcile net income to net cash
provided by operating activities (112) (540) (304)
-------------- ------------- --------------
Net cash provided by operating activities 922 524 637
-------------- ------------- --------------
Financing Activities
Cash dividends (383) (371) (350)
Sale of treasury stock 12 10 16
Purchase of treasury stock (565) (151) (321)
-------------- ------------- --------------
Net cash used by financing activities (936) (512) (655)
-------------- ------------- --------------
Net Change in Cash and Cash Equivalents (14) 12 (18)
Cash and Cash Equivalents at Beginning of Year 67 55 73
-------------- ------------- --------------
Cash and Cash Equivalents at End of Year $ 53 $ 67 $ 55
============== ============= ==============
</TABLE>
NOTE 19 - PROPOSED MERGER
On October 21, 1998, the Company agreed to merge with ANB Corporation located in
Muncie, Indiana. Pursuant to the merger agreement, each share of Company common
stock outstanding would be exchanged for 5.4 shares of ANB Corporation common
stock. It is expected that the merger will be accounted for under the
pooling-of-interests method of accounting. The proposed merger is subject to
approval by the Company stockholders and regulatory agencies.
F-28
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 20 - UNAUDITED STATEMENTS
The consolidated financial statements at December 31, 1996 and for the years
ended December 31, 1996 and 1995, have not been audited by independent auditors,
but reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for such years.
F-29
<PAGE>
FARMERS STATE BANCORP
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 2,669,021 $ 2,913,886
Federal funds sold 675,000 1,725,000
--------------- ----------------
Total cash and cash equivalents 3,344,021 4,638,886
Investment securities
Available for sale 10,680,794 7,183,825
Held to maturity (fair value of $10,348,000 and $11,467,000) 10,186,706 11,343,052
--------------- ----------------
Total investment securities 20,867,500 18,526,877
Loans, net of allowance for loan losses of $985,492 and $1,108,747 66,106,787 65,182,529
Premises and equipment 1,272,406 1,390,225
Interest receivable 1,018,918 881,296
Foreclosed assets 11,000 40,000
Other assets 200,269 233,552
--------------- ----------------
Total assets $ 92,820,901 $ 90,893,365
=============== ================
LIABILITIES
Deposits
Noninterest bearing $ 4,390,507 $ 4,899,200
Interest bearing 77,767,864 75,720,226
--------------- ----------------
Total deposits 82,158,371 80,619,426
Short-term borrowings 137,163 385,906
Interest payable 275,284 241,973
Other liabilities 218,171 141,758
--------------- ----------------
Total liabilities 82,788,989 81,389,063
--------------- ----------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $20 par value authorized and issued--172,500 shares 3,450,000 3,450,000
Additional paid-in capital 1,589,201 1,588,568
Retained earnings 5,837,677 5,395,765
Treasury stock, at cost--18,692 and 18,625 shares in 1998 and 1997 (1,008,660) (1,004,011)
Accumulated other comprehensive income 163,694 73,980
--------------- ----------------
Total stockholders' equity 10,031,912 9,504,302
--------------- ----------------
Total liabilities and stockholders' equity $ 92,820,901 $ 90,893,365
=============== ================
</TABLE>
See notes to consolidated condensed financial statements.
F-30
<PAGE>
FARMERS STATE BANCORP
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans receivable $ 4,369,979 $ 4,321,934
Investment securities
Taxable 830,198 880,440
Tax exempt 103,305 83,756
Federal funds sold 52,707 47,630
Deposits with financial institutions --- 4,637
--------------- ----------------
Total interest income 5,356,189 5,338,397
--------------- ----------------
INTEREST EXPENSE
Deposits 2,691,324 2,654,141
Short-term borrowings 7,143 12,192
--------------- ----------------
Total interest expense 2,698,467 2,666,333
--------------- ----------------
NET INTEREST INCOME 2,657,722 2,672,064
Provision for loan losses 45,000 61,500
--------------- ----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,612,722 2,610,564
--------------- ----------------
OTHER INCOME
Fiduciary activities 8,854 17,871
Service charges on deposit accounts 184,076 177,109
Investment securities gains 416 ---
Other income 76,501 65,679
--------------- ----------------
Total other income 269,847 260,659
--------------- ----------------
OTHER EXPENSES
Salaries and employee benefits 975,954 891,833
Premises and equipment expenses 260,621 242,403
Directors' fees 46,500 72,000
Deposit insurance expense 7,392 5,412
Franchise tax 45,635 91,792
Printing and office supplies 63,271 59,915
Other expenses 334,312 316,301
--------------- ----------------
Total other expenses 1,733,685 1,679,656
--------------- ----------------
INCOME BEFORE INCOME TAX 1,148,884 1,191,567
Income tax 407,025 413,415
--------------- ----------------
NET INCOME $ 741,859 $ 778,152
=============== ================
F-31
<PAGE>
Nine Months Ended
September 30
----------------------------------
1998 1997
----------------------------------
BASIC EARNINGS PER SHARE $ 4.82 $ 4.97
=============== ================
DILUTED EARNINGS PER SHARE $ 4.82 $ 4.97
=============== ================
</TABLE>
See notes to consolidated condensed financial statements.
F-32
<PAGE>
FARMERS STATE BANCORP
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
----------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCES, JANUARY 1 $ 9,504,302 $ 9,394,072
Comprehensive income
Net income 741,859 778,152
Other comprehensive income, net of tax
Unrealized gains on securities available for sale
Unrealized holding gains (losses) arising during the period 89,965 (9,643)
Reclassification adjustment for gains included in net income (251) ---
--------------- ----------------
Net unrealized gains (losses) 89,714 (9,643)
--------------- ----------------
Comprehensive income 831,573 768,509
Cash dividends ($1.95 and $1.80 per share) (299,947) (282,922)
Sale of treasury stock 3,814 10,373
Purchase of treasury stock (7,830) (545,160)
--------------- ----------------
BALANCES, SEPTEMBER 30 $ 10,031,912 $ 9,344,872
=============== ================
</TABLE>
See notes to consolidated condensed financial statements.
F-33
<PAGE>
FARMERS STATE BANCORP
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
----------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 741,859 $ 778,152
Adjustments to reconcile net income to net cash provided by operating
activities
Investment securities amortization, net 27,383 74,680
Provision for loan losses 45,000 61,500
Gain from sales of investment securities (416) ---
Gain on sale of foreclosed assets (6,743) ---
Depreciation 136,238 128,763
Net change in
Interest receivable (137,622) (106,843)
Interest payable 33,311 26,930
Other assets 71,393 37,812
Other liabilities (7,914) (18,889)
--------------- ----------------
Net cash provided by operating activities 902,489 982,105
--------------- ----------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits -- (350,000)
Purchases of securities held to maturity (1,000,000) (96,287)
Proceeds from maturities of securities held to maturity 2,135,000 3,809,734
Purchases of securities available for sale (4,666,659) (1,326,596)
Proceeds from sale of securities available for sale 600,000 ---
Proceeds from maturities of securities available for sale 700,000 1,027,402
Net change in loans (992,252) (3,148,614)
Proceeds from sale of foreclosed assets 58,737 ---
Purchases of premises and equipment (18,419) (299,239)
--------------- ----------------
Net cash used by investing activities (3,183,593) (383,600)
--------------- ----------------
FINANCING ACTIVITIES
Net change in
Noninterest bearing, interest-bearing demand and savings deposits (624,914) (3,177,141)
Certificates of deposit 2,163,859 3,139,660
Short-term borrowings (248,743) (379,665)
Cash dividends (299,947) (282,922)
Sale of treasury stock 3,814 10,373
Purchase of treasury stock (7,830) (545,160)
--------------- ----------------
Net cash provided (used) by financing activities 986,239 (1,234,855)
--------------- ----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,294,865) (636,350)
F-34
<PAGE>
Nine Months Ended
September 30
----------------------------------
1998 1997
----------------------------------
Cash and Cash Equivalents, Beginning of Period 4,638,886 3,248,792
--------------- ----------------
Cash and Cash Equivalents, End of Period $ 3,344,021 $ 2,612,442
=============== ================
Additional Cash Flows Information
Interest paid $ 2,665,156 $ 2,671,537
Income tax paid 354,711 356,562
</TABLE>
See notes to consolidated condensed financial statements.
F-35
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Farmers State
Bancorp (Company) and its wholly owned subsidiary, The Farmers State Bank. A
summary of significant accounting policies is set forth in Note 1 of Notes to
Consolidated Financial Statements included in the 1997 financial statements. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The interim consolidated financial statements at September 30, 1998, and for the
nine months ended September 30, 1998 and 1997, have not been audited by
independent accountants, but reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
such periods. The results of operations for the nine months ended September 30,
1998 are not necessarily indicative of those expected for the remainder of the
year.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. Comprehensive income includes unrealized gains
on securities available for sale, net of tax. Accumulated other comprehensive
income and income tax on such income reported are as follows:
Nine Months Ended
September 30
----------------------------------
1998 1997
- ----------------------------------------------------------------------------
Accumulated other comprehensive income
Balance, January 1 $ 73,980 $ 61,391
Net unrealized gains (losses) 89,714 (9,643)
--------------- ----------------
Balance, September 30 $ 163,694 $ 51,748
=============== ================
Income tax expense (benefit)
Unrealized holding gains $ 58,844 $ (6,325)
F-36
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 -- EARNINGS PER SHARE
Earnings per share were computed as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
-----------------------------------------------------
Weighted-
Average Per-Share
Income Shares Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 741,859 153,822 $ 4.82
EFFECT OF DILUTIVE STOCK OPTIONS 95
--------------- --------------- ----------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders
and assumed conversions $ 741,859 153,917 $ 4.82
=============== =============== ================
Nine Months Ended September 30, 1997
-----------------------------------------------------
Weighted-
Average Per-Share
Income Shares Amount
- -------------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Income available to common stockholders $ 778,152 156,494 $ 4.97
EFFECT OF DILUTIVE STOCK OPTIONS 37
--------------- --------------- ----------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders
and assumed conversions $ 778,152 156,531 $ 4.97
=============== =============== ================
</TABLE>
F-37
<PAGE>
FARMERS STATE BANCORP
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 -- PROPOSED MERGER
On October 21, 1998, the Company agreed to merge with ANB Corporation located in
Muncie, Indiana. Pursuant to the merger agreement, each share of Company common
stock outstanding would be exchanged for 5.4 shares of ANB Corporation common
stock. It is expected that the merger will be accounted for under the
pooling-of-interests method of accounting. The proposed merger is subject to
approval by the Company stockholders and regulatory agencies.
F-38
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered
into effective as of the ____ day of October, 1998, by and between ANB
CORPORATION ("ANB") and FARMERS STATE BANCORP ("Farmers").
W I T N E S S E T H:
WHEREAS, ANB is an Indiana corporation registered as a bank holding
company under the federal Bank Holding Company Act of 1956, as amended ("BHC
Act"), with its principal office located in Muncie, Delaware County, Indiana;
and
WHEREAS, Farmers is an Ohio corporation registered as a bank holding
company under the BHC Act, with its principal office located in Union City,
Darke County, Ohio; and
WHEREAS, it is the desire of ANB and Farmers to affiliate through a
corporate reorganization whereby Farmers will be merged with and into ANB; and
WHEREAS, a majority of the entire Board of Directors of each of ANB and
Farmers has approved this Agreement, authorized its execution and designated
this Agreement a plan of reorganization and a plan of merger.
NOW, THEREFORE, in consideration of the foregoing premises, the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ANB and Farmers hereby make this Agreement and prescribe the terms
and conditions of the affiliation of ANB and Farmers and the mode of carrying
such merger into effect as follows:
SECTION 1
THE MERGER
A-1
<PAGE>
1.01. General Description. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 10 hereof),
Farmers shall be merged with and into and under the Articles of Incorporation of
ANB ("Merger"). ANB shall survive the Merger ("Surviving Corporation") and shall
continue its corporate existence under the laws of the State of Indiana pursuant
to the provisions of and with the effect provided in the Indiana Business
Corporation Law, as amended.
1.02. Name, Officers and Management. The name of the Surviving
Corporation shall be "ANB Corporation." Its principal office shall be located at
120 West Charles Street, Muncie, Indiana 47305. The officers of ANB serving at
the Effective Time shall continue to serve as the officers of the Surviving
Corporation, until such time as their successors shall have been duly elected
and have qualified. The directors of ANB as of the Effective Time shall remain
the directors of ANB, until such time as their successors have been duly elected
and have been qualified. The directors of Farmers shall cease to be directors of
Farmers as of the Effective Time and shall not become directors of ANB after the
Effective Time.
1.03. Articles of Incorporation and By-Laws. The Articles of
Incorporation and By-Laws of ANB in existence at the Effective Time shall remain
the Articles of Incorporation and By-Laws of ANB following the Effective Time,
until such Articles of Incorporation and By-Laws shall be further amended as
provided by applicable law.
1.04. Assets and Liabilities. At the Effective Time, the title to all
assets, real estate and other property owned by Farmers shall vest in ANB
without reversion or impairment. At the Effective Time, all liabilities of
Farmers shall be assumed by ANB.
1.05. Tax-Free Reorganization. ANB and Farmers intend for the Merger to
qualify as a tax-free reorganization within the meaning of Section 368(a) and
related sections of the Internal Revenue Code of 1986, as amended ("Code"), and
for the Merger to be accounted for as a pooling-of-interest transaction. ANB and
Farmers agree to cooperate and to take such action as may be reasonably
necessary to achieve such results.
SECTION 2
MANNER AND BASIS
OF EXCHANGE OF STOCK
A-2
<PAGE>
2.01. Exchange Ratio. (a) Upon and by virtue of the Merger becoming
effective at the Effective Time and without any action on the part of ANB,
Farmers or their respective shareholders, each issued and outstanding share of
Farmers Common Stock (as defined in Section 4.03 hereof) shall be converted into
the right to receive five and four-tenths (5.4) shares ("Exchange Ratio") of
common stock of ANB, $1.00 stated value per share ("ANB Common Stock"). The
Exchange Ratio shall be subject to adjustment, if any, pursuant to the
provisions of Section 2.03 and Section 2.04 of this Agreement.
(b) The shares of ANB Common Stock to be issued pursuant to Section
2.01(a), together with any cash payment in lieu of fractional shares, as
provided below in Section 2.02, is referred to herein as the "Merger
Consideration."
(c) At the Effective Time, all of the shares of Farmers Common Stock,
by virtue of the Merger and without any action on the part of the holders
thereof, shall no longer be outstanding and shall be canceled and retired and
shall cease to exist. Stock certificates representing shares of Farmers Common
Stock shall be deemed to evidence ownership of ANB Common Stock for all
corporate purposes other than the payment of dividends or other distributions.
Each holder of any certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of Farmers Common Stock
("Certificates") shall thereafter cease to have any rights with respect to such
shares, except the right of such holders to receive, without interest, the
Merger Consideration upon surrender of such Certificates in accordance with
Section 2.05 hereof.
(d) At the Effective Time, each Share of Farmers Common Stock, if any,
held in the treasury of Farmers or by any direct or indirect subsidiary of
Farmers (other than Shares held in trust accounts for the benefit of others or
in other fiduciary, nominee or similar capacities and shares held by Farmers or
the Bank in respect to a debt previously contracted) immediately prior to the
Effective Time shall be canceled.
2.02. No Fractional Shares. Certificates for fractional shares of ANB
Common Stock shall not be issued for fractional interests resulting from
application of the Exchange Ratio. Each shareholder of Farmers who would
otherwise have been entitled to a fraction of a share of ANB Common Stock, upon
surrender of all of his or her certificates representing shares of Farmers
Common Stock, shall be paid in cash following the Effective Time an amount equal
to (i) the average of the bid and ask price of the ANB Common Stock as of the
trading day
A-3
<PAGE>
immediately preceding the Effective Date, multiplied by (ii) the fractional
interest; provided, however, that the total cash consideration paid for
fractional shares shall not exceed one percent (1%) of the total Merger
Consideration.
2.03. Recapitalization. If, between the date of this Agreement and the
Effective Time, the record date occurs for the distribution or issuance by ANB
of a stock dividend with respect to its shares of Common Stock, or a
combination, subdivision, reclassification or split of ANB's issued and
outstanding shares of common stock, such that the number of issued and
outstanding shares of ANB Common Stock is increased or decreased, then the
Exchange Ratio shall be adjusted so that Farmers' shareholders shall receive, in
the aggregate, such number of shares of ANB Common Stock representing the same
percentage of outstanding shares of ANB Common Stock at the Effective Time as
would have been represented by the number of shares such shareholders would have
received if any of the foregoing actions had not occurred.
2.04. Share Adjustments. In the event that the number of shares of
Farmers Common Stock presented for exchange pursuant to Section 2.05 hereof or
otherwise issued and outstanding at the Effective Time shall be greater than the
number of shares of Farmers Common Stock represented in Section 4.03(a) plus the
number of shares set forth in Section 4.03(c) hereof as being outstanding as of
the date hereof, then the Exchange Ratio shall be appropriately and
proportionately decreased to take into account such additional issued and
outstanding shares of Farmers Common Stock.
2.05. Distribution of ANB Common Stock and Cash. (a) As soon as
reasonably practicable after the Effective Time, ANB, or its duly appointed
agent, shall mail to each Farmers shareholder a letter of transmittal providing
instructions as to the transmittal to ANB of certificates representing shares of
Farmers Common Stock and the issuance of shares of ANB Common Stock in exchange
therefor pursuant to the terms of this Agreement.
(b) Following the Effective Time, distribution of stock certificates
representing shares of ANB Common Stock and any cash payment, without interest,
for fractional shares, if any, shall be made by ANB to each former shareholder
of Farmers within twenty (20) business days following delivery to ANB of the
shareholder's certificate(s) representing its shares of Farmers Common Stock
accompanied by a properly completed and executed letter of transmittal, all in
form and substance reasonably satisfactory to ANB.
A-4
<PAGE>
(c) No dividends or other distributions otherwise payable subsequent to
the Effective Time on shares of ANB Common Stock shall be paid to any Farmers
shareholder entitled to receive the same until such shareholder has surrendered
to ANB his or her Certificate or Certificates in exchange for a certificate or
certificates representing ANB Common Stock. Upon surrender of the Certificates,
there shall be paid in cash to the record holder of the new certificate or
certificates evidencing shares of ANB Common Stock the amount of all dividends
and other distributions, without interest thereon, withheld with respect to such
shares of ANB Common Stock.
(d) ANB shall be entitled to rely upon the stock transfer books of
Farmers to establish the persons entitled to receive shares of ANB Common Stock
pursuant to this Agreement, which books shall be conclusive with respect to the
ownership of shares of Farmers Common Stock.
(e) With respect to any certificate for shares of Farmers Common Stock
which has been lost, stolen or destroyed, ANB shall be authorized to issue
common stock (or to pay cash as to fractional shares) to the registered owner of
such certificate upon receipt by ANB of an agreement to indemnify ANB against
loss from such lost, stolen or destroyed certificate and an affidavit of lost,
stolen or destroyed stock certificate, both in form and substance reasonably
satisfactory to ANB, and upon compliance by the Farmers shareholder with all
other reasonable requirements of ANB in connection with lost, stolen or
destroyed stock certificates.
(f) Notwithstanding anything to the contrary contained herein, no
Merger Consideration shall be delivered to a person who is an "affiliate"(as
such term is used in Section 6.05 of this Agreement) of Farmers unless such
"affiliate" has executed and delivered to ANB the agreement attached hereto as
Exhibit A.
2.06. Disclosure Schedule. Farmers has delivered to ANB a confidential
disclosure schedule ("Disclosure Schedule"), executed by both Farmers and ANB
concurrently with the delivery and execution of this Agreement. The Disclosure
Schedule sets forth, among other things, items of disclosure which shall be
necessary or appropriate either in response to an express disclosure requirement
contained in a provision of this Agreement or as an exception to one or more
representations or warranties contained in Section 4 of this Agreement.
A-5
<PAGE>
SECTION 3
DISSENTING SHAREHOLDERS
Shareholders of Farmers who properly exercise and perfect statutory
dissenters' rights shall have the rights accorded to dissenting shareholders
under Section 1701.84 of the Ohio Revised Code, as amended.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF FARMERS
Farmers hereby represents and warrants to ANB with respect to itself
and The Farmers State Bank of Union City ("Bank"), as its wholly-owned
subsidiary, as follows:
4.01. Organization and Authority. Farmers is an Ohio corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and is a registered bank holding company under the BHC Act. The Bank is a
state banking corporation duly organized, validly existing and in good standing
under the laws of the State of Ohio. Farmers and the Bank have full power and
authority (corporate and otherwise) to own and lease their properties as
presently owned and leased and to conduct their respective business in the
manner and by the means utilized as of the date hereof. Except as set forth in
the Disclosure Schedule, Farmers' only subsidiary is the Bank, and it owns no
voting stock or equity securities of any corporation, partnership, association
or other entity. The Bank does not have any subsidiaries. Farmers does not have
a class of stock registered pursuant to Section 12, and is not subject to the
reporting requirements, of the Securities Exchange Act of 1934, as amended
("1934 Act").
4.02. Authorization. (a) Farmers has the requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder,
subject to the fulfillment of the conditions precedent set forth in Section 8.02
hereof. This Agreement and its execution and delivery by Farmers and the Merger
have been duly authorized and approved by the Board of Directors of Farmers and
constitutes a valid and binding obligation of Farmers, subject to the
fulfillment of the conditions precedent set forth in Section 8.02 hereof, and is
enforceable in accordance with its terms, except to the extent limited by
general principles of equity and public policy and by bankruptcy, insolvency,
fraudulent transfer, reorganization, liquidation,
A-6
<PAGE>
moratorium, readjustment of debt or other laws of general application relating
to or affecting the enforcement of creditors' rights.
(b) Neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates Farmers' Articles of
Incorporation or Code of Regulations or the Bank's Articles of Incorporation or
Code of Regulations; (ii) conflicts with or violates any local, state, federal
or foreign law, statute, ordinance, rule or regulation (provided that the
approvals of or filings with applicable government regulatory agencies or
authorities required for consummation of the Merger are obtained) or any court
or administrative judgment, order, injunction, writ or decree; (iii) conflicts
with, results in a breach of or constitutes a default under any note, bond,
indenture, mortgage, deed of trust, license, lease, contract, agreement,
arrangement, commitment or other instrument to which Farmers or the Bank is a
party or by which Farmers or the Bank is subject or bound; (iv) results in the
creation of or gives any person, corporation or entity the right to create any
lien, charge, claim, encumbrance or security interest, or results in the
creation of any other rights or claims of any other party or any other adverse
interest, upon any right, property or asset of Farmers or the Bank which would
be material to Farmers or the Bank; or (v) terminates or gives any person,
corporation or entity the right to terminate, accelerate, amend, modify or
refuse to perform under any note, bond, indenture, mortgage, agreement,
contract, lease, license, arrangement, deed of trust, commitment or other
instrument to which Farmers or the Bank is bound or with respect to which
Farmers or the Bank is to perform any duties or obligations or receive any
rights or benefits.
(c) Other than in connection or in compliance with the provisions of
the applicable federal and state banking, securities, insurance and corporation
statutes, all as amended, and the rules and regulations promulgated thereunder,
and except as set forth herein, no notice to, filing with, exemption by or
consent, authorization or approval of any governmental agency or body is
necessary for consummation of the Merger by Farmers.
4.03. Capitalization. (a) The authorized capital stock of Farmers
presently consists, and at the Effective Time will consist, of 172,500 shares of
common stock, $20.00 par value per share, 153,808 shares of which are issued
and, outstanding and after the exercise of outstanding stock options, 155,808
shares of which will be issued and outstanding ("Farmers Common Stock"). Such
issued and outstanding shares of Farmers Common Stock have been duly and validly
authorized by all necessary corporate action of Farmers, are validly issued,
fully paid and nonassessable and have not been issued in violation of any
pre-emptive rights of any present or
A-7
<PAGE>
former Farmers shareholder. Except as set forth in the Disclosure Schedule,
Farmers has no common stock authorized, issued or outstanding other than as
described in this Section 4.03(a) and has no intention or obligation to
authorize or issue any other capital stock or any additional shares of Farmers
Common Stock. On a consolidated basis as of June 30, 1998, Farmers had total
capital of approximately $9,793,061, which consisted of common stock of
$3,450,000, capital surplus of $1,589,201 and undivided profits of $5,762,250,
including unrealized gains or losses on available-for-sale securities, less
treasury stock of $1,008,660. Each share of Farmers Common Stock is entitled to
one vote per share. A description of the Farmers Common Stock is contained in
the Articles of Incorporation of Farmers, as amended, as set forth in the
Disclosure Schedule pursuant to Section 4.04 hereof.
(b) The authorized capital stock of the Bank presently consists, and at
the Effective Time will consist, of 1,000 shares of common stock, $2,500.00 par
value per share, all of which shares are issued and outstanding (the "Bank
Common Stock"). Such issued and outstanding shares of Bank Common Stock have
been duly and validly authorized by all necessary corporate action of the Bank,
are validly issued, fully paid and nonassessable and have not been issued in
violation of any pre-emptive rights of any present or former Bank shareholder.
All of the issued and outstanding shares of Bank Common Stock are owned by
Farmers free and clear of all liens, pledges, charges, claims, encumbrances,
restrictions, security interests, options and pre-emptive rights or claims of
any other person, corporation or entity with respect thereto. The Bank has no
common stock authorized, issued or outstanding other than as described in this
Section 4.03(b) and has no intention or obligation to authorize or issue any
other capital stock or any additional shares of Bank Common Stock. Each share of
Bank Common Stock is entitled to one vote per share. A description of the Bank
Common Stock is contained in the Articles of Incorporation of the Bank, as
amended, as set forth in the Disclosure Schedule pursuant to Section 4.04
hereof.
(c) Except as set forth in the Disclosure Schedule, Farmers is not a
party to nor will it become bound by any options, warrants, commitments, calls,
puts, agreements, understandings, arrangements or subscription rights relating
to any shares of Farmers Common Stock, or any securities convertible into or
representing the right to purchase or otherwise acquire any common stock or debt
securities of Farmers. Farmers does not have any outstanding contractual or
other obligation to repurchase, redeem or otherwise acquire any of the issued
and outstanding shares of Farmers Common Stock.
A-8
<PAGE>
(d) The Bank is not a party to nor will it become bound by (i) any
options, warrants, commitments, calls, puts, agreements, understandings,
arrangements or subscription rights relating to any shares of Bank Common Stock,
or (ii) any securities convertible into or representing the right to purchase or
otherwise acquire any common stock or debt securities of the Bank. The Bank does
not have any outstanding contractual or other obligation to repurchase, redeem
or otherwise acquire any of the issued and outstanding shares of Bank Common
Stock.
(e) Except as set forth in the Disclosure Schedule, Farmers has no
knowledge of any person or entity which beneficially owns 5% or more of its
outstanding shares of common stock.
4.04. Organizational Documents. The Articles of Incorporation and Code
of Regulations of Farmers and the Articles of Incorporation and Code of
Regulations of the Bank, representing true, accurate and complete copies of such
corporate documents in effect as of the date of this Agreement are included in
the Disclosure Schedule.
4.05. Compliance with Law. (a) Except as set forth in the Disclosure
Schedule, neither Farmers nor the Bank has engaged in any activity nor taken or
omitted to take any action which has resulted in the violation of any local,
state, federal or foreign law, statute, regulation, rule, ordinance, order,
restriction or requirement, nor are they in violation of any order, injunction,
judgment, writ or decree of any court or government agency or body, the
violation of which would reasonably be expected to have a material adverse
effect on the financial condition, results of operations, business, assets or
capital of Farmers. Farmers and the Bank possess and hold all licenses,
franchises, permits, certificates and other authorizations necessary for the
continued conduct of their business without interference or interruption, and
such licenses, franchises, permits, certificates and authorizations are
transferable to ANB at the Effective Time without any restrictions or
limitations thereon or the need to obtain any consents of government agencies or
other third parties other than as set forth in this Agreement.
(b) All agreements, understandings and commitments with, and all orders
and directives of, all government regulatory agencies or authorities with
respect to the financial condition, results of operations, business, assets or
capital of Farmers or the Bank which presently are binding upon or require
action by, or at any time during the last five (5) years have been binding upon
or have required action by, Farmers or the Bank, including, without limitation,
all correspondence, communications and commitments related thereto, are set
forth in
A-9
<PAGE>
the Disclosure Schedule. There are no uncured violations, or violations with
respect to which refunds or restitutions may be required, cited in any
examination report of Farmers or the Bank as a result of an examination by any
regulatory agency or body, or set forth in any accountant's, auditor's or other
report to Farmers or the Bank.
(c) All of the existing offices and branches of Farmers and the Bank
have been legally authorized and established in accordance with all applicable
federal, state and local laws, statutes, regulations, rules, ordinances, orders,
restrictions and requirements. The Bank has no approved but unopened offices or
branches.
4.06. Accuracy of Statements Made and Materials Provided to ANB. (a) No
representation, warranty or other statement made, or any information provided,
by Farmers or the Bank in this Agreement or the Disclosure Schedule (and any
update thereto), and no written report, statement, list, certificate, materials
or other written information furnished or to be furnished by Farmers or the Bank
to ANB through and including the Effective Time in connection with this
Agreement or the Merger contemplated hereby (including, without limitation, any
written information which has been or shall be supplied by Farmers and the Bank
with respect to its financial condition, results of operations, business,
assets, capital or directors and officers for inclusion in the proxy
statement-prospectus and registration statement relating to the Merger),
contains or shall contain (in the case of information relating to the proxy
statement-prospectus at the time it is mailed to Farmers' shareholders) any
untrue or misleading statement of material fact or omits or shall omit to state
a material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not false or misleading.
(b) Any materials or information provided by Farmers or the Bank to ANB
for use by ANB in any filing with any state or federal regulatory agency or
authority shall not contain any untrue or misleading statement of material fact
or shall omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances in which they are made, not
false or misleading.
4.07. Litigation and Pending Proceedings. (a) Except as set forth in
the Disclosure Schedule, there are no claims, actions, suits, proceedings,
arbitrations or investigations pending or, to the knowledge of Farmers and the
Bank after due inquiry of the officers of Farmers and the Bank, threatened in
any court or before any government agency or authority, arbitration
A-10
<PAGE>
panel or otherwise (nor does Farmers or the Bank have any knowledge of a basis
for any claim, action, suit, proceeding, litigation, arbitration or
investigation) against, by or affecting Farmers and the Bank.
(b) Except as set forth in the Disclosure Schedule, neither Farmers nor
the Bank is: (i) subject to any outstanding judgment, order, writ, injunction or
decree of any court, arbitration panel or governmental agency or authority; (ii)
presently charged with or, to the knowledge of Farmers or the Bank, under
governmental investigation with respect to any actual or alleged violations of
any law, statute, rule, regulation or ordinance; or (iii) the subject of any
pending or, to the best knowledge of Farmers or the Bank after due inquiry of
the officers of Farmers and the Bank, threatened proceeding by any government
regulatory agency or authority having jurisdiction over its respective business,
assets, capital, properties or operations.
4.08. Financial Statements and Reports. Farmers has delivered to ANB
copies of the following financial statements and reports of Farmers and the
Bank, including the notes thereto (collectively, the "Farmers Financial
Statements"):
(a) Consolidated Balance Sheets and the related Statements of Income
and Statements of Changes in Shareholders' Equity of Farmers as of and for the
years ended December 31, 1995, 1996 and 1997, and as of and for the fiscal
quarters ended March 31, 1998 and June 30, 1998;
(b) Consolidated Statements of Cash Flows of Farmers for the years
ended December 31, 1995, 1996 and 1997, and as of and for the fiscal quarters
ended March 31, 1998 and June 30, 1998;
(c) Reports of Condition and Income ("Call Reports") for the Bank as of
the close of business on December 31, 1994, 1995, 1996 and 1997 and as of and
for the fiscal quarters ended March 31, 1998 and June 30, 1998; and
(d) Financial Statements of Farmers on Form FRY-9 and Form FRY-9C filed
with the Board of Governors of the Federal Reserve System at the close of
business on December 31, 1996 and 1997.
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The Farmers Financial Statements are true, accurate and complete in all
material respects and present fairly the financial position of Farmers and the
Bank as of and at the dates shown and the results of operations for the periods
covered thereby. The Farmers Financial Statements described in clauses (a) and
(b) above for completed fiscal years are compiled financial statements and have
been prepared in conformance with generally accepted accounting principles
applied on a consistent basis, except as may otherwise be indicated in any
accountants' notes or reports with respect to such financial statements. The
Farmers Financial Statements do not include any assets, liabilities or
obligations or omit to state any assets, liabilities or obligations, absolute or
contingent, or any other facts which inclusion or omission would render any of
the Farmers Financial Statements false, misleading or inaccurate in any material
respect.
4.09. Properties, Contracts, Employees and Other Agreements. (a)
Set forth in the Disclosure Schedule are true, accurate and complete copies of
the following:
(i) A brief description and the location of all real
property owned by Farmers and the Bank and the
principal buildings and structures located thereon,
together with a legal description of such real
property, and each lease of real property to which
Farmers or the Bank is a party, identifying the
parties thereto, the annual rental payable, the
expiration date of the lease and a brief description
of the property covered;
(ii) All conditional sales contracts or other title
retention agreements relating to Farmers or the Bank
and agreements for the purchase of federal funds;
(iii) All agreements, contracts, leases, licenses, lines of
credit, understandings, commitments or obligations of
Farmers or the Bank which individually or in the
aggregate:
(A) involve payment or receipt by Farmers or the
Bank (other than disbursements of loan
proceeds to customers, loan payments by
customers or deposit accounts) of more than
$10,000;
(B) involve payments based on profits of Farmers
or the Bank;
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(C) relate to the purchase of goods, products,
supplies or services in excess of $10,000;
(D) were not made in the ordinary course of
business; or
(E) may not be terminated without penalty within
one (1) year from the date of this
Agreement; and
(iv) The name and current annual salary of each director,
officer and employee of Farmers and the Bank whose
current annual salary is in excess of $50,000, and
the profit sharing, bonus or other form of
compensation (other than salary) paid or payable by
Farmers and the Bank to or for the benefit of each
such person for the year ended December 31, 1997, and
any employment, severance or deferred compensation
agreement or arrangement with respect to each such
person.
(b) Farmers and the Bank have, prior to the date of this Agreement,
provided or given access to ANB to the files and documentation of all borrowers
of the Bank, or persons or entities that are or may become obligated to the Bank
under an existing letter of credit, line of credit, loan transaction, loan
agreement, promissory note or other commitment of the Bank, in excess of $10,000
individually or in the aggregate, whether in principal, interest or otherwise,
and including all guarantors of such indebtedness.
(c) Each of the agreements, contracts, commitments, leases, instruments
and documents described in the Disclosure Schedule relating to this Section 4.09
and designated therein as material is valid and enforceable in accordance with
its terms. Farmers and the Bank are, and to their respective knowledge after due
inquiry of the officers of Farmers and the Bank, all other parties thereto are,
in material compliance with the provisions thereof, and neither Farmers nor the
Bank are, and to their respective knowledge after due inquiry of the officers of
Farmers and the Bank, no other party thereto is, in default in the performance,
observance or fulfillment of any material obligation, covenant or provision
contained therein. Except as set forth in the Disclosure Schedule relating to
this Section 4.09, none of the documents set forth or described in the
Disclosure Schedule relating to this Section 4.09 and designated therein as
material requires the consent of any party to its assignment in connection with
the Merger contemplated by this Agreement. Other than as disclosed pursuant to
this Section 4.09, no
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circumstances exist resulting from transactions effected or to be effected, from
events which have occurred or may occur or from any action taken or omitted to
be taken which could reasonably be expected to result in the creation of any
agreement, contract, obligation, commitment, arrangement, lease or document
described in or contemplated by this Section 4.09.
4.10. Absence of Undisclosed Liabilities. Except (i) as provided in the
Farmers Financial Statements, (ii) as set forth in the Disclosure Schedule,
(iii) for unfunded loan commitments and obligations on letters of credit to
customers of the Bank, and (iv) for obligations incurred in the ordinary course
of business, neither Farmers nor the Bank has, nor will have at the Effective
Time, any obligation, agreement, contract, commitment, liability, lease or
license which exceeds $10,000 in annual expenditures individually, nor does
there exist any circumstances resulting from transactions effected or events
occurring on or prior to the date of this Agreement or from any action omitted
to be taken during such period which could reasonably be expected to result in
any such obligation, agreement, contract, commitment, liability, lease or
license.
4.11. Title to Assets. Except as otherwise described in this Section
4.11: (a) Farmers and the Bank have good and marketable title in fee simple
absolute to all real property (including, without limitation, all real property
used as bank premises and all other real estate owned) which is reflected in the
Farmers Financial Statements as of December 31, 1997; good and marketable title
to all personal property reflected in the Farmers Financial Statements as of
December 31, 1997, other than personal property disposed of in the ordinary
course of business since December 31, 1997; good and marketable title to or
right to use by valid and enforceable lease or contract all other properties and
assets (whether real or personal, tangible or intangible) which Farmers or the
Bank purports to own or which Farmers or the Bank uses in its business; good and
marketable title to, or right to use by terms of a valid and enforceable lease
or contract, all other property used in their respective businesses; and good
and marketable title to all property and assets acquired and not disposed of or
leased since December 31, 1997. All of such properties and assets are owned by
Farmers or the Bank free and clear of all land or conditional sales contracts,
mortgages, liens, pledges, restrictions, security interests, charges, claims,
rights of third parties or encumbrances of any nature except: (i) as set forth
in the Disclosure Schedule; (ii) as specifically noted in the Farmers Financial
Statements; (iii) statutory liens for taxes not yet delinquent or being
contested in good faith by appropriate proceedings; (iv) pledges or liens
required to be granted in connection with the acceptance of government deposits
or granted in connection with repurchase or reverse repurchase agreements; and
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(v) easements, encumbrances and liens of record, imperfections of title and
other limitations which are not material in amounts to Farmers on a consolidated
basis and which do not detract from the value or interfere with the present or
contemplated use of any of the properties subject thereto or otherwise impair
the use thereof for the purposes for which they are held or used. All real
property owned or leased by Farmers or the Bank is in compliance with all
applicable zoning and land use laws.
(b) Farmers and the Bank have conducted their respective business in
compliance with all federal, state, county and municipal laws, statutes,
regulations, rules, ordinances, orders, directives, restrictions and
requirements relating to, without limitation, responsible property transfer,
underground storage tanks, petroleum products, air pollutants, water pollutants
or storm water or process waste water or otherwise relating to the environment
or toxic or hazardous substances or to the manufacturing, recycling, handling,
processing, distribution, use, generation, treatment, storage, disposal or
transport of any hazardous or toxic substances or petroleum products (including
polychlorinated biphenyls, whether contained or uncontained, and
asbestos-containing materials, whether friable or not), including, without
limitation, the Federal Solid Waste Disposal Act, the Hazardous and Solid Waste
Amendments, the Federal Clean Air Act, the Federal Clean Water Act, the
Occupational Health and Safety Act, the Federal Resource Conservation and
Recovery Act, the Toxic Substances Control Act, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and the Superfund
Amendments and Reauthorization Act of 1986, all as amended, and regulations of
the Environmental Protection Agency, the Nuclear Regulatory Agency, the Army
Corp of Engineers, the Department of Interior, the United States Fish and
Wildlife Service and any state department of natural resources or state
environmental protection agency now or at any time thereafter in effect
(collectively, "Environmental Laws"). There are no pending or, to the best
knowledge of Farmers or the Bank, threatened claims, actions or proceedings by
any local municipality, sewage district or other governmental entity against
Farmers or the Bank with respect to the Environmental Laws, and there is no
basis or grounds for any such claim, action or proceeding. No environmental
clearances or other governmental approvals are required for the conduct of the
business of Farmers or the Bank or the consummation of the Merger contemplated
hereby. Neither Farmers nor the Bank is the owner, and has not been in the chain
of title or the operator or lessee, of any property on which any substances have
been used, stored, deposited, treated, recycled or disposed of, which substances
if known to be present on, at or under such property would require clean-up,
removal or any other remedial action under any Environmental Law. Farmers and
the Bank owns, operates, leases and controls, and has
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<PAGE>
owned, operated, leased and controlled, all real property in compliance with the
Environmental Laws. Neither Farmers nor the Bank has any liability for any
clean-up or remediation under any of the Environmental Laws with respect to any
real property.
(c) Neither Farmers nor the Bank: (i) is in default in any respect
under any agreements pursuant to which it leases real or personal property; (ii)
has any knowledge of a default under such agreements by any party thereto; and
(iii) has any knowledge of any event which, with notice or lapse of time or
both, would constitute such a default.
4.12. Loans and Investments. (a) Except as set forth in the Disclosure
Schedule, there is no loan by Farmers or the Bank in excess of $10,000 that has
been classified by management as "Other Loans Specially Mentioned,"
"Substandard," "Doubtful" or "Loss" or in excess of $10,000 that has been
identified by accountants or auditors (internal or external) as having a
significant risk of uncollectability. A loan watch list of the Bank dated as of
October 19, 1998 and a list as of such date of all loans in excess of $10,000
which Bank has determined to be thirty (30) days or more past due as of
September 30, 1998 with respect to principal or interest payments or has placed
on nonaccrual status are set forth in the Disclosure Schedule.
(b) All loans reflected in the Farmers Financial Statements as of
December 31, 1997 and which have been made, extended, renewed, restructured,
approved, amended or acquired since December 31, 1997: (i) have been made for
good, valuable and adequate consideration in the ordinary course of business;
(ii) constitute the legal, valid and binding obligation of the obligor and any
guarantor named therein, except to the extent limited by general principles of
equity and public policy or by bankruptcy, insolvency, fraudulent transfer,
reorganization, liquidation, moratorium, readjustment of debt or other laws of
general application relative to or affecting the enforcement of creditors'
rights; (iii) are evidenced by notes, instruments or other evidences of
indebtedness which are true, genuine and what they purport to be; and (iv) are
secured, to the extent that Farmers and the Bank have a security interest in
collateral or a mortgage securing such loans, by perfected security interests or
recorded mortgages naming the Bank as the secured party or mortgagee.
(c) The allowance for possible loan and lease losses and the carrying
value for real estate owned which are shown on the Farmers Financial Statements
are adequate under the requirements of generally accepted accounting principles
applied on a consistent basis to
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<PAGE>
provide for possible losses on items for which reserves were made, on loans and
leases outstanding and real estate owned as of the respective dates.
(d) Except as set forth in the Disclosure Schedule, subject to the
restrictions of Statement of Financial Accounting Standards No. 115, none of the
investments reflected in the Farmers Financial Statements as of and for the
period ended December 31, 1997 and none of the investments made by Farmers since
December 31, 1997 are subject to any restriction, whether contractual or
statutory, which materially impairs the ability of Farmers to dispose freely of
such investment at any time. Neither Farmers nor the Bank is a party to any
repurchase agreements with respect to securities.
(e) Set forth in the Disclosure Schedule is a true, accurate and
complete list of all loans in which the Bank has any participation interest or
which have been made with or through another financial institution on a recourse
basis against the Bank.
(f) Except as set forth in the Disclosure Schedule, and except for
customer deposits and ordinary trade payables, neither Farmers nor the Bank has,
nor will it have at the Effective Time, any indebtedness for borrowed money.
4.13. Shareholder Rights Plan. Except as otherwise provided in this
Agreement, the Disclosure Schedule and Farmers's Articles of Incorporation,
Farmers does not have a shareholder rights plan or any other plan, program or
agreement involving, restricting, prohibiting or discouraging a change in
control or merger of Farmers or which may be considered an anti-takeover
mechanism.
4.14. Employee Benefit Plans. (a) With respect to the employee benefit
plans, as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), sponsored or otherwise maintained by Farmers or
the Bank, whether written or oral; in which Farmers or the Bank participates as
a participating employer; to which Farmers or the Bank contributes; with respect
to which Farmers or the Bank acts as administrator, trustee or fiduciary (except
as otherwise provided in this subsection (a)); or with respect to which Farmers
or the Bank is a disqualified person, as defined in Section 4975(e)(2) of the
Code or a party in interest, as defined in Section 3(14) of ERISA; whether
written or oral; and including any such plans which have been terminated, merged
into another plan, frozen or discontinued and with respect to which the
applicable statute of limitations for the assessment of any tax under any
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<PAGE>
provision of the Code or the bringing of any action by a former participant or
beneficiary or the Department of Labor ("Department") under any provision of
ERISA has not expired (collectively, "Farmers Plans"): (i) other than amendments
to Farmers Plans which, by statute, or by rule, regulation or announcement
issued by the Department or the Internal Revenue Service ("Service") are not yet
required to be adopted because the deadline for adopting such amendments has not
expired, all Farmers Plans have, on a continuous basis since their adoption,
been maintained in compliance with the requirements prescribed by all applicable
statutes, orders and governmental rules or regulations, including, without
limitation, ERISA, the Code, and the Department and Treasury Regulations
promulgated thereunder; (ii) all Farmers Plans intended to constitute
tax-qualified plans under Section 401(a) of the Code have complied since their
adoption or have been amended to comply in all material respects with all
applicable requirements of the Code and the Treasury Regulations promulgated
thereunder, and favorable determination letters have been timely received from
the Service with respect to each such Farmers Plan stating that each, in its
current form (or at the time of its disposition if it has been terminated,
merged, frozen or discontinued), is qualified under and satisfies all applicable
provisions of the Code and Treasury Regulations; (iii) except as set forth on
the Disclosure Schedule, no Farmers Plan (or its related trust) holds any stock
or other securities of Farmers or any related or affiliated person or entity;
(iv) neither Farmers nor the Bank has any liability to the Department or the
Service with respect to any Farmers Plan; (v) Farmers has not engaged in any
transaction that may subject Farmers, or any Farmers Plan, to a civil penalty
imposed by Section 502 of ERISA; (vi) no non-exempt prohibited transaction (as
defined in Section 406 of ERISA and as defined in Section 4975(c) of the Code)
has occurred with respect to any Farmers Plan; (vii) each Farmers Plan subject
to ERISA or intended to be qualified under Section 401(a) of the Code has been
and, if applicable, is being operated in all material respects in accordance
with the applicable provisions of ERISA and the Code and the Department and
Treasury Regulations promulgated thereunder; (viii) no participant or
beneficiary or non-participating employee has been denied any benefit due or to
become due under any Farmers Plan or has been misled as to his or her rights
under any Farmers Plan; (ix) all obligations required to be performed by Farmers
or the Bank under any provision of any Farmers Plan have been performed by them
and they are not in default under or in violation of any provision of any
Farmers Plan; (x) no event has occurred which would constitute grounds for an
enforcement action by any party under Part 5 of Title I of ERISA under any
Farmers Plan; (xi) there are no actions, suits, proceedings or claims pending
(other than routine claims for benefits) or, to the knowledge of Farmers and the
Bank after due inquiry, threatened, against Farmers or the Bank, with respect to
any Farmers Plan or the assets of any Farmers Plan; and (xii) with respect to
any
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Farmers Plan sponsored, participated in or contributed to by Farmers or the Bank
or with respect to which Farmers or the Bank is responsible for complying with
the reporting and disclosure requirements of ERISA or the Code, there has been,
no violation of the reporting and disclosure requirements imposed either under
ERISA or the Code for which a penalty has been or may be imposed. The provisions
of the following paragraphs of this subsection (a) shall not apply to a Farmers
Plan which does not cover any employee of Farmers or the Bank: paragraphs (i),
(ii), (vii), (viii) and (x).
(b) With regard to any Farmers Plan intended to be qualified under
Section 401(a) of the Code, no director, officer, employee or agent of Farmers
or the Bank has engaged in any action or failed to act in such a manner that, as
a result of such action or failure to act, the Service could revoke or deny that
plan's qualification under Section 401(a) of the Code or the exemption under
Section 501(a) of the Code for any trust related to such Plan.
(c) Farmers has provided to ANB in the Disclosure Schedule true,
accurate and complete copies and, in the case of any plan or program which has
not been reduced to writing, a summary of the material terms, of all of the
following (including all plans and programs which have been terminated): (i)
pension, retirement, profit-sharing, savings, stock purchase, stock bonus, stock
ownership, stock option and stock appreciation right plans and all summary plan
amendments thereto and all summary plan descriptions thereof (including any
modifications thereto); (ii) all employment, deferred compensation (whether
funded or unfunded), salary continuation, consulting, bonus, severance and
collective bargaining agreements, arrangements or understandings; (iii) all
executive and other incentive compensation plans, programs and agreements; (iv)
all group insurance and health contracts, policies or plans; and (v) all other
incentive, welfare or employee benefit plans, understandings, arrangements or
agreements, maintained or sponsored, participated in, or contributed to by
Farmers or the Bank for its current or former directors, officers or employees.
(d) Except as set forth on the Disclosure Schedule, no current or
former director, officer or employee of Farmers or the Bank is entitled to any
benefit under any welfare benefit plans (as defined in Section 3(1) of ERISA)
after termination of employment with Farmers, except that such individuals may
be entitled to continue their group health care coverage pursuant to Section
4980B of the Code if they pay the cost of such coverage pursuant to the
applicable requirements of the Code with respect thereto.
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(e) With respect to any group health plan (as defined in Section 607(1)
of ERISA) sponsored or maintained by Farmers or the Bank, in which Farmers or
the Bank participates as a participating employer or to which Farmers or the
Bank contributes, no director, officer, employee or agent of Farmers or the Bank
has engaged in any action or failed to act in such a manner that, as a result of
such action or failure to act, would cause a tax to be imposed on Farmers or the
Bank under Code Section 4980B(a). With respect to all such plans, all applicable
provisions of Section 4980B of the Code and Section 601 of ERISA have been
complied with in all material respects by Farmers or the Bank.
(f) Except as otherwise provided in the Disclosure Schedule, there are
no collective bargaining, employment, management, consulting, deferred
compensation, reimbursement, indemnity, retirement, early retirement, severance
or similar plans or agreements, commitments or understandings, or any employee
benefit or retirement plan or agreement, binding upon Farmers or the Bank and no
such agreement, commitment, understanding or plan is under discussion or
negotiation by management with any employee or group of employees, any member of
management or any other person.
4.15. Obligations to Employees. All accrued obligations and liabilities
of and all payments by Farmers and the Bank, and all Farmers Plans, whether
arising by operation of law, by contract or by past custom, for payments to
trusts or other funds, to any government agency or authority or to any present
or former director, officer, employee or agent (or his or her heirs, legatees or
legal representatives) have been and are being paid to the extent required by
applicable law or by the plan, trust, contract or past custom or practice, and
adequate actuarial accruals and reserves for such payments have been and are
being made by Farmers and the Bank in accordance with generally accepted
accounting principles and applicable law applied on a consistent basis and
actuarial methods with respect to the following: (a) withholding taxes,
unemployment compensation or social security benefits; (b) all pension,
profit-sharing, savings, stock purchase, stock bonus, stock ownership, stock
option and stock appreciation rights plans and agreements; (c) all employment,
deferred compensation (whether funded or unfunded), salary continuation,
consulting, retirement, early retirement, severance, reimbursement, bonus or
collective bargaining plans and agreements; (d) all executive and other
incentive compensation plans, programs, or agreements; (e) all group insurance
and health contracts, policies and plans; and (f) all other incentive, welfare,
retirement or employee benefit plans or agreements maintained or sponsored,
participated in, or contributed to by Farmers or the Bank for its current or
former directors, officers, employees and agents, including, without limitation,
all liabilities
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and obligations to the Farmers Plans. All obligations and liabilities of Farmers
and the Bank, whether arising by operation of law, by contract or by past custom
or practice, for all other forms of compensation which are or may be payable to
their current or former directors, officers, employees or agents have been and
are being paid to the extent required by applicable law or by the plan or
contract, and adequate actuarial accruals and reserves for payment therefor have
been and are being made by Farmers and the Bank in accordance with generally
accepted accounting and actuarial principles applied on a consistent basis. All
accruals and reserves referred to in this Section 4.15 are correctly and
accurately reflected and accounted for in all material respects in the Farmers
Financial Statements and the books, statements and records of Farmers and the
Bank.
4.16. Taxes, Returns and Reports. (a) Except as set forth in the
Disclosure Schedule, Farmers has since January 1, 1995 (a) duly filed all
federal, state, local and foreign tax returns of every type and kind required to
be filed, and each such return is true, accurate and complete in all material
respects; (b) paid all taxes, assessments and other governmental charges due or
claimed to be due upon it and the Bank or any of their income, properties or
assets; and (c) not requested an extension of time for any such payments (which
extension is still in force). Except for taxes not yet due and payable, the
reserve for taxes in the Farmers Financial Statements as of December 31, 1997 is
adequate to cover all of Farmers's and the Bank's tax liabilities (including,
without limitation, income taxes and franchise fees) that may become payable in
future years with respect to any transactions consummated prior to December 31,
1997. Neither Farmers nor Bank has, nor will either of them have, any liability
for taxes of any nature for or with respect to the operation of its respective
businesses, including the business of any subsidiary, or ownership of their
assets, including the assets of any subsidiary, from the date hereof up to and
including the Effective Time, except to the extent set forth in the Subsequent
Farmers Financial Statements (as hereinafter defined). Neither Farmers nor the
Bank is currently under audit by any state or federal taxing authority. No
federal, state or local tax returns of Farmers have been audited by any taxing
authority during the past five (5) years.
(b) Any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of Farmers or any of its
affiliates who is a "Disqualified Individual" (as such term is defined in
proposed Treasury regulation Section 1.280G-1) under any employment, severance
or terminated agreement, other compensation arrangement or
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Farmers Plan currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
4.17. Deposit Insurance. The deposits of the Bank are insured to the
fullest extent provided by applicable law by the Federal Deposit Insurance
Corporation in accordance with the Federal Deposit Insurance Act, as amended,
and Farmers and the Bank have paid or properly reserved or accrued for all
current premiums and assessments with respect to such deposit insurance.
4.18. Insurance. Set forth in the Disclosure Schedule is a list and
brief description of all policies of insurance (including, without limitation,
bankers' blanket bond, directors' and officers' liability insurance, property
and casualty insurance, group health or hospitalization insurance and insurance
providing benefits for employees) owned or held by Farmers or the Bank on the
date hereof or with respect to which Farmers or the Bank pays any premiums. Each
such policy is in full force and effect and all premiums due thereon have been
paid when due, and a true, accurate and complete copy thereof has been made
available to ANB prior to the date hereof.
4.19. Books and Records. The books and records of Farmers and the Bank
are in all material respects complete and correct and accurately reflect the
basis for the financial condition, results of operations, business, assets and
capital of Farmers and the Bank set forth in the Farmers Financial Statements.
4.20. Broker's, Finder's or Other Fees. Except as set forth in the
Disclosure Schedule and except for reasonable fees of Farmers' attorneys,
accountants, and the financial advisor described in Section 8.02(i), all of
which shall be paid by Farmers prior to the Effective Time, no agent, broker or
other person acting on behalf of Farmers or the Bank or under any authority of
Farmers or the Bank is or shall be entitled to any commission, broker's or
finder's fee or any other form of compensation or payment from any of the
parties hereto relating to this Agreement and the Merger contemplated hereby.
4.21. Disclosure Schedule and Documents. All written data, documents,
materials and information referred to in this Agreement and delivered by Farmers
or the Bank pursuant to or in connection with the Disclosure Schedule are true,
accurate and complete in all material respects as of the date hereof and with
respect to such items delivered subsequent to the date hereof or
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with any update to the Disclosure Schedule, will be true, accurate and complete
in all material respects on the date of delivery thereof.
4.22. Interim Events. Except (i) in connection with the Bank becoming a
member of the Federal Home Loan Bank of Cincinnati, (ii) as set forth in the
Disclosure Schedule, or (iii) as otherwise permitted hereunder, since December
31, 1997, neither Farmers nor the Bank has:
(a) Suffered any changes having an adverse impact on the financial
condition, results of operations, business, assets or capital of Farmers or the
Bank in excess of $25,000 individually or in the aggregate, other than any
change resulting primarily by reason of changes in banking laws or regulations
(or interpretations thereof), changes in the general level of interest rates or
changes in economic, financial or market conditions affecting the banking
industry generally in the Bank's market area;
(b) Suffered any damage, destruction or loss to any of its properties,
whether or not covered by insurance, in excess of $25,000 individually or in the
aggregate, other than any change resulting primarily by reason of changes in
banking laws or regulations (or interpretations thereof), changes in the general
level of interest rates or changes in economic, financial or market conditions
affecting the banking industry generally in the Bank's market area;
(c) Declared, distributed or paid any dividend or other distribution to
its shareholders, except for payment of dividends as permitted by Section
6.03(a)(iii) hereof;
(d) Repurchased, redeemed or otherwise acquired shares of its common
stock, issued any shares of its common stock or stock appreciation rights or
sold or agreed to issue or sell any shares of its common stock or any right to
purchase or acquire any such stock or any security convertible into such stock
or taken any action to reclassify, recapitalize or split its stock;
(e) Granted or agreed to grant any increase in benefits payable or to
become payable under any pension, retirement, profit sharing, health, bonus,
insurance or other welfare benefit plan or agreement to employees, officers or
directors of Farmers or the Bank;
(f) Increased the salary of any director, officer or employee, except
for normal increases in the ordinary course of business and in accordance with
past practices, or entered
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into any employment contract, indemnity agreement or understanding with any
officer or employee or installed any employee welfare, pension, retirement,
stock option, stock appreciation, stock dividend, profit sharing or other
similar plan or arrangement;
(g) Leased, sold or otherwise disposed of any of its assets except in
the ordinary course of business or leased, purchased or otherwise acquired from
third parties any assets except in the ordinary course of business;
(h) Except for the Merger contemplated by this Agreement, merged,
consolidated or sold shares of its common stock, agreed to merge or consolidate
with or into any third party, agreed to sell any shares of its common stock or
acquired or agreed to acquire any stock, equity interest, assets or business of
any third party;
(i) Incurred, assumed or guaranteed any obligation or liability (fixed
or contingent) other than obligations and liabilities incurred in the ordinary
course of business;
(j) Mortgaged, pledged or subjected to a lien, security interest,
option or other encumbrance any of its assets except for tax and other liens
which arise by operation of law and with respect to which payment is not past
due and except for pledges or liens: (i) required to be granted in connection
with acceptance by Farmers or the Bank of government deposits; (ii) granted in
connection with repurchase or reverse repurchase agreements; or (iii) otherwise
incurred in the ordinary course of the conduct of its business;
(k) Except as set forth in the Disclosure Schedule, canceled, released
or compromised any loan, debt, obligation, claim or receivable other than in the
ordinary course of business;
(l) Entered into any transaction, contract or commitment other than in
the ordinary course of business;
(m) Agreed to enter into any transaction for the borrowing or loaning
of monies, other than in the ordinary course of its lending business; or
(n) Conducted its business in any manner other than substantially as it
was being conducted through December 31, 1997.
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4.23. Regulatory Filings. Farmers or the Bank have filed and will
continue to file in a timely manner all filings with all federal and state
regulatory agencies and authorities as required by applicable law. All such
filings with federal and state regulatory agencies were true, accurate and
complete in all material respects as of the dates of the filings and have been
prepared in conformity with generally accepted regulatory accounting principles
applied on a consistent basis, and no such filing contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements, at the time and in light of the circumstances under which
they were made, not false or misleading.
4.24. Contracts. Neither Farmers nor the Bank is in default under or in
breach of or, to the knowledge of Farmers or the Bank, alleged to be in default
under or in breach of, any loan or credit agreement, conditional sales contract
or other title retention agreement, security agreement, bond, indenture,
mortgage, license, contract, lease, commitment or any other instrument or
obligation, which breach or default would reasonably be expected to have a
material adverse effect on the financial condition, results of operation,
business, assets or capital of Farmers or the Bank.
4.25. No Third Party Options. Except as set forth in the Disclosure
Schedule, there are no agreements, options, commitments or rights with, of or to
any third party to acquire any shares of capital stock or assets of Farmers or
the Bank.
4.26. Indemnification Agreements. (a) Except as set forth in the
Disclosure Schedule, neither Farmers nor the Bank is a party to any
indemnification, indemnity or reimbursement agreement, contract, commitment or
understanding to indemnify any present or former director, officer, employee,
shareholder or agent against liability or hold the same harmless from liability
other than as expressly provided in the Articles of Incorporation or Code of
Regulations of Farmers and the Articles of Incorporation and Code of Regulations
of the Bank.
(b) No claims have been made against or filed with Farmers or the Bank
nor have, to the knowledge of Farmers and the Bank after due inquiry of the
officers of Farmers and the Bank, any claims been threatened against Farmers or
the Bank, for indemnification against liability or for reimbursement of any
costs or expenses incurred in connection with any legal or regulatory proceeding
by any present or former director, officer, shareholder, employee or agent of
Farmers or the Bank.
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4.27. Pooling of Interests; Tax-Free Reorganization. Farmers has no
reason to believe that the Merger will not qualify as a "pooling of interests"
for accounting purposes or a tax-free reorganization within the meaning of
Section 368(a) of the Code.
4.28 Trust Administration. The Bank has properly administered all
accounts for which it acts as a fiduciary or agent, custodian, personal
representative, guardian, conservator or investment adviser in accordance with
the terms of the governing documents and applicable state and federal law.
Neither Farmers, the Bank nor any director, officer or employee of Farmers or
the Bank acting on behalf of Farmers or the Bank has committed any breach of
trust with regard to any such fiduciary or agency account, and the accountings
for each such fiduciary or agency account are true and correct in all material
respects and accurately reflect the assets of such fiduciary or agency account.
4.29 Year 2000. Neither Farmers nor the Bank has received, or
reasonably expects to receive, a "Year 2000 Deficiency Notification Letter" (as
such term is used in the Federal Reserve System's Supervision and Regulation
Letter No. SR 98-3 (SUP), dated March 4, 1998). Farmers has disclosed to ANB a
complete and accurate copy of Farmers' plan, including an estimate of the
anticipated associated costs, for addressing the issues set forth in the
statements of the Federal Financial Institutions Examination Council, dated May
5, 1997, entitled "Year 2000 Project Management Awareness; and December, 1997,
entitled "Safety & Soundness Guidelines Concerning the Year 2000 Business Risk,"
as such issues affect Farmers and the Bank. Between the date of this Agreement
and the Effective Time, Farmers shall use commercially reasonable efforts to
implement such plan.
4.30 Oral Opinion of Financial Advisor. The Board of Directors of
Farmers, at a duly constituted and held meeting at which a quorum was present
throughout, has been orally informed by a financial advisor described in Section
8.02(i) that the terms of the Merger are fair to the shareholders of Farmers
from a financial point of view.
4.31. Representations and Warranties at the Effective Time. All
representations and warranties of Farmers and the Bank contained herein shall be
true, accurate and complete in all material respects on and as of the Effective
Time as though made or given at such time.
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SECTION 5
REPRESENTATIONS AND WARRANTIES OF ANB
ANB represents and warrants to Farmers as follows:
5.01. Organization and Authority. ANB is a corporation duly organized
and validly existing under the laws of the State of Indiana, is a registered
bank holding company under the BHC Act, and has full power and authority
(corporate and otherwise) to own and lease its properties as presently owned and
leased and to conduct its business in the manner and by the means utilized as of
the date hereof. ANB's common stock is registered pursuant to Section 12, and
ANB is subject to the reporting requirements, of the 1934 Act.
5.02. Authorization. (a) ANB has the requisite corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder, subject to the fulfillment of the conditions precedent set forth in
Section 8.01 hereof. This Agreement and its execution and delivery by ANB have
been duly authorized by its Board of Directors. This Agreement constitutes a
valid and binding obligation of ANB subject to the conditions precedent set
forth in Section 8.01 hereof, and is enforceable in accordance with its terms,
except to the extent limited by general principles of equity and public policy
and by bankruptcy, insolvency, reorganization, liquidation, moratorium,
readjustment of debt or other laws of general application relating to or
affecting the enforcement of creditors' rights.
(b) Neither the execution of this Agreement nor consummation of the
Merger contemplated hereby: (i) conflicts with or violates ANB's Articles of
Incorporation or By-Laws; (ii) conflicts with or violates in any material
respect any local, state, federal or foreign law, statute, ordinance, rule or
regulation (provided that the approvals of or filings with applicable government
regulatory agencies or authorities required for consummation of the Merger are
obtained) or any court or administrative judgment, order, injunction, writ or
decree; or (iii) conflicts with, results in a breach of or constitutes a
material default under any note, bond, indenture, mortgage, deed of trust,
license, contract, lease, agreement, arrangement, commitment or other instrument
to which ANB is a party or by which ANB is subject or bound and which is
material to ANB on a consolidated basis.
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(c) Other than in connection or in compliance with applicable federal
and state banking, securities and corporation statutes, all as amended, and the
rules and regulations promulgated thereunder, no notice to, filing with,
exemption by or consent, authorization or approval of any governmental agency or
body is necessary for the consummation by ANB of the Merger contemplated by this
Agreement.
5.03. Capitalization. The authorized capital stock of ANB as of the
date hereof consists of 250,000 shares of preferred stock, no par value per
share, none of which were issued and outstanding as of June 30, 1998, and
20,000,000 shares of common stock, $1.00 stated value per share, of which
approximately 4,564,884 shares were issued and outstanding as of June 30, 1998.
Such issued and outstanding shares of ANB common stock have been duly and
validly authorized by all necessary corporate action of ANB, are validly issued,
fully paid and nonassessable, and have not been issued in violation of any
pre-emptive rights of any present or former ANB shareholders. All of the issued
and outstanding shares of common stock of ANB's subsidiaries are owned by ANB
free and clear of all liens, pledges, charges, claims, encumbrances,
restrictions, security interests, options and pre-emptive rights and of all
other rights or claims of any other person, corporation or entity with respect
thereto. ANB has no other authorized common stock. On a consolidated basis as of
June 30, 1998, ANB had total shareholders' equity of approximately $58.9
million, which consisted of common stock of $4.6 million, capital surplus of
$8.2 million, capital surplus - stock options of $0.3 million, retained earnings
of $44.6 million, and accumulated other comprehensive income $1.2 million.
5.04. Organizational Documents. The Articles of Incorporation and
By-Laws of ANB in force as of the date of this Agreement have been delivered to
Farmers and represent true, accurate and complete copies of such corporate
documents of ANB in effect as of the date of this Agreement.
5.05. Compliance With Law. Neither ANB nor any of its subsidiaries has
engaged in any activity nor taken or omitted to take any action which has
resulted or could result in the violation of any local, state, federal or
foreign law, statute, rule, regulation, ordinance, order, restriction or
requirement or of any order, injunction, judgment, writ or decree of any court
or government agency or body, the violation of which could have a material
adverse effect on the financial condition, results of operations, business,
assets or capitalization of ANB and its subsidiaries on a consolidated basis.
ANB and each of its subsidiaries possesses and holds all
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licenses, franchises, permits, certificates and other authorizations necessary
for the continued conduct of their business without interference or
interruption.
5.06. Regulatory Filings. ANB and each of its subsidiaries have filed
and will continue to file in a timely manner all required filings with the
Securities and Exchange Commission ("SEC"), including, but not limited to, all
reports on Form 8, Form 8-K, Form 10-K and Form 10-Q and proxy statements, and
with all other federal and state regulatory agencies as required by applicable
law. All filings by ANB with the SEC and with all other federal and state
regulatory agencies were true, accurate and complete in all material respects as
of the dates of the filings, and no such filings contained any untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements, at the time and in the light of the circumstances under
which they were made, not false or misleading.
5.07. Litigation and Pending Proceedings. (a) There are no claims,
actions, suits, proceedings, investigations or arbitrations pending or, to the
knowledge of ANB after due inquiry of the officers of ANB and its subsidiaries,
threatened in any court or before any government agency or authority,
arbitration panel or otherwise (nor does ANB have any knowledge of a basis for
any claim, action, suit, proceeding, litigation, investigation or arbitration)
against, by or affecting ANB or its subsidiaries which would reasonably be
expected to have a material adverse effect on the financial condition, results
of operations, business, assets or capitalization of ANB on a consolidated
basis, or which would prevent the performance of this Agreement, declare the
same unlawful or cause the rescission hereof.
(b) Pending Proceedings. Neither ANB nor any of its subsidiaries is:
(i) subject to any outstanding judgment, order, writ, injunction or decree of
any court, arbitration panel or governmental agency or authority having a
material adverse effect on the financial condition, results of operations,
business, assets or capitalization of ANB on a consolidated basis; (ii)
presently charged with or, to the knowledge of ANB, under governmental
investigation with respect to any actual or alleged violations of any law,
statute, rule, regulation or ordinance, the violation of which could have a
material adverse effect on the financial condition, results of operation,
business, assets or capitalization of ANB on a consolidated basis; or (iii) the
subject of any pending or, to the knowledge of ANB after due inquiry of the
officers of ANB and its subsidiaries, threatened proceeding by any government
regulatory agency or authority having jurisdiction over its business, assets,
capital, properties or operations, the violation of which
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<PAGE>
could have a material adverse effect on the financial condition, results of
operations, business, assets or capitalization of ANB on a consolidated basis.
5.08. Financial Statements and Reports. (a) ANB or its agents have
delivered to Farmers copies of the following financial statements and reports of
ANB and its subsidiaries (collectively, the "ANB Financial Statements"):
(i) Consolidated Balance Sheets and related Consolidated
Statements of Income and Consolidated Statements of
Changes in Shareholders' Equity of ANB as of and for
the years ended December 31, 1995, 1996 and 1997, and
for the fiscal quarters ended March 31, 1998 and June
30, 1998; and
(ii) Consolidated Statements of Cash Flows of ANB for the
years ended December 31, 1995, 1996 and 1997.
(b) The ANB Financial Statements are true, accurate and complete in all
material respects and present fairly the consolidated financial positions of ANB
and its subsidiaries as of and at the dates shown and the consolidated results
of operations for the periods covered thereby. The ANB Financial Statements
described in clauses (i) and (ii) above, which consist of fiscal year-end
information, are audited financial statements and have been prepared in
conformance with generally accepted accounting principles applied on a
consistent basis except as may otherwise be indicated in any accountants' notes
or reports with respect to such financial statements. The ANB Financial
Statements do not include any assets, liabilities or obligations or omit to
state any assets, liabilities or obligations, absolute or contingent, or any
other facts, which inclusion or omission would render the ANB Financial
Statements false, misleading or inaccurate in any material respect.
5.09. Shares to be Issued in Merger. The shares of ANB common stock
which Farmers shareholders will be entitled to receive upon consummation of the
Merger pursuant to this Agreement will, at the Effective Time, be duly
authorized and will, when issued in accordance with this Agreement, be validly
issued, fully paid and nonassessable and will have been registered under the
Securities Act of 1933, as amended ("1933 Act") and listed for trading on the
NASDAQ National Market System.
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5.10. Shareholder Approval. Approval by ANB's shareholders of the
Merger or any other actions contemplated by this Agreement is not required.
5.11. Absence of Changes. Since December 31, 1997, there has not been
any change in the financial condition, the results of operations or the business
of ANB and its subsidiaries which would have a material adverse effect on ANB,
on a consolidated basis, except as disclosed by ANB since December 31, 1997 in
its periodic reports filed with the SEC under the 1934 Act prior to the date of
this Agreement, other than any change resulting primarily by reason of changes
in banking laws or regulations (or interpretations thereof), changes in the
general level of interest rates or changes in economic, financial or market
conditions affecting the banking industry generally in ANB's market area.
5.12. Accuracy of Statements Made to Farmers. No representation,
warranty or other statement made, or any information provided, by ANB in this
Agreement, and no written report, statement, list, certificate, materials or
other written information furnished or to be furnished by ANB to Farmers through
and including the Effective Time in connection with this Agreement or the Merger
(including, without limitation, any written information which has been or shall
be supplied by ANB with respect to its financial condition, results of
operations, business, assets, capital or directors and officers for inclusion in
the proxy statement-prospectus and registration statement relating to the
Merger), contains or shall contain (in the case of information relating to the
proxy statement-prospectus at the time it is mailed to Farmers's shareholders)
any untrue or misleading statement of material fact or omits or shall omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they are made, not false or
misleading.
5.13. Contracts. ANB and each of its subsidiaries has performed in all
material respects all obligations required to be performed by them under all
agreements which are material to ANB on a consolidated basis, and neither ANB
nor any of its subsidiaries, to the knowledge of ANB, is in default under or in
breach of, in any material respect, any agreement which is material to ANB on a
consolidated basis.
5.14. Regulatory Approvals. To the knowledge of ANB after due inquiry
of the officers of ANB, there currently exists no reason why the granting of any
of the state or federal regulatory approvals required for consummation of the
Merger would reasonably be expected to be denied or unduly delayed.
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5.15. Shareholder Rights Plan. Except as otherwise provided in this
Agreement, filings made with the SEC under the 1934 Act, or ANB's Articles of
Incorporation, ANB does not have a shareholder rights plan or any other plan,
program or agreement involving, restricting, prohibiting or discouraging a
change in control or merger of ANB or which may be considered an anti-takeover
mechanism.
5.16. Books and Records. The books and records of ANB are in all
material respects complete and correct and accurately reflect the basis for the
financial condition, results of operations, business, assets and capital of ANB
as set forth in the ANB Financial Statements.
5.17. Accuracy of Information. All written data, documents, materials
and information referred to in this Agreement and delivered by ANB pursuant to
or in connection with the Agreement are true, accurate and complete in all
material respects as of the date hereof and with respect to such items delivered
subsequent to the date hereof will be true, accurate and complete in all
material respects on the date of delivery thereof.
5.18. Indemnification Agreements. (a) ANB is not a party to any
indemnification, indemnity or reimbursement agreement, contract, commitment or
understanding to indemnify any present or former director, officer, employee,
shareholder or agent against liability or hold the same harmless from liability
other than as expressly provided in the Articles of Incorporation or By-Laws of
ANB.
(b) No claims have been made against or filed with ANB nor have, to the
knowledge of ANB after due inquiry of the officers of ANB, any claims been
threatened against ANB, for indemnification against liability or for
reimbursement of any costs or expenses incurred in connection with any legal or
regulatory proceeding by any present or former director, officer, shareholder,
employee or agent of ANB.
5.19 Year 2000. ANB has not received, nor reasonably expects to
receive, a "Year 2000 Deficiency Notification Letter" (as such term is used in
the Federal Reserve System's Supervision and Regulation Letter No. SR 98-3
(SUP), dated March 4, 1998). ANB has disclosed to Farmers a complete and
accurate copy of ANB' plan, including an estimate of the anticipated associated
costs, for addressing the issues set forth in the statements of the Federal
Financial Institutions Examination Council, dated May 5, 1997, entitled "Year
2000 Project Management Awareness; and December, 1997, entitled "Safety &
Soundness Guidelines
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Concerning the Year 2000 Business Risk," as such issues affect ANB. Between the
date of this Agreement and the Effective Time, ANB shall use commercially
reasonable efforts to implement such plan.
5.20 Due Diligence. ANB has no knowledge of any violation by Farmers or
the Bank of any representation or warranty set forth or made in this Agreement.
Notwithstanding anything in this Agreement to the contrary, this representation
by ANB is made only as of the date of this Agreement.
5.21. Representations and Warranties at the Effective Date. All
representations and warranties of ANB contained herein shall be true, accurate
and complete in all material respects on and as of the Effective Time as though
made or given at such time.
SECTION 6
COVENANTS OF FARMERS
Farmers covenants and agrees with ANB, and covenants and agrees to
cause the Bank, to act as follows:
6.01. Shareholder Approval. (a) Subject to Section 6.06(b) hereof,
Farmers shall submit this Agreement to its shareholders for approval at a
meeting to be called and held in accordance with applicable law and the Articles
of Incorporation and Code of Regulations of Farmers at the earliest practicable
date following receipt by ANB of all required regulatory approvals. Subject to
Section 6.06(b) hereof, the Board of Directors of Farmers shall recommend to
Farmers' shareholders that such shareholders approve this Agreement and the
Merger contemplated hereby and shall solicit proxies voting in favor of this
Agreement from Farmers' shareholders.
(b) Farmers shall cause the Bank to submit this Agreement to its
shareholder for ratification and confirmation by written consent or at a meeting
to be called and held in accordance with applicable and the Articles of
Incorporation and By-Laws of Bank at the earliest possible date, and the Board
of Directors of the Bank shall recommend to the shareholder of the Bank that
such shareholder ratify and confirm this Agreement.
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6.02. Other Approvals. (a) Farmers and the Bank shall proceed
expeditiously, cooperate fully and use its best efforts to assist ANB in
procuring upon reasonable terms and conditions all consents, authorizations,
approvals, registrations and certificates, in completing all filings and
applications and in satisfying all other requirements prescribed by law which
are necessary for consummation of the Merger on the terms and conditions
provided in this Agreement at the earliest possible reasonable date.
(b) Farmers and the Bank shall cooperate with ANB in and shall take all
necessary action to effectuate the disposition of the Farmers Plans, as provided
in Section 7.03 hereof. Farmers shall be responsible for and shall pay all costs
and expenses associated with such dispositions.
(c) Farmers and the Bank shall use commercially reasonable efforts to
obtain any required third party consents to agreements, contracts, commitments,
leases, instruments and documents described in the Disclosure Schedule and
designated therein as material.
6.03. Conduct of Business. (a) Except as set forth in the Disclosure
Schedule, on and after the date of this Agreement and until the Effective Time
or until this Agreement shall be terminated as herein provided, neither Farmers
nor the Bank shall, without the prior written consent of ANB:
(i) make any changes in its capital stock accounts
(including, without limitation, any stock split,
stock dividend, recapitalization or
reclassification);
(ii) authorize a class of stock or issue, or authorize the
issuance of, securities other than or in addition to
the issued and outstanding common stock as set forth
in Section 4.03 hereof;
(iii) distribute or pay any dividends on its shares of
common stock, or authorize a stock split, or make any
other distribution to its shareholders except that
(A) the Bank may pay cash dividends to Farmers in the
ordinary course of business for payment of reasonable
and necessary business and operating expenses of
Farmers and to provide funds for Farmers's dividends
to its shareholders in accordance with this
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Agreement and (B) Farmers may pay to its shareholders
its usual and customary quarterly cash dividend of no
greater than seventy cents ($0.70) per share at
approximately the same times during each quarter
which it has historically declared and paid such
dividends; provided, however, that Farmers and ANB
shall cooperate with each other to coordinate the
record and payment dates of their respective
dividends for the quarter in which the Effective Time
occurs such that Farmers' shareholders shall receive
a quarterly dividend from either Farmers or ANB but
not from both during or with respect to such quarter;
(iv) redeem any of its outstanding shares of common stock;
(v) merge, combine or consolidate or effect a share
exchange with or sell its assets or any of its
securities to any other person, corporation or entity
or enter into any other similar transaction not in
the ordinary course of business;
(vi) purchase any assets or securities or assume any
liabilities of another bank holding company, bank,
corporation or other entity, except in the ordinary
course of business necessary to manage its investment
portfolio;
(vii) make any loan or commitment to lend money, issue any
letter of credit or accept any deposit, except in the
ordinary course of business in accordance with its
existing banking practices;
(viii) except for the disposition in the ordinary course of
business of other real estate owned, acquire or
dispose of any property or asset constituting a
capital investment in excess of $10,000 individually
or $25,000 in the aggregate;
(ix) except for tax and other liens which arise by
operation of law and with respect to which payment is
not past due and except for pledges or liens: (i)
required to be granted in connection with acceptance
by Farmers or the Bank of government deposits; (ii)
granted in connection with repurchase or reverse
repurchase agreements; or (iii) otherwise incurred in
the
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ordinary course of the conduct of its business,
subject any of its properties or assets to a
mortgage, lien, claim, charge, option, restriction,
security interest or encumbrance;
(x) promote to a new position or increase the rate of
compensation (except for promotions and compensation
increases in the ordinary course of business and in
accordance with past practices), or enter into any
agreement to promote to a new position or increase
the rate of compensation, of any director, officer or
employee of Farmers or the Bank;
(xi) execute, create, institute, modify, amend or
terminate (except with respect to any amendments to
the Farmers Plans required by law, rule or
regulation) any pension, retirement, savings, stock
purchase, stock bonus, stock ownership, stock option,
stock appreciation or depreciation right or profit
sharing plans; any employment, deferred compensation,
consulting, bonus or collective bargaining agreement;
any group insurance or health contract or policy; or
any other incentive, retirement, welfare or employee
welfare benefit plan, agreement or understanding for
current or former directors, officers or employees of
Farmers or the Bank; or change the level of benefits
or payments under any of the foregoing or increase or
decrease any severance or termination of pay benefits
or any other fringe or employee benefits other than
as required by law or regulatory authorities or the
terms of any of the foregoing;
(xii) modify, amend or institute new employment policies or
practices, or enter into, renew or extend any
employment, indemnity, reimbursement, consulting,
compensation or severance agreements with respect to
any present or former directors, officers or
employees of Farmers or the Bank;
(xiii) hire or employ any new or additional employees of
Farmers or the Bank, except those which are
reasonably necessary for the proper operation of
their respective businesses;
(xiv) elect or appoint any officers or directors of Farmers
or the Bank who are not presently serving in such
capacities;
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(xv) amend, modify or restate Farmers' or the Bank's
Articles of Incorporation or By-Laws from those in
effect on the date of this Agreement and as delivered
to ANB hereunder;
(xvi) give, dispose of, sell, convey or transfer; assign,
hypothecate, pledge or encumber; or grant a security
interest in or option to or right to acquire any
shares of common stock or substantially all of the
assets, of Farmers or the Bank, or enter into any
agreement or commitment relative to the foregoing;
(xvii) fail to continue to make additions to in accordance
with past practices and to otherwise maintain in all
respects Farmers' or the Bank's reserve for loan and
lease losses, or any other reserve account, in
accordance with safe, sound, and prudent banking
practices and in accordance with generally accepted
accounting principles applied on a consistent basis;
(xviii) fail to accrue, pay, discharge and satisfy all debts,
liabilities, obligations and expenses, including, but
not limited to, trade payables, incurred in the
regular and ordinary course of business as such
debts, liabilities, obligations and expenses become
due;
(xix) issue, or authorize the issuance of, any securities
convertible into or exchangeable for shares of
Farmers Common Stock or Bank Common Stock;
(xx) except for obligations disclosed within this
Agreement or the Disclosure Statement, trade payables
and similar liabilities and obligations incurred in
the ordinary course of business and the payment,
discharge or satisfaction in the ordinary course of
business of liabilities reflected in the Farmers
Financial Statements or the Subsequent Farmers
Financial Statements, borrow any money or incur any
indebtedness including, without limitation, through
the issuance of debentures, or incur any liability or
obligation (whether absolute, accrued, contingent or
otherwise), in an aggregate amount exceeding $10,000;
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(xxi) open, close, move or, in any material respect,
expand, diminish, renovate, alter or change any of
its offices or branches;
(xxii) pay or commit to pay any management or consulting or
other similar type of fees; or
(xxiii) enter into any contract, agreement, lease,
commitment, understanding, arrangement or transaction
or incur any liability or obligation (other than as
contemplated by Section 6.03(a)(vii) hereof and
legal, accounting and fees related to the Merger)
requiring payments by Farmers or the Bank which
exceed $10,000, whether individually or in the
aggregate, or that is not a trade payable or incurred
in the ordinary course of business.
(b) Farmers and the Bank shall maintain, or cause to be maintained, in
full force and effect, insurance on their assets, properties and operations,
fidelity coverage and directors' and officers' liability insurance on their
directors, officers and employees in such amounts and with regard to such
liabilities and hazards as are currently insured by Farmers and the Bank as of
the date of this Agreement.
6.04. Preservation of Business. On and after the date of this Agreement
and until the Effective Time or until this Agreement is terminated as herein
provided, Farmers and the Bank shall: (a) carry on their business diligently,
substantially in the manner as is presently being conducted and in the ordinary
course of business; (b) use commercially reasonable efforts to preserve their
business organization intact, keep available the services of the present
officers and employees and preserve their present relationships with customers
and persons having business dealings with it; (c) maintain all of the properties
and assets that it owns or utilizes in the operation of its business as
currently conducted in good operating condition and repair, reasonable wear and
tear excepted, and maintain insurance upon such properties and assets in amounts
and kinds comparable to that in effect on the date of this Agreement; (d)
maintain their books, records and accounts in the usual, regular and ordinary
manner, on a basis consistent with prior years and in compliance with all
material respects with all statutes, laws, rules and regulations applicable to
them and to the conduct of their business; and (e) not knowingly do or fail to
do anything which will cause a breach of, or default in, any contract,
agreement, commitment, obligation, understanding, arrangement, lease or license
to which either of them is a party or by which either of them is or may be
subject or bound which would reasonably be
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expected to have a material adverse effect on the financial condition, results
of operations, business, assets, or capital of Farmers or the Bank.
6.05. Restrictions Regarding Affiliates. Farmers shall, within thirty
(30) days after the date of this Agreement and promptly thereafter until the
Effective Time to reflect any changes, provide ANB with a list identifying each
person who may be deemed to be an affiliate of Farmers for purposes of Rule 145
under the 1933 Act. On or prior to the date of this Agreement, Farmers shall use
its best efforts to cause each director, executive officer and other person who
may be deemed to be such an affiliate of Farmers to deliver to ANB on or prior
to the date of this Agreement a written agreement, substantially in the form as
attached hereto as Exhibit A, providing that such person: (a) shall not sell,
pledge, transfer, dispose of or otherwise reduce his or her market risk with
respect to the shares of Farmers Common Stock directly or indirectly owned or
held by such person during the thirty (30) day period prior to the Effective
Time; and (b) will not sell, pledge, transfer, dispose of or otherwise reduce
his or her market risk with respect to the shares of ANB Common Stock to be
received by such person pursuant to this Agreement: (i) until such time as
financial results covering at least 30 days of combined operations of ANB and
Farmers have been published as and when required and within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies, and
(ii) unless such sales are pursuant to an effective Registration Statement under
the 1933 Act or pursuant to Rule 145 under the 1933 Act or another exemption
from registration under the 1933 Act.
6.06. Other Negotiations. (a) Subject to Section 6.06(b) hereof, on and
after the date of this Agreement and until the Effective Time or until this
Agreement is terminated as herein provided, except with the prior written
approval of ANB, neither Farmers nor the Bank shall permit or authorize their
respective directors, officers, employees, agents or representatives to,
directly or indirectly, initiate, solicit, encourage or engage in discussions or
negotiations with, or provide information to, any corporation, association,
partnership, person or other entity or group concerning any merger,
consolidation, share exchange, combination, purchase or sale of substantial
assets, sale of shares of common stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing the right to acquire, capital stock) or similar transaction relating
to Farmers or the Bank or to which Farmers or the Bank may become a party (all
such transactions are hereinafter referred to as "Acquisition Transactions").
Farmers and the Bank shall promptly communicate to ANB the terms of any proposal
or offer which either of them may receive with respect to an Acquisition
Transaction
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and any request by or indication of interest on the part of any third party with
respect to the initiation of any Acquisition Transaction or discussions with
respect thereto.
(b) On and after the date of this Agreement and until the Effective
Time or until this Agreement is terminated as provided herein, Farmers or the
Bank may engage, and may permit and authorize their respective directors,
officers, employees, agents or representatives to, directly or indirectly,
engage in discussions or negotiations with, or provide information to, any
corporation, association, partnership, person or other entity or group
concerning an unsolicited offer made or to be made by such third party with
respect to an Acquisition Transaction only with the prior written approval of
ANB, which approval shall be provided to Farmers promptly upon receipt by ANB of
(i) a letter from Farmers signed by at least a majority of its Board of
Directors then in office indicating that Farmers has received an unsolicited
offer regarding an Acquisition Transaction which the Board of Directors of
Farmers considers, in the exercise of its fiduciary duties as a Board, to be
substantially superior to the then current offer of ANB pursuant to this
Agreement, and (ii) certified resolutions of the Board of Directors of Farmers
which provide that such Board, after consultation with legal counsel to Farmers,
has determined that the fiduciary duties of the Board require it to consider
and, in light of such duties, take such other actions with respect to such
unsolicited offer as may be necessary or appropriate. Such approval may, in all
other instances, be provided to Farmers when and if ANB shall, in its sole
discretion, determine. This Section 6.06 shall not authorize Farmers or the
Bank, or any of their directors, officers, employees, agents or representatives,
to initiate any discussions or negotiations relative to an Acquisition
Transaction with a third party. Upon Farmers' execution or acceptance of any
agreement or letter of intent regarding an Acquisition Transaction with a party
other than ANB, Farmers shall immediately pay to ANB in immediately available
funds the amount of One Million Dollars ($1,000,000.00) as ANB's sole and
exclusive remedy against Farmers and the Bank under this Agreement. The
provisions of this Section 6.06(b) shall in no way limit ANB's rights or
remedies against any person or entity not a party to this Agreement.
6.07. Press Releases. Except as required by law, neither Farmers nor
the Bank shall issue any press or news releases or make any other public
announcements or disclosures relating to the Merger without the prior consent of
ANB following delivery of a final copy of such press or news release, which
consent shall not be unreasonably withheld.
6.08. Disclosure Schedule Update. Farmers shall promptly
supplement, amend and update, upon the occurrence of any change prior to the
Effective Time, and as of the Effective
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Time, the Disclosure Schedule with respect to any matters or events hereafter
arising which, if in existence or having occurred as of the date of this
Agreement, would have been required to be set forth or described in the
Disclosure Schedule or this Agreement and including, without limitation, any
fact which, if existing or known as of the date hereof, would have made any of
the representations or warranties of Farmers contained herein materially
incorrect, untrue or misleading.
6.09. Information, Access Thereto, Confidentiality. (a) ANB and its
respective representatives and agents shall, at all times during normal business
hours prior to the Effective Time, have full and continuing access to the
properties, facilities, operations, books and records of Farmers and the Bank.
ANB and its respective representatives and agents may, prior to the Effective
Time, make or cause to be made such reasonable investigation of the operations,
books, records and properties of Farmers and the Bank and of their financial and
legal condition as deemed necessary or advisable to familiarize themselves with
such operations, books, records, properties and other matters; provided,
however, that such access or investigation shall not interfere unnecessarily
with the normal business operations of Farmers and the Bank. Upon request,
Farmers and the Bank shall furnish ANB or its respective representatives or
agents, their attorneys' responses to external auditors requests for
information, management letters received from their external auditors and such
financial, loan and operating data and other information reasonably requested by
ANB which has been or is developed by Farmers or the Bank, their auditors,
accountants or attorneys (provided with respect to attorneys, such disclosure
would not result in the waiver by Farmers or the Bank of any claim of
attorney-client privilege), and will permit ANB and its respective
representatives or agents to discuss such information directly with any
individual or firm performing auditing or accounting functions for Farmers and
the Bank, and such auditors and accountants shall be directed to furnish copies
of any reports or financial information as developed to ANB or its respective
representatives or agents. No investigation by ANB shall affect the
representations and warranties made by Farmers or the Bank herein. Any
confidential information or trade secrets received by ANB or its representatives
or agents in the course of such examination shall be treated confidentially, and
any correspondence, memoranda, records, copies, documents and electronic or
other media of any kind containing such confidential information or trade
secrets or both shall be destroyed by ANB or, at Farmers' request, returned to
Farmers in the event this Agreement is terminated as provided in Section 10
hereof. This Section 6.09 shall not require the disclosure of any information to
ANB which would be prohibited by law.
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(b) The Confidentiality Agreement between ANB and Farmers dated August
17, 1998 shall remain in full force and effect, except as modified by the
provisions of this Agreement, until the Merger is consummated.
6.10. Subsequent Farmers Financial Statements. (a) As soon as
reasonably available after the date of this Agreement, Farmers shall deliver to
ANB the monthly unaudited consolidated balance sheets and profit and loss
statements of Farmers prepared for its internal use, Bank's Call Reports for
each quarterly period completed prior to the Effective Time, and all other
financial reports or statements submitted to regulatory authorities after the
date hereof, to the extent permitted by law (collectively, "Subsequent Farmers
Financial Statements"). The Subsequent Farmers Financial Statements shall be
prepared on a basis consistent with past accounting practices and generally
accepted accounting principles applied on a consistent basis to the extent
applicable and shall present fairly the financial condition and results of
operations as of the dates and for the periods presented. The Subsequent Farmers
Financial Statements, including the notes thereto, will not include any assets,
liabilities or obligations or omit to state any assets, liabilities or
obligations, absolute or contingent, or any other facts, which inclusion or
omission would render such financial statements inaccurate, incomplete or
misleading in any material respect.
(b) The Bank shall make additional provisions prior to December 31,
1998 to its allowance for loan losses in order to increase such allowance as
reflected in the consolidated financial statements of Farmers as of that date to
be included in the registration Statement by up to $300,000.00 compared to the
amount of the Bank's allowance for loan losses at September 30, 1998 in the Call
Reports, in order to make the Bank allowance equal to the amount that would
result from the consistent application of procedures and standards utilized by
ANB's other banking subsidiaries. Any such additional provision and additional
allowance (up to $300,000.00) that the Bank may make pursuant to this Section
6.10(b) shall not be construed as evidence that the Call Reports, other Farmers
Financial Statements, or any other provision in this Agreement were not as
represented and warranted pursuant to Section 4.08 or any other provision of
this Agreement or give ANB any right to terminate this Agreement pursuant to
Section 9.01(b)(v) hereof.
6.11. Employee Benefits. Neither the terms of Section 7.03 hereof nor
the provision of any employee benefits by ANB or any of its subsidiaries to
employees of Farmers shall: (a) create any employment contract, agreement or
understanding with or employment rights for, or
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constitute a commitment or obligation of employment to, any of the officers or
employees of Farmers; or (b) prohibit or restrict ANB or its subsidiaries,
whether before or after the Effective Time, from changing, amending or
terminating any employee benefits provided to its employees from time to time.
6.12. Disposition of Farmers Tax-Qualified Plans. (a) Farmers and the
Bank shall take all necessary corporate action to carry out the provisions of
this Section 6.12 and of Section 7.04, Section 7.16, and Section 8.01(m) of this
Agreement.
(b) ANB and its counsel shall be supplied with copies of all documents,
certificates, filings and other writings prepared by or on behalf of Farmers or
the Bank in connection with the carrying out of the provisions of this Section
6.12, Section 7.04, Section 7.16, and Section 8.01(m) of this Agreement.
6.13. Environmental Reports. Farmers shall, at ANB's expense, cooperate
with an environmental consulting firm designated by ANB in connection with the
conduct by such firm of a phase one environmental investigation on all real
property owned or leased by Farmers or its subsidiaries as of the date of this
Agreement, and any real property acquired or leased by Farmers or its
subsidiaries after the date of this Agreement.
6.14. Data Processing Software. Farmers will cause the value of all
software used in connection with its data processing function and carried on its
books to be written to zero by December 31, 1998.
6.15 Employee Vacation Expenses. Prior to December 31, 1998, Farmers
will charge as an expense the value of accrued but unused vacation days, as
determined in accordance with its vacation policy in place as of the date of
this Agreement.
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SECTION 7
COVENANTS OF ANB
ANB covenants and agrees with Farmers as follows:
7.01. Approvals. ANB shall have primary responsibility for the
preparation, filing and costs of all bank holding company and bank regulatory
applications required for consummation of the Merger. ANB shall file all bank
holding company and bank regulatory applications as soon as practicable after
the execution of this Agreement. ANB shall provide to Farmers' counsel copies of
all applications filed and copies of all material written communications with
all state and federal bank regulatory agencies relating to such applications.
ANB shall proceed expeditiously, cooperate fully and use its best efforts to
procure, upon terms and conditions reasonably acceptable to ANB, all consents,
authorizations, approvals, registrations and certificates, to complete all
filings and applications and to satisfy all other requirements prescribed by law
which are necessary for consummation of the Merger on the terms and conditions
provided in this Agreement at the earliest possible reasonable date.
7.02. SEC Registration. ANB shall file with the SEC as soon as
practicable after the execution of this Agreement a Registration Statement on an
appropriate form under the 1933 Act covering the shares of ANB Common Stock to
be issued pursuant to this Agreement and shall use its best efforts to cause the
same to become effective and thereafter, until the Effective Time or termination
of this Agreement, to keep the same effective and, if necessary, amend and
supplement the same. Such Registration Statement and any amendments and
supplements thereto are referred to in this Agreement as the "Registration
Statement". The Registration Statement shall include a proxy
statement-prospectus reasonably acceptable to ANB and Farmers, prepared for use
in connection with the meeting of shareholders of Farmers referred to in Section
6.01 of this Agreement, all in accordance with the rules and regulations of the
SEC. ANB shall, as soon as practicable after filing the Registration Statement,
make all filings required to obtain all Blue Sky exemptions, authorizations,
consents or approvals required for the issuance of ANB Common Stock. In advance
of filing the Registration Statement and all other filings described in Section
7.01 herein, ANB shall provide Farmers and its counsel with a copy of the
Registration Statement and each such other filing and provide an opportunity to
comment thereon. ANB shall take all such action as is necessary to qualify the
ANB Common
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Stock to be issued pursuant to this Agreement for quotation in NASDAQ-NMS,
effective upon notice of issuance.
7.03. Employee Benefit Plans. (a) At such time as ANB shall determine,
in its sole discretion, but in no event later than January 1, 2000, ANB will
make available to the employees of Farmers and the Bank who continue as
employees of any subsidiary of ANB after the Effective Time and, further,
subject to Section 7.03(b), (c) and (d) hereof, substantially the same employee
benefits on substantially the same terms and conditions that ANB may offer to
similarly situated officers and employees of its banking subsidiaries from time
to time. Until such time as the employees of Farmers and the Bank become covered
by the ANB welfare benefit plans, the employees of Farmers and the Bank shall
remain covered by their respective welfare benefit plans, subject to the terms
of such plans. Notwithstanding any provision herein to the contrary, the Farmers
State Bank of Union City Policy Concerning Medical Insurance Payments for
Retirees and Disabled Employees and the Farmers State Bank Group Life Insurance
Plan shall be terminated, effective December 31, 1999. At such time as the
officers of the Bank cease being covered by a group health insurance plan for
which the employer pays 100% of the premium, ANB shall cause the Bank to
increase by $2,000.00 the annual salary of each officer of the Bank identified
in the Disclosure Schedule.
(b) Subject to the provisions of subsection (c) hereof, years of
service (as defined in the applicable ANB plan) of an officer or employee of
Farmers or the Bank prior to the Effective Time shall be credited, effective as
of the date on which such employees become covered by a particular ANB plan, to
each such officer or employee eligible for coverage under Section 7.03(a) hereof
for purposes of: (i) eligibility under ANB's employee welfare benefit plans; and
(ii) eligibility and vesting, but not for purposes of benefit accrual or
contributions, under the ANB Pension Plan or under the ANB 401(k) Plan. Subject
to the provisions of Section 7.16 hereof, those officers and employees of
Farmers or the Bank who otherwise meet the eligibility requirements of the ANB
Pension Plan or ANB 401(k) Plan based upon their age and years of service with
Farmers or the Bank and ANB, shall become participants thereunder on the
Disposition Date (as defined in Section 7.16). Those officers or employees who
do not meet the eligibility requirements of the ANB Pension Plan or ANB 401(k)
Plan on such date shall become participants thereunder on the first plan entry
date under the ANB Pension Plan or ANB 401(k) Plan, as the case may be, which
coincides with or next follows the date on which such eligibility requirements
are satisfied.
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(c) No employee of Farmers or the Bank serving as of the Effective Time
shall be subject to any pre-existing condition limitation under any of ANB's
welfare benefit plans if such officer, employee or individual was not subject to
any pre-existing condition limitation under the corresponding Farmers welfare
benefit plan on the day immediately preceding the day he becomes a participant
in the ANB welfare benefit plans pursuant to Section 7.03(a) hereof.
(d) Neither the terms of this Section 7.03 nor the provision of any
employee benefits by ANB or any of its subsidiaries to employees of Farmers or
the Bank shall: (i) create any employment contract, agreement or understanding
with or employment rights for, or constitute a commitment or obligation of
employment to, any of the officers or employees of Farmers or the Bank; or (ii)
prohibit or restrict ANB or its subsidiaries, whether before or after the
Effective Time, from changing, amending or terminating any employee benefits
provided to its employees from time to time.
(e) ANB shall take any and all actions necessary to effectuate the
disposition of the Farmers Plans provided by this Section 7.03 and Section 7.16
hereof.
(f) Until the Effective Time, Farmers and its counsel shall be supplied
with copies of all documents, certificates, filings and other writings prepared
by or on behalf of Farmers or the Bank in connection with the carrying out of
the provisions of this Section 7.16 and of Sections 7.03 and 7.04.
7.04. Disposition of Farmers Directors Deferred Compensation Plan. The
Farmers State Bank Directors' Deferred Compensation Plan shall be merged with
and into the ANB Corporation Directors' Deferred Compensation Plan, effective as
of the Effective Time.
7.05. Authorization of ANB Common Stock. The Board of Directors of ANB
shall, prior to the Effective Time, authorize the issuance of the required
number of shares of ANB Common Stock to be issued pursuant to this Agreement and
take all other necessary corporate action to consummate the Merger contemplated
hereby.
7.06. Press Releases. Except as required by law, ANB shall not issue
any press or news releases or make any other public announcements or disclosures
relating primarily to Farmers with respect to the Merger without the prior
consent of Farmers following delivery of a final copy of such press or news
release, which consent shall not be unreasonably withheld.
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7.07. Indemnification. From and after the Effective Time, ANB shall
assume and honor any obligations as provided for and permitted by applicable
federal and state law which Farmers had immediately prior to the Effective Time
with respect to the indemnification of each person who is on the date hereof, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, a director or officer of Farmers or was serving at the request
of Farmers as a director or officer of any domestic or foreign corporation,
joint venture, trust, employee benefit plan or other enterprise (collectively,
the "Indemnitees") arising out of applicable law or out of Farmers' Articles of
Incorporation or Code of Regulations in effect at the Effective Time against any
and all losses in connection with or arising out of any claim which is based
upon, arises out of or in any way relates to any actual or alleged act or
omission occurring at or prior to the Effective Time in the Indemnitee's
capacity as a director or officer (whether elected or appointed), of Farmers.
Indemnification of officers and directors of the Bank following the Effective
Time will be provided to the same extent it is provided from time to time to
other persons working in similar capacities for ANB or its subsidiaries
following the Effective Time.
7.08 Board of Directors After Effective Time. Immediately following the
Effective Time, the Board of Directors of the Bank shall consist of the Board of
Directors of the Bank who are serving as directors of the Bank immediately prior
to the Effective Time and one designee of ANB.
7.09 Election of Director. Within ninety (90) days after the Effective
Time, ANB shall expand its Board of Directors by one member and elect a mutually
acceptable representative of the Board of Directors of Farmers (as it is
constituted immediately prior to the Effective Time) to fill such vacancy.
7.10 Other Agreements. ANB shall promptly disclose to Farmers all
agreements, including letters of intent, and negotiations which it has disclosed
to its subsidiaries that it has or may have which will cause the present
shareholders of ANB to either (i) own less than 51% of the outstanding voting
shares of ANB or (ii) lack the ability to elect a majority of the Board of
Directors of ANB.
7.11 Conduct of Business. (a) On and after the date of this Agreement
and until the Effective Time or until this Agreement shall be terminated as
herein provided, ANB shall not, without the prior written consent of Farmers:
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(i) amend, modify or restate ANB's Articles of
Incorporation from those in effect on the date of
this Agreement and as delivered to Farmers hereunder;
(ii) fail to continue to make additions to in accordance
with past practices and to otherwise maintain in all
respects ANB's reserve for loan and lease losses, or
any other reserve account, in accordance with safe,
sound, and prudent banking practices and in
accordance with generally accepted accounting
principles applied on a consistent basis;
(iii) fail to accrue, pay, discharge and satisfy all debts,
liabilities, obligations and expenses, including, but
not limited to, trade payables, incurred in the
regular and ordinary course of business as such
debts, liabilities, obligations and expenses become
due;
(b) ANB and its subsidiaries shall maintain, or cause to be maintained,
in full force and effect, insurance on their assets, properties and operations,
fidelity coverage and directors' and officers' liability insurance on their
directors, officers and employees in such amounts and with regard to such
liabilities and hazards as are currently insured by ANB as of the date of this
Agreement.
7.12. Preservation of Business. On and after the date of this Agreement
and until the Effective Time or until this Agreement is terminated as herein
provided, ANB shall: (a) carry on its business diligently, substantially in the
manner as is presently being conducted and in the ordinary course of business;
and (b) maintain its books, records and accounts in the usual, regular and
ordinary manner, on a basis consistent with prior years and in compliance with
all material respects with all statutes, laws, rules and regulations applicable
to it.
7.13. Disclosure Update. ANB shall promptly supplement, amend and
update, upon the occurrence of any change prior to the Effective Time, and as of
the Effective Time, any information with respect to any matters or events
hereafter arising which, if in existence or having occurred as of the date of
this Agreement, would have been required to be set forth or described in this
Agreement and including, without limitation, any fact which, if existing or
known as of the date hereof, would have made any of the representations or
warranties of ANB contained herein materially incorrect, untrue or misleading.
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7.14. Confidentiality Agreement. The Confidentiality Agreement between
ANB and Farmers dated August 17, 1998 shall remain in full force and effect,
except as modified by the provisions of this Agreement, until the Merger is
consummated.
7.15. Subsequent ANB Statements. ANB shall provide or make available to
Farmers any reports filed by ANB on its behalf with the SEC under the 1934 Act
subsequent to the date of this Agreement, including Forms 8-K's, 10-Q's and 10-K
(collectively, the financial statements included therein shall be referred to in
this Agreement as the "Subsequent ANB Statements"). The Subsequent ANB
Statements shall be prepared on a basis consistent with past accounting
practices and generally accepted accounting principles applied on a consistent
basis to the extent applicable and shall present fairly the financial condition
and results of operations as of the dates and for the periods presented. The
Subsequent ANB Statements, including the notes thereto, will not include any
assets, liabilities or obligations or omit to state any assets, liabilities or
obligations, absolute or contingent, or any other facts, which inclusion or
omission would render such financial statements inaccurate, incomplete or
misleading in any material respect.
7.16 Disposition of Farmers Tax-Qualified Plans. ANB shall take all
necessary corporate action to effectuate the disposition of the tax-qualified
plans sponsored by Farmers and Bank (collectively, "Farmers Plans") as provided
in this Section 7.16 and Section 7.03 hereof.
(a) Merger of Farmers 401(k) Plan. The Farmers State Bank of Union
City, Ohio Employees' 401(k) Plan ("Farmers 401(k) Plan") shall be merged with
and into the ANB Corporation Savings and Incentive Plan ("ANB 401(k) Plan"). All
account balances maintained under the Farmers 401(k) Plan shall continue to be
fully vested on the day on which the Effective Time occurs. From the date of
this Agreement through the Disposition Date (as defined below), Farmers and the
Bank may continue to make contributions to the Farmers 401(k) Plan so long as
such contributions are comparable in amount to any past contributions to such
plan.
(b) Disposition of Farmers Pension Plan. All benefits accrued under the
Farmers State Bank of Union City, Ohio Employees' Pension Plan ("Farmers Pension
Plan") shall be fully vested on the day on which the Effective Time occurs, and
participants shall continue to accrue benefits thereunder through the
Disposition Date. The Farmers Pension Plan shall either
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be terminated and all vested accrued benefits distributed or it shall be merged
into the ANB Corporation Employees' Pension Plan ("ANB Pension Plan"), at the
discretion of the Board of Directors of ANB. Farmers and the Bank shall not make
any contributions to the Farmers Pension Plan with respect to the computation
period thereunder which ends on the Disposition Date (as defined below) without
the prior consent of ANB.
(c) Effective Date of Disposition of Farmers Plans. The disposition of
the Farmers 401(k) Plan and Farmers Pension Plan, as described in the preceding
provisions of this Section 7.16, shall be effective as of the later of December
31, 1999 or the last day of the month in which the Effective Time occurs
("Disposition Date"). Provided, however, that notwithstanding any other
provision of this Section 7.16, if the Effective Time occurs before December 31,
1999, the Farmers 401(k) Plan and Farmers Pension Plan shall nevertheless be
continued until December 31, 1999. Effective on and after the Disposition Date,
the employees of Farmers and the Bank can become participants under the ANB
401(k) Plan and the ANB Pension Plan in accordance with the provisions of
Section 7.03(b) hereof.
(d) Conditions Precedent to Disposition of Farmers Plans. Prior to the
Disposition Date for the Farmers 401(k) Plan and Farmers Pension Plan, ANB and
Farmers shall have received a determination letter from the Internal Revenue
Service in form and content satisfactory to ANB and its counsel, to the
following:
(i) The ANB 401(k) Plan, upon the merger of the Farmers
401(k) Plan with and into the ANB 401(k) Plan, will
be qualified under Section 401(a) of the Code; and
(ii) Either (A) the ANB Pension Plan, upon the merger of
the Farmers Pension Plan with and into the ANB
Pension Plan, will be qualified under Section 401(a)
of the Code; or (B) the Farmers Pension Plan will be
qualified under Section 401(a) of the Code upon its
termination.
Additionally, prior to the Disposition Date for the Farmers Pension
Plan, if the Farmers Pension Plan is to be terminated, the approval of the
Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA shall have
been applied for and obtained.
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7.17. Pooling Actions. Neither ANB nor any of its subsidiaries or
affiliates shall take any action that would prevent the Merger from qualifying
for pooling of interests accounting treatment.
SECTION 8
CONDITIONS PRECEDENT TO THE MERGER
8.01. ANB. The obligation of ANB to consummate the Merger is subject to
the satisfaction and fulfillment of each of the following conditions on or prior
to the Effective Time, unless waived in writing by ANB:
(a) Representations and Warranties at Effective Time. Each of the
representations and warranties of Farmers and the Bank contained in this
Agreement shall be true, accurate and correct in all material respects at and as
of the Effective Time as though such representations and warranties had been
made or given on and as of the Effective Time.
(b) Covenants. Each of the covenants and agreements of Farmers and the
Bank shall have been fulfilled or complied with in all material respects from
the date of this Agreement through and as of the Effective Time.
(c) Deliveries at Closing. ANB shall have received from Farmers and the
Bank at the Closing (as hereinafter defined) the items and documents, in form
and content reasonably satisfactory to ANB, set forth in Section 11.02(b)
hereof.
(d) Registration Statement Effective. ANB shall have registered its
shares of Common Stock to be issued to shareholders of Farmers in accordance
with this Agreement with the SEC pursuant to the 1933 Act, and all state
securities and Blue Sky approvals, authorizations and exemptions required to
offer and sell such shares shall have been received by ANB. The Registration
Statement with respect thereto shall have been declared effective by the SEC and
no stop order shall have been issued or threatened.
(e) Regulatory Approvals. The Board of Governors of the Federal
Reserve System ("Federal Reserve"), and the Ohio Division of Financial
Institutions shall have authorized and approved or not objected to the Merger on
terms and conditions satisfactory to ANB. In
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addition, all appropriate orders, consents, approvals and clearances from all
other regulatory agencies and governmental authorities whose orders, consents,
approvals or clearances are required by law for consummation of the Merger
contemplated by this Agreement shall have been obtained on terms and conditions
satisfactory to ANB.
(f) Shareholder Approval. The shareholders of Farmers shall have
approved and adopted this Agreement as required by applicable law and its
Articles of Incorporation.
(g) Officers' Certificate. Farmers shall have delivered to ANB a
certificate signed by its Chairman or President and its Secretary, dated as of
the Effective Time, certifying that: (i) all the representations and warranties
of Farmers and the Bank are true, accurate and correct in all material respects
on and as of the Effective Time; (ii) all the covenants of Farmers and the Bank
have been complied with in all material respects from the date of this Agreement
through and as of the Effective Time; and (iii) Farmers and the Bank have
satisfied and fully complied with all conditions necessary to make this
Agreement effective as to them.
(h) Tax Opinion. The respective Boards of Directors of the parties to
this Agreement shall have received a written opinion of the law firm of Krieg
DeVault Alexander & Capehart, or such other law firm reasonably acceptable to
the parties hereto, dated as of the Effective Time, in form and content
satisfactory to the parties hereto, to the effect that the Merger to be effected
pursuant to this Agreement should constitute a tax-free reorganization under the
Code (as described in Section 1.06 hereof) to each party hereto and to the
shareholders of Farmers, except with respect to cash received by Farmers'
shareholders: (i) for fractional shares resulting from application of the
Exchange Ratio; or (ii) pursuant to the exercise of dissenters' rights as
described in Section 3 hereof.
(i) Affiliate Agreements. ANB shall have received from Farmers: (i) a
list identifying each affiliate of Farmers in accordance with Section 6.05
hereof dated as of the Effective Time; and (ii) from each affiliate of Farmers,
the agreements dated as of the date of this Agreement contemplated by Section
6.05 hereof.
(j) Shareholders' Equity. As of the last day of the month immediately
preceding the Effective Time, the shareholders' equity of Farmers shall be not
less than that amount as of December 31, 1997 (calculated with any adjustments
for the Bank's addition to its loan loss reserve taken pursuant to Section
6.10(b) and for FASB No. 115 removed), as reflected on
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Farmers' Financial Statements as of such date and as determined in accordance
with generally accepted accounting principles applied on a consistent basis.
Such amount of shareholders' equity shall be calculated after all liability
accruals and payments have been made for all legal, accounting, investment
banking, environmental and other professional or advisors' fees of Farmers and
all expenses of Farmers relating to the Merger incurred as of and through the
date of such financial statements.
(k) Accounting Treatment. The Merger qualifies for pooling-of-interest
accounting treatment for ANB.
(l) Environmental Report. The environmental reports obtained pursuant
to Section 6.13 shall not require any further investigation procedures with
respect to potential liabilities which would reasonably be expected to have a
material adverse effect on the financial condition, results of operations,
business, assets, or capital of Farmers or the Bank.
(m) Stock Options. All options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or subscription rights relating to any
shares of Farmers Common Stock, or any securities convertible into or
representing the right to purchase or otherwise acquire any common stock or debt
securities of Farmers, by which Farmers is or may become bound, shall have been
exercised, expired, or terminated. In addition, the Farmers State Bancorp
Employee Stock Option Plan shall have been terminated.
8.02. Farmers. The obligation of Farmers to consummate the Merger is
subject to the satisfaction and fulfillment of each of the following conditions
on or prior to the Effective Time, unless waived in writing by Farmers:
(a) Representations and Warranties at Effective Time. Each of the
representations and warranties of ANB contained in this Agreement shall be true,
accurate and correct in all material respects on and as of the Effective Time as
though the representations and warranties had been made or given at and as of
the Effective Time.
(b) Covenants. Each of the covenants and agreements of ANB shall have
been fulfilled or complied with in all material respects from the date of this
Agreement through and as of the Effective Time.
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(c) Deliveries at Closing. Farmers shall have received from ANB at the
Closing the items and documents, in form and content reasonably satisfactory to
Farmers, listed in Section 11.02(a) hereof.
(d) Registration Statement Effective. ANB shall have registered its
shares of Common Stock to be issued to shareholders of Farmers in accordance
with this Agreement with the SEC pursuant to the 1933 Act, and all state
securities and Blue Sky approvals, authorizations and exemptions required to
offer and sell such shares shall have been received by ANB. The Registration
Statement with respect thereto shall have been declared effective by the SEC and
no stop order shall have been issued or threatened. In addition, such shares of
ANB Common Stock shall be listed on the NASDAQ National Market System.
(e) Regulatory Approvals. The Federal Reserve and the Ohio Division of
Financial Institutions shall have authorized and approved or not objected to the
Merger. In addition, all appropriate orders, consents, approvals and clearances
from all other regulatory agencies and governmental authorities whose orders,
consents, approvals or clearances are required by law for consummation of the
Merger contemplated by this Agreement shall have been obtained.
(f) Shareholder Approval. The shareholders of Farmers shall have
approved and adopted this Agreement as required by applicable law and Farmers'
Articles of Incorporation.
(g) Officers' Certificate. ANB shall have delivered to Farmers a
certificate signed by its Chairman or President and its Secretary, dated as of
the Effective Time, certifying that: (i) all the representations and warranties
of ANB are true, accurate and correct in all material respects on and as of the
Effective Time; (ii) all the covenants of ANB have been complied with in all
material respects from the date of this Agreement through and as of the
Effective Time; and (iii) ANB has satisfied and fully complied with all
conditions necessary to make this Agreement effective as to it.
(h) Tax Opinion. The respective Boards of Directors of the parties to
this Agreement shall have received a written opinion of the law firm of Krieg
DeVault Alexander & Capehart, dated as of the Effective Time, in form and
content satisfactory to the parties hereto, to the effect that the Merger to be
effected pursuant to this Agreement should constitute a tax-free reorganization
under the Code (as described in Section 1.06 hereof) to each party hereto and to
the shareholders of Farmers, except with respect to cash received by Farmers'
shareholders: (i)
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for fractional shares resulting from application of the Exchange Ratio; or (ii)
pursuant to the exercise of dissenters' rights as described in Section 3 hereof.
(i) Fairness Opinion. Farmers shall have received from City Securities
Corporation or another reputable financial advisor a written fairness opinion
stating that the terms of the Merger are fair to the shareholders of Farmers
from a financial point of view. Such written fairness opinion shall (i) be dated
as of the date not later than the mailing date of the proxy statement -
prospectus relating to the Merger to be mailed to the shareholders of Farmers,
and (ii) be included as an exhibit to such proxy statement - prospectus.
SECTION 9
TERMINATION OF MERGER
9.01. Manner of Termination. This Agreement and the Merger may be
terminated at any time prior to the Effective Time by written notice delivered
by ANB to Farmers, or by Farmers to ANB, as follows:
(a) By ANB or Farmers, if:
(i) the Merger contemplated by this Agreement has not
been consummated by September 30, 1999; or
(ii) the Agreement and the Merger are not approved by the
requisite vote of the shareholders of Farmers at the
Special Meeting of Shareholders of Farmers; or
(iii) the respective Boards of Directors of ANB and Farmers
mutually agree to terminate this Agreement.
(b) By ANB, if:
(i) any item, event or information set forth in any
supplement, amendment or update to the Disclosure
Schedule has had or would be expected to have a
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material adverse effect on the business, assets,
capitalization, financial condition or results of
operations of Farmers or the Bank; or
(ii) there has been a misrepresentation or a breach of any
warranty by or on the part of Farmers in its
representations and warranties set forth in this
Agreement which has had or would be expected to have
a material adverse effect on the business, assets,
capitalization, financial condition or results of
operations of Farmers or the Bank; provided, however,
that in the event of any inaccuracy in the
representations and warranties contained in Section
4.03 hereof relative to the number of issued and
outstanding shares of capital stock of Farmers, ANB
shall have the absolute right to terminate this
Agreement without regard to the materiality of any
such inaccuracy; or
(iii) there has been a breach of or failure to comply with
any covenant set forth in this Agreement by or on the
part of Farmers or the Bank which could reasonably be
expected to have a material adverse effect on the
economic value of the Merger to ANB; or
(iv) it shall reasonably determine that the Merger
contemplated by this Agreement has become inadvisable
or impracticable by reason of commencement or threat
of any claim, litigation or proceeding against ANB,
Farmers, or any subsidiary of ANB or Farmers, or any
director or officer of any of such entities (A)
relating to this Agreement or the Merger or (B) which
is likely to have a material adverse effect on the
business, assets, capitalization, financial condition
or results of operations of Farmers or the Bank; or
(v) there has been a material adverse change in the
business, assets, capitalization, financial condition
or results of operations of Farmers or the Bank as of
the Effective Time as compared to that in existence
as of December 31, 1997 other than any change
resulting primarily by reason of changes in banking
laws or regulations (or interpretations thereof),
changes in the general level of interest rates or
changes in economic,
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financial or market conditions affecting the banking
industry generally in the Bank's market area; or
(vi) Farmers' Board of Directors have failed to approve
and recommend this Agreement or the Merger, or have
withdrawn or modified in any manner adverse to ANB
its approval or recommendation of this Agreement or
the Merger or shall have resolved or publicly
announced an intention to do either of the foregoing.
(c) By Farmers, if:
(i) there has been a misrepresentation or a breach of any
warranty by or on the part of ANB in its
representations and warranties set forth in this
Agreement which has had or would be expected to have
a material adverse effect on the business, assets,
capitalization, financial condition or results of
operations of ANB; or
(ii) there has been a breach of or failure to comply with
any covenant set forth in this Agreement by or on the
part of ANB which has had or would be expected to
have a material adverse effect on the business,
assets, capitalization, financial condition or
results of operations of ANB; or
(iii) it shall reasonably determine that the Merger
contemplated by this Agreement has become inadvisable
or impracticable by reason of commencement or threat
of any material claim, litigation or proceeding
against ANB (A) relating to this Agreement or the
Merger or (B) which is likely to have a material
adverse effect on the business, assets,
capitalization, financial condition or results of
operations of ANB on a consolidated basis; or
(iv) ANB shall enter into an agreement, including a letter
of intent, which will cause the present shareholders
of ANB to either (A) own less than 51% of the
outstanding voting shares of ANB or (B) lack the
ability to elect a majority of the Board of Directors
of ANB; or
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(v) its Board of Directors so determines by a majority
vote of members of its entire board, at any time
during the five-day period commencing on the
Valuation Date (the "Effective Termination Date")
that both of the following conditions are satisfied:
(A) The ANB Market Value on the Valuation Date
shall be less than an amount equal to
$18.00, adjusted as indicated in the last
sentence of this Section 9.01(c)(v) and
(B) (1) the number (the "ANB Ratio") obtained by
dividing the ANB Market Value on the
Valuation Date by $24.00 shall be less than
(2) the number obtained by dividing the
Final Index Price by the Initial Index Price
and subtracting .200 from the quotient in
this clause (B)(2) (the "Index Ratio");
subject, however, to the following three sentences. If Farmers elects to
exercise its termination right pursuant to this Section 9.01(c)(v), it shall
give prompt written notice thereof to ANB; provided, that such notice of
election to terminate may be withdrawn at any time prior to the Effective
Termination Date. During the five-day period commencing with its receipt of such
notice, ANB shall have the option to increase the consideration to be received
by the holders of Farmers Common Stock hereunder, by adjusting the Exchange
Ratio to equal the lesser of (x) a number equal to a fraction, the numerator of
which is 5.4 multiplied by $24.00, adjusted as indicated in the last sentence of
this Section 9.01(c)(v), and the denominator of which is the ANB Market Value,
and (y) a number equal to a fraction, the numerator of which is the Index Ratio
multiplied by 5.4 and the denominator of which is the ANB Ratio. If ANB so
elects it shall give, within such five-day period, written notice to Farmers of
such election and the revised Exchange Ratio, whereupon no termination shall be
deemed to have occurred pursuant to this Section 9.01(c)(v) and this Agreement
shall remain in full force and effect in accordance with its terms (except as
the Exchange Ratio shall have been so modified).
For purposes of this Section 9.01(c)(v), the following terms shall have
the meanings indicated below:
"Final Index Price" means the sum of the numbers obtained by multiplying (i) the
quotient obtained by dividing (a) the Final Price of each company comprising the
Index Group by (b) the
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closing price of the common stock of each company comprising the Index Group, as
such prices are reported on the consolidated transaction reporting system for
the market or exchange on which such common stock is principally traded on the
trading day immediately preceding the public announcement of this agreement, by
(ii) the applicable weighting.
"Final Price" with respect to any company belonging to the Index Group means the
average of the daily closing sales prices of a share of common stock of such
company, as reported on the consolidated transaction reporting system for the
market or exchange on which such common stock is principally traded, during the
period of 30 trading days ending on the Valuation Date.
"Index Group" means the 25 financial institution holding companies listed below,
the common stock of all of which shall be publicly traded and as to which there
shall not have been an Acquisition Transaction involving such company publicly
announced at any time during the period beginning on the date of this Agreement
and ending on the Valuation Date. In the event that the common stock of any such
company ceases to be publicly traded or an Acquisition Transaction proposal
involving any such company is announced at any time during the period beginning
on the date of this Agreement and ending on the Valuation 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 Final Index Price and the Initial Index Price. The 25 financial institution
holding companies and the weights attributed to them are as follows:
HOLDING COMPANY WEIGHTING
--------------- ---------
(1) Belmont Bancorp 4.02%
(2) First Busey Corp. 8.48%
(3) Capitol Bancorp Ltd. 3.57%
(4) Community Financial Corp. 0.95%
(5) CoVest Bancshares Inc. 1.71%
(6) Farmers Capital Bank Corp. 8.42%
(7) First Oak Brook Bancshares 2.05%
(8) Franklin Bank NA 0.96%
(9) German American Bancorp 5.12%
(10) Lakeland Financial Corp. 1.23%
(11) Merchants Bancorp Inc. 3.92%
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(12) Michigan Financial Corp. 6.83%
(13) Mahoning National Bancorp Inc. 6.50%
(14) Northern States Financial Corp. 3.85%
(15) Oak Hill Financial Inc. 2.53%
(16) Old Second Bancorp Inc. 4.40%
(17) Ohio Valley Banc Corp. 3.63%
(18) Peoples Bancorp Inc. 4.61%
(19) Premier Financial Bancorp Inc. 3.23%
(20) Princeton National Bancorp 2.18%
(21) Peoples Bank of Indianapolis 2.91%
(22) Second Bancorp Inc. 5.17%
(23) Shoreline Financial Corp. 8.23%
(24) Success Bancshares Inc. 0.56%
(25) S.Y. Bancorp Inc. 4.92%
"Initial Index Price" means 1.00.
"ANB Market Value" shall mean the average of the high asked price of a share of
ANB Common Stock, as reported on the Nasdaq Stock Market National Market System
for the 30 consecutive trading days immediately preceding the Valuation Date.
"Valuation Date" means the day of expiration of the last waiting period with
respect to any of the required regulatory approvals, as contemplated in Section
8.0 1(e).
"Acquisition Transaction" means (x) a merger, consolidation, share exchange or
any similar transaction, involving the subject company, (y) a purchase, lease or
other acquisition of all or substantially all of the assets of the subject
company or (z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 25% or
more of the voting power of the subject company; provided, that the term
"Acquisition Transaction" does not include any internal merger or consolidation
involving only the subject company and/or its subsidiaries.
If ANB 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 date of this Agreement and
the Valuation Date, the prices for the
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common stock of such company shall be appropriately adjusted for the purposes of
applying this Section 9.01(c)(v). insert
9.02. Effect of Termination. Upon termination by written notice, this
Agreement shall be of no further force or effect, and there shall be no further
obligations or restrictions on future activities on the part of ANB, Farmers and
the Bank and their respective directors, officers, employees, agents and
shareholders, except as provided in compliance with the confidentiality
provisions of this Agreement set forth in Section 6.09 and the payment of
expenses set forth in Section 12.09 hereof.
SECTION 10
EFFECTIVE TIME OF THE MERGER
Upon the terms and subject to the conditions specified in this
Agreement, the Merger shall become effective at the close of business on the day
and at the time specified in the Articles of Merger of Farmers with and into ANB
as filed with the Indiana Secretary of State ("Effective Time"). Unless
otherwise mutually agreed to by the parties hereto, the Effective Time shall
occur on the last business day of the month following (a) the fulfillment of all
conditions precedent to the Merger set forth in Section 8 of this Agreement and
(b) the expiration of all waiting periods in connection with the bank regulatory
applications filed for the approval of the Merger.
SECTION 11
CLOSING
11.01. Closing Date and Place. So long as all conditions precedent set
forth in Section 8 hereof have been satisfied and fulfilled, the closing of the
Merger ("Closing") shall take place on the Effective Time at a location to be
reasonably determined by ANB.
11.02. Deliveries. (a) At the Closing, ANB shall deliver to Farmers
the following:
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(i) an opinion of its counsel dated as of the Effective
Time and in form and substance reasonably
satisfactory to Farmers;
(ii) the officers' certificate contemplated by Section
8.02(h) hereof;
(iii) copies of all approvals by government regulatory
agencies necessary to consummate the Merger;
(iv) copies of the resolutions of the Board of Directors
of ANB certified by the Secretary of ANB relative to
the approval of this Agreement and the Merger; and
(v) such other documents as Farmers or its legal counsel
may reasonably request.
(b) At the Closing, Farmers shall deliver to ANB the following:
(i) an opinion of its legal counsel dated as of the
Effective Time and in form and substance reasonably
satisfactory to ANB;
(ii) the officers' certificate contemplated by Section
8.01(g) hereof;
(iii) a list of Farmers' shareholders as of the Effective
Time certified by the President and Secretary of
Farmers;
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(iv) copies of the resolutions adopted by the Board of
Directors and shareholders of Farmers certified by
the Secretary of Farmers relative to the approval of
this Agreement and the Merger; and
(v) copies of the resolutions adopted by the Board of
Directors and shareholder certified by the Cashier of
the Bank relative to the ratification of this
Agreement and the Merger;
(vi) such other documents as ANB or its legal counsel may
reasonably request.
SECTION 12
MISCELLANEOUS
12.01. Effective Agreement. This Agreement shall be binding upon and
inure to the benefit of the respective parties hereto and their respective
successors and assigns; provided, however, that this Agreement may not be
assigned by any party hereto without the prior written consent of the other
parties hereto; provided, however, that no such extension, waiver or amendment
agreed to after authorization of this Agreement by the shareholders of Farmers
shall affect the rights of such shareholders in any manner which is materially
adverse to such shareholders. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and their successors and assigns, and they shall not be construed as
conferring any rights on any other persons except as specifically set forth in
this Agreement, including, but not limited to, Sections 7.03 and 7.09 hereof.
12.02. Waiver; Amendment. (a) The parties hereto may by an instrument
in writing: (i) extend the time for the performance of or otherwise amend any of
the covenants, conditions or agreements of the other parties under this
Agreement; (ii) waive any inaccuracies in the representations or warranties of
the other parties contained in this Agreement or in any document delivered
pursuant hereto or thereto; (iii) waive the performance by the other parties of
any of the covenants or agreements to be performed by it or them under this
Agreement; or (iv) waive the satisfaction or fulfillment of any condition, the
nonsatisfaction or nonfulfillment of which is a condition to the right of the
party so waiving to consummate the Merger. The waiver by any party hereto of a
breach of or noncompliance with any provision of this
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Agreement shall not operate or be construed as a continuing waiver or a waiver
of any other or subsequent breach or noncompliance hereunder.
(b) This Agreement may be amended, modified or supplemented only by a
written agreement executed by the parties hereto.
12.03. Notices. All notices, requests and other communications
hereunder shall be in writing (which shall include telecopier communication) and
shall be deemed to have been duly given if delivered by hand and receipted for,
sent by certified United States Mail, return receipt requested, first class
postage pre-paid, delivered by overnight express receipted delivery service or
telecopied if confirmed immediately thereafter by also mailing a copy of such
notice, request or other communication by certified United States Mail, return
receipt requested, with first class postage pre-paid as follows:
If to ANB: with a copy to (which shall not
constitute notice):
ANB Corporation Krieg DeVault Alexander & Capehart
120 West Charles Street One Indiana Square, Suite 2800
Muncie, Indiana 47305 Indianapolis, Indiana 46204-2017
ATTN: James R. Schrecongost ATTN: John W. Tanselle, Esq.
Telephone: (765)747-7600 Telephone: (317) 238-6216
Telecopier: (765)741-0290 Telecopier: (317) 636-1507
If to Farmers: with a copy to (which shall not
constitute notice):
Farmers State Bancorp of Union City,
Ohio Ice Miller Donadio & Ryan
101 East Elm Street One American Square, Box 82001
Union City, Ohio 45390-1711 Indianapolis, IN 46282-0002
ATTN: James L. Davis ATTN: Thomas H. Ristine
Telephone: (937) 968-3141 Telephone: (317) 236-2278
Telecopier: (937) 968-7287 Telecopier: (317) 236-2100
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or such substituted address or person as any of them have given to the other in
writing. All such notices, requests or other communications shall be effective:
(a) if delivered by hand, when delivered; (b) if mailed in the manner provided
herein, five (5) business days after deposit with the United States Postal
Service; (c) if delivered by overnight express delivery service, on the next
business day after deposit with such service; and (d) if by telecopier, on the
next business day if also confirmed by mail in the manner provided herein.
12.04. Headings. The headings in this Agreement have been inserted
solely for ease of reference and should not be considered in the interpretation
or construction of this Agreement.
12.05. Severability. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein.
12.06. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
12.07. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana and applicable federal laws,
without regard to principles of conflicts of law.
12.08. Entire Agreement. This Agreement and the Exhibits hereto
supersede all other prior or contemporaneous understandings, commitments,
representations, negotiations or agreements, whether oral or written, among the
parties hereto relating to the Merger or matters contemplated herein and
constitutes the entire agreement between the parties hereto, except as otherwise
provided herein. Upon the execution of this Agreement by all the parties hereto,
any and all other prior writings of either party relating to the Merger, shall
terminate and shall be rendered of no further force or effect. The parties
hereto agree that each party and its counsel reviewed and revised this Agreement
and that the normal rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments or exhibits hereto.
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12.09 Survival of Representations, Warranties or Covenants. Except as
set forth in the following sentence, none of the representations, warranties or
covenants of the parties shall survive the Effective Time or the earlier
termination of this Agreement, and thereafter ANB, Farmers and the Bank, and all
the respective directors, officers and employees of ANB, Farmers and the Bank
shall have no further liability with respect thereto, except for fraud or for
false or misleading statements made intentionally and knowingly in connection
with such representations, warranties and covenants or except as otherwise
provided by law, whether statutory, common law or otherwise. The covenants
contained in Sections 2.05, 6.12, 7.03, 7.04, 7.07, 7.09, 7.16 and 12.10 shall
survive the Effective Time.
12.10. Expenses. ANB shall pay its expenses incidental to the Merger
contemplated hereby. Farmers shall pay its expenses incidental to the Merger
contemplated hereby; provided, however, that the expenses related to the tax
opinion contemplated by Sections 8.01(h) and 8.02(h) hereof shall be paid by
ANB. In addition, if Farmers terminates this Agreement pursuant to Section
9.01(c)(v), Farmers shall promptly pay to ANB upon receipt of an invoice 1/2 of
the documented out-of-pocket expenses of ANB incidental to the Merger set forth
in such invoice.
12.11 Certain References. Whenever in this Agreement a singular word is
used, it also shall include the plural wherever required by the context and
vice-versa. Except expressly stated otherwise, all references in this Agreement
to periods of days shall be construed to refer to calendar, not business, days.
The term "business day" shall mean any day except Saturday and Sunday when
American National Bank and Trust Company in Muncie, the lead bank of ANB, is
open for the transaction of business.
12.12 Disclosure Schedule. The Disclosure Schedule attached hereto is
intended to be and hereby is specifically made a part of this Agreement.
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IN WITNESS WHEREOF, ANB and Farmers have made and entered into this
Agreement as of the day and year first above written and have caused this
Agreement to be executed, attested in counterparts and delivered by their duly
authorized officers.
ANB CORPORATION
By: /s/ James R. Schrecongost
------------------------------------
James R. Schrecongost, Vice Chairman
President and CEO
ATTEST:
By: /s/ James W. Convy
----------------------------------
James W. Convy, Secretary
FARMERS STATE BANCORP
By: /s/ C. Daniel Wright
----------------------------------
C. Daniel Wright, Chairman
By: /s/ Errol Klem
----------------------------------
Errol Klem, President
By: /s/ James L. Davis
----------------------------------
James L. Davis, Executive Vice
President and CEO
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SCHEDULE OF EXHIBITS
--------------------
Exhibit A - Form of Undertaking and Agreement of Affiliates
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Exhibit A
---------
UNDERTAKING AND AGREEMENT OF AFFILIATE
--------------------------------------
In connection with the affiliation of Farmers State Bancorp ("Farmers")
and ANB Corporation ("ANB") pursuant to the merger of Farmers into ANB
("Merger"), as contemplated by that certain Agreement and Plan of Merger, dated
_____________, 1998 ("Agreement"), by and between ANB and Farmers, the
undersigned has been advised by Farmers that the undersigned may be an affiliate
of Farmers for purposes of Rule 145 under the Securities Act of 1933, as amended
("Act"). In consideration of the issuance to the undersigned of shares of ANB
Common Stock in connection with the Merger and in accordance with the terms of
the Agreement, each of the undersigned hereby undertakes, covenants and agrees
that he or she: (a) shall not sell, pledge, transfer, dispose of or otherwise
reduce his or her market risk (collectively, a "Sale") with respect to the
shares of Farmers Common Stock directly or indirectly owned or held by the
undersigned during the thirty (30) day period prior to the effective date of the
Merger; (b) shall update this Undertaking and Agreement as true, accurate and
complete as of the effective date of the Merger; and (c) shall not sell, pledge,
transfer, dispose of or otherwise reduce his or her market risk with respect to
the shares of ANB Common Stock to be received by the undersigned pursuant to the
Agreement: (i) until such time as financial results covering at least thirty
(30) days of combined operations of ANB and Farmers have been published within
the meaning of Section 201.01 of the Securities and Exchange Commission's
Codification of the Financial Reporting Policies; and (ii) unless any and all
Sales of such shares of ANB Common Stock are made in a manner and to the extent
permitted by Rule 145 under the Act or are made pursuant to an effective
registration statement under, or an exemption from the registration requirements
of, the Act.
IN WITNESS WHEREOF, the undersigned has executed this Undertaking and
Agreement of Affiliate as of this _______ day of _______________, 1998.
------------------------------------
(Signature)
------------------------------------
(Printed Name)
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------------------------------------
(Signature - Spouse)
------------------------------------
(Printed Name)
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Exhibit B
---------
________________, 1998
Farmers State Bancorp
101 East Elm Street
Union City, Ohio 45390-1711
Ladies and Gentlemen:
We have acted as special counsel to ANB Corporation ("ANB"), an Indiana
corporation with its principal executive office located in Muncie, Indiana in
connection with the affiliation of ANB and Farmers State Bancorp ("Farmers")
pursuant to the merger of Farmers into ANB ("Merger"), all in accordance with
the terms of the Agreement of Affiliation and Merger, dated ________________,
1998 ("Agreement"), by and between ANB and Farmers.
This opinion of counsel ("Opinion Letter") is provided to you pursuant
to Section 11.02(a)(i) of the Agreement. The capitalized terms used in this
Opinion Letter which are not defined above or elsewhere herein shall have the
same meanings ascribed to them in the Agreement or in the Accord (as defined
below).
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord ("Accord") of the American Bar
Association Section of Business Law (1991). As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the Accord, and this
Opinion Letter should be read in conjunction therewith. The law covered by the
opinions expressed herein is limited to the Law of the State of Indiana and the
Federal Law of the United States of America.
In rendering the opinions hereinafter expressed, we have examined and
relied upon originals or copies of originals, certified to our satisfaction, of
(a) the Agreement; (b) the Articles of Incorporation and By-Laws, as amended, of
ANB; (c) the Certificate of Existence, dated , 1998, issued by the Indiana
Secretary of State with respect to ANB;
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(d) the letter of the Federal Reserve Bank of Chicago, dated , 1998, with
respect to the status of ANB under the Bank Holding Company Act of 1956, as
amended; (e) certificates executed by ANB's Secretary or other authorized
officers; (f) orders, approval letters and other written or verbal
communications of government regulatory authorities or agencies; and (g) such
other records of ANB as we have deemed relevant. We have made such investigation
of facts and law and have done such other things as we have determined are
necessary for the purpose of issuing the following opinions.
Based upon and subject to the foregoing and the qualifications stated
herein, it is our opinion as of the date hereof that:
1. ANB is (a) a corporation duly organized and validly existing under the
laws of the State of Indiana; (b) a bank holding company registered
under the Bank Holding Company Act of 1956, as amended; and (c) duly
qualified to do business in each jurisdiction in which the nature of
the business conducted or the properties or assets owned or leased by
it make such qualification necessary and where failure to be so
qualified would have a material adverse effect on ANB on a consolidated
basis.
2. ANB has the requisite corporate power and authority to own or lease its
properties as owned or leased, and to conduct its business as
conducted, on the date hereof.
3. ANB has the requisite corporate power and authority to enter into and
perform its obligations under the Agreement, and the execution,
delivery and performance of the Agreement by ANB have been authorized
and approved by all necessary corporate action of ANB. The Agreement is
enforceable against ANB.
4. The execution, delivery and performance of the Agreement by ANB and the
consummation of the Merger (a) do not violate any presently existing
provision of any law, rule or regulation applicable to, or any
judgment, order or decree which is, to the Actual Knowledge of our
Primary Lawyer Group, binding upon, ANB; (b) do not conflict with any
provision of the Articles of Incorporation or By-laws, as amended, of
ANB; and (c) do not conflict with or constitute a default under any
indenture or agreement which is, to the Actual Knowledge of our Primary
Lawyer Group, binding upon ANB and material to ANB on a consolidated
basis.
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5. All necessary approvals from the Board of Governors of the Federal
Reserve System and the Ohio Division of Financial Institutions relating
to Farmers with respect to the Merger have been obtained, and no
further authorization from the foregoing governmental regulatory
authorities or any other regulatory authority is required prior to
consummation of the Merger.
6. The shares of ANB Common Stock to be issued to the shareholders of
Farmers in the Merger (a) have been registered under the Securities Act
of 1933, as amended, and the registration statement covering such
shares has been declared effective by the Securities and Exchange
Commission ("SEC") and, to the Actual Knowledge of our Primary Lawyer
Group, no stop order suspending the effectiveness of the registration
statement has been issued by the SEC; (b) will, when issued to the
shareholders of Farmers pursuant to the Agreement, be in compliance
with all applicable "Blue Sky" filings, notices or exemptions; (c) have
been duly and validly authorized by all necessary corporate action of
ANB; and (d) will, when issued to the shareholders of Farmers pursuant
to the Agreement, be validly issued, fully paid and nonassessable.
The General Qualifications of the Accord apply to the opinions set
forth in this Opinion Letter. The opinion expressed in paragraph 1(a) of this
Opinion Letter is based solely upon the Certificate of Existence issued by the
Indiana Secretary of State referenced above, and the opinion expressed in
paragraph 1(b) of this Opinion Letter is based solely upon the letter from the
Federal Reserve Bank of Chicago also referenced above.
We hereby confirm to you that, to the Actual Knowledge of our Primary
Lawyer Group, there is no action, suit, proceeding, arbitration or mediation
pending or overtly threatened in writing against ANB before or by any court,
governmental body or otherwise which (a) seeks to affect the enforceability of
the Agreement or challenge the validity or propriety of the Merger and (b) is
likely, if decided adversely to ANB, to have a material adverse effect on the
financial condition, results of operations, business, assets or capitalization
of ANB on a consolidated basis.
For purposes of this Opinion Letter, our Primary Lawyer Group consists
of John W. Tanselle, Angela Craney Vaughan and ____________________________.
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This Opinion Letter is rendered to you solely for your benefit,
pursuant to Section 12.02(a)(i) of the Agreement in connection with the Merger,
and may be relied upon by you only in connection therewith and may not, except
to the extent authorized by the Accord, be used or relied upon by any other
person or entity for any purpose whatsoever without, in each instance, our prior
express written consent. Moreover, we assume no professional responsibility to
any other person whatsoever.
Very truly yours,
KRIEG DeVAULT ALEXANDER & CAPEHART
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Exhibit C
---------
__________________, 1998
ANB Corporation
120 West Charles Street
Muncie, Indiana 47305
Ladies and Gentlemen:
We have acted as special counsel to Farmers State Bancorp ("Farmers"),
an Ohio corporation with its principal executive office located in Union City,
Ohio, in connection with the Agreement and Plan of Merger ("Agreement") dated
____________ ___, 1998 by and between Farmers and ANB Corporation ("ANB"). The
Agreement contemplates, among other matters, the merger of Farmers into ANB
("Merger").
This opinion of counsel ("Opinion Letter") is provided to you pursuant
to Section 12.02(b)(i) of the Agreement. Capitalized terms used in this Opinion
Letter which are not defined above or elsewhere herein shall have the same
meanings ascribed to them in the Agreement.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord ("Accord") of the American Bar
Association Section of Business Law (1991). As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the Accord, and this
Opinion Letter should be read in conjunction therewith. The law covered by the
opinions expressed herein is limited to the Law of the State of Illinois and the
Federal Law of the United States of America.
In rendering the opinions hereinafter expressed, we have examined and
relied upon originals or copies of originals, certified to our satisfaction, of
(a) the Agreement; (b) the Articles of Incorporation and By-Laws, as amended, of
Farmers; (c) the Certificate of Good Standing, dated ______________, 1998,
issued by the Ohio Secretary of State with respect to
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Farmers; (d) the letter of the Federal Reserve Bank of _____________, dated
____________, 1998, with respect to the status of Farmers under the Bank Holding
Company Act of 1956, as amended; (e) the corporate minute books, records of
corporate proceedings and stock transfer records of Farmers; and (f) such other
records of Farmers as we have deemed relevant. We have made such investigation
of facts and law and have done such other things as we have determined are
necessary for the purpose of issuing the following opinions.
Based upon and subject to the foregoing and the qualifications stated
below, we are of the opinion that:
1. Farmers is: (a) a corporation duly organized and validly existing under
the laws of the State of Ohio; (b) a bank holding company registered
under the Bank Holding Company Act of 1956, as amended; and (c) duly
qualified to do business in each jurisdiction in which the nature of
the business conducted or the properties or assets owned or leased by
it make such qualification necessary and where failure to be so
qualified would have a material adverse effect on Farmers on a
consolidated basis.
2. Farmers State Bank of Union City, Ohio is (a) an Ohio banking
corporation duly organized and validly existing under the [Ohio
Financial Institutions Act]; and (b) duly qualified to do business in
each jurisdiction in which the nature of the business conducted or the
properties or assets owned or leased by it make such qualification
necessary and where failure to be so qualified would have a material
adverse effect on the Bank.
3. Farmers has the requisite corporate power and authority to own or lease
its properties as owned or leased, and to conduct its business as
conducted, on the date hereof.
4. Farmers has the corporate power and authority to enter into and perform
its obligations under the Agreement, and the execution, delivery and
performance of the Agreement by Farmers have been authorized and
approved by all necessary corporate action of Farmers. The Agreement is
enforceable against Farmers.
5. The execution, delivery and performance of the Agreement by Farmers and
the consummation of the Merger: (a) do not violate any presently
existing provision of any law, rule or regulation applicable to, or any
judgment, order or decree which is, to the
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Actual Knowledge of our Primary Lawyer Group, binding upon, Farmers;
(b) do not conflict with any provision of the Certificates of
Incorporation or By-Laws, as amended, of Farmers; and (c) do not
conflict with or constitute a default under or breach of any indenture
or agreement which is, to the Actual Knowledge of our Primary Lawyer
Group, binding upon Farmers and which is material to Farmers on a
consolidated basis.
6. (a) The authorized capital stock of Farmers consists of: _____________
shares of $_______ par value common stock, __________ of which shares
are validly issued and outstanding ("Common Stock") and an additional
_________ of which are subject to outstanding options to purchase.
There are no other authorized or outstanding shares of capital stock of
Farmers.
(b) All of the outstanding shares of Common Stock: (i) have been duly
and validly authorized by all necessary corporate action of Farmers,
are validly issued and outstanding, fully paid and nonassessable; and
(ii) have not been issued in violation of any pre-emptive rights of any
present or former Farmers shareholder.
(c) There are no (i) options, warrants, commitments, agreements, calls,
claims or rights binding upon Farmers relating to the issuance,
purchase or acquisition of any authorized but unissued or any
outstanding shares of capital stock of Farmers, other than the
outstanding options to purchase _____________ shares of Farmers common
stock; (ii) commitments or agreements binding upon Farmers relating to
the authorization or issuance of any class of equity securities of
Farmers other than its shares of common stock presently authorized,
issued and outstanding; or (iii) issued or outstanding securities which
entitle the holder thereof to convert or exchange such securities into
or for shares of capital stock of Farmers.
7. All of the outstanding shares of common stock of [Farmers State Bank]
are owned by Farmers free and clear of all liens, pledges, charges,
encumbrances, restrictions, security interests, options and pre-emptive
rights and all other rights or claims of any person, corporation or
entity.
8. All necessary approvals from the Board of Governors of the Federal
Reserve System and the Ohio Division of Financial Institutions relating
to Farmers with respect to the Merger
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have been obtained, and no further authorization from the foregoing
governmental regulatory authorities is required prior to consummation
of the Merger.
We hereby advise you that no information has come to the attention of
our Primary Lawyer Group which causes us to believe that the Registration
Statement filed with the Securities and Exchange Commission and the Proxy
Statement-Prospectus mailed to the shareholders of Farmers relating to the
Merger (other than the financial statements and other financial data and related
schedules therein and all information relating to or supplied by ANB, whether
included or incorporated by reference therein, as to which we express no view)
at the time that the Registration Statement became effective and at the time
that the Proxy Statement-Prospectus was first mailed to shareholders of Farmers
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading.
We hereby confirm to you that, to the Actual Knowledge of our Primary
Lawyer Group, there is no action, suit, proceeding, arbitration or mediation
pending or overtly threatened in writing against Farmers before or by any court,
governmental authority or otherwise which (a) seeks to affect the enforceability
of the Agreement or challenge the validity or propriety of the Merger or (b)
which is likely, to our knowledge, if decided adversely to Farmers to have a
material adverse effect on the financial condition, results of operations,
business, assets or capitalization of Farmers on a consolidated basis.
The General Qualifications of the Accord apply to the opinions set
forth in this Opinion Letter. For purposes of this Opinion Letter, our Primary
Lawyer Group consists of
___________.
This Opinion Letter is rendered to you solely for your benefit,
pursuant to Section 12.02(b)(i) of the Agreement in connection with the Merger,
and may be relied upon by you only in connection therewith and may not, except
to the extent authorized by the Accord, be used or relied upon by any other
person or entity for any purpose whatsoever without, in each instance, our prior
express written consent. Moreover, we assume no professional responsibility to
any other person whatsoever.
Very truly yours,
ICE MILLER DONADIO & RYAN
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APPENDIX B
1701.84 DISSENTING SHAREHOLDERS ENTITLED TO RELIEF. -- The
following are entitled to relief as dissenting shareholders under section
1701.85 of the Revised Code:
(A) Shareholders of the domestic corporation that is being merged or
consolidated into a surviving or new entity, domestic or foreign, pursuant to
section 1701.78, 1701.781, 1701.79, 1701.791, or 1701.801 of the Revised Code;
(B) In the case of a merger into a domestic corporation, shareholders
of the surviving corporation who under section 1701.78 or 1701.781 of the
Revised Code are entitled to vote on the adoption of an agreement of merger, but
only as to the shares so entitling them to vote;
(C) Shareholders, other than the parent corporation, of a domestic
subsidiary corporation that is being merged into the domestic or foreign parent
corporation pursuant to section 1701.80 of the Revised Code;
(D) In the case of a combination or a majority share acquisition,
shareholders of the acquiring corporation who under section 1701.83 of the
Revised Code are entitled to vote on such transaction, but only as to the shares
so entitling them to vote;
(E) Shareholders of a domestic subsidiary corporation into which one or
more domestic or foreign corporations are being merged pursuant to section
1701.801 of the Revised Code. (Last amended by H.B. 495, L. `96, eff. 10-4-96.)
1701.85 RELIEF FOR DISSENTING SHAREHOLDERS; QUALIFICATIONS; PROCEDURES.
- -- (A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of shareholders, the
dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by his as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code
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and a dissenting shareholder entitled to relief under division (E) of section
1701.84 of the Revised Code in the case of a merger pursuant to section 1701.801
of the Revised Code shall be a record holder of the shares of the corporation as
to which he seeks relief as of the date on which the agreement of merger was
adopted by the directors of that corporation. Within twenty days after he has
been sent the notice provided in section 1701.80 or 1701.801 of the Revised
Code, the dissenting shareholder shall deliver to the corporation a written
demand for payment with the same information as that provided for in division
(A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each now certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting holder of such holder of
uncertificated securities, the corporation shall make an appropriate notation of
the demand for payment in its shareholder records. If uncertificates shares for
which payment has been demanded are to be transferred, any new certificate
issued for the shares shall bear the legend required for certificated securities
as provided in this paragraph. A transferee of the shares so endorsed, or of
uncertificated securities where such notation has been made, acquires only such
rights in the corporation as the original dissenting of such shares had
immediately after the service of a demand for payment of the fair cash value of
the shares. A request under this paragraph, by the corporation is not an
admission by the corporation that the shareholder is entitled to relief under
this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation maybe
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the surviving or new entity, within three months after the service of the demand
by the dissenting shareholder, may file a complaint in the court of common pleas
of the county in which the principal office of the corporation that issued the
shares is located or was located when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to be
submitted to the shareholders, was approved by the directors. Other dissenting
shareholders, within that three-month period, may join as plaintiffs or may be
joined as defendants in any such proceeding, and any two or more such
proceedings may be consolidated. The complaint shall contain a brief statement
of the facts, including the vote and the facts entitling the dissenting
shareholder to the relief demanded. No answer to such a complaint is required.
Upon the filing of such a complaint, the court, on motion of the petitioner,
shall enter an order fixing a date for a hearing on the complaint and requiring
that a copy of the complaint and a notice of the filing and of the date for
hearing be given to the respondent or defendant in the manner in which summons
is required to be served or substituted service is required to be made in other
cases. On the day fixed for the hearing on the complaint or any adjournment of
it, the court shall determine from the complaint and from such evidence as is
submitted by either party whether the dissenting shareholder is entitled to be
paid the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the dissenting shareholder is so entitled, the
court may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers have
such power and authority as is specified in the order of their appointment. The
court thereupon shall make a finding as to the fair cash value of the share and
shall render judgment against the corporation for the payment of it, with
interest at such rate and from such date as the court considers equitable. The
costs of the proceeding, including reasonable compensation to the appraisers to
be fixed by the court, shall be assessed or apportioned as the court considers
equitable. The proceeding is a special proceeding and final orders in it may be
vacated, modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter 2505 of
the Revised Code. If, during the pendency of any proceeding instituted under
this section, a suit or proceeding is or has been instituted to enjoin or
otherwise to prevent the carrying out of the action as to which the shareholder
had dissented, the proceeding instituted under this section shall be stayed
until the final determination of the other suit or proceeding. Unless any
provision in division (D) of this section is applicable, the fair cash value of
the shares that is agreed upon by the parties or fixed under this section shall
be paid within thirty days after the date of final determination of such value
under this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the
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last such event, payment shall be made immediately to a holder of uncertified
securities entitled to such payment. In the case of holders of shares
represented by certificates, payment shall be made only upon and simultaneously
with the surrender to the corporation of the certificates representing the
shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
to the day prior to the day on which the vote by the shareholders was taken,
and, in the case of a merger pursuant to section 1701.80 or 1701.801 of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share of the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no even shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined
or prevented from carrying it out, or the shareholder rescind their adoption, of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the
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corporation, all other rights accruing from such shares, including voting and
dividend or distribution rights, are suspended. If during the suspension, any
dividend or distribution is paid in money upon shares of such class or any
dividend, distribution, or interest is paid in money upon any securities issued
in extinguishment of or in substitution for such shares, an amount equal to the
dividend, distribution, or interest which, except for the suspension, would have
been payable upon such shares or securities, shall be paid to the holder of
record as a credit upon the fair cash value of the shares. If the right to
receive fair cash value is terminated other than by the purchase of the shares
by the corporation, all rights of the holder shall be restored and all
distributions which, except for the suspension, would have been made shall be
made to the holder of record of the shares at the time of termination.
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APPENDIX C
February ___, 1999
Board of Directors
Farmers State Bancorp
101 East Elm Street
Union City, Ohio 45390-1771
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point view, to the common shareholders of Farmers State Bancorp (the
"Company"), Union City, Ohio of the terms of the Agreement and Plan of Merger
("Merger Agreement"), dated October 21, 1998, by and between ANB Corporation
("ANB") and the Company. The terms of the Merger Agreement result in the merger
of the Company with and into ANB in exchange for 5.4 ANB shares for each share
of the Company. ANB will be the surviving bank and will continue to carry on its
banking business in substantially the same manner as before the merger.
City Securities Corporation ("CSC") is a recognized investment banking firm. CSC
is regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, private placements and valuations for estate,
corporate and other purposes. We are independent with respect to the parties of
the proposed transaction.
For purposes of this opinion, CSC performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiary, Farmers
State Bank ("the Bank") contained in: (1) the Company's compiled annual report
for the year ended December 31, 1997; Consolidated Reports of Condition and
Income FFIEC Form 034 of the Bank for the years ended 1993 - 1997 and for the
quarters ended March 31, 1998, June 30, 1998 and September 30, 1998; and (3)
Uniform Bank Performance Report of the Bank for December 31, 1997. We have
reviewed and tabulated statistical data regarding the loan portfolio, securities
portfolio and other performance ratios and statistics. Financial projections
were prepared and analyzed as well as other financial studies, analyses and
investigations as deemed relevant for the purposes of the opinion. In review of
the aforementioned information, we have taken into account our
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Board of Directors
Farmers State Bancorp
February ___, 1999
assessment of general market and financial conditions, our experience in other
transactions and our knowledge of the banking industry generally.
For the purposes of this opinion, CSC reviewed and analyzed the historic
performance of ANB contained in: (1) the audited annual reports for the years
ended December 31, 1995 -1997; (2) Form 10-Q of ANB for the period ended
September 30, 1998, 1997 and 1996; and (3) certain other available information
relative to ANB.
We have not compiled, reviewed or audited the financial statements of the
Company or ANB, nor have we independently verified any of the other information
reviewed. We have relied upon such information as being complete and accurate in
all material respects. We have not made independent evaluation of the assets of
the Company or ANB.
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the consideration proposed
to be received by shareholders of the Company under the Merger Agreement is fair
from a financial point of view.
City Securities Corporation
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide that the Registrant
will indemnify any person who is or was a director, officer or employee of the
Registrant or of any other corporation for which he is or was serving in any
capacity at the request of the Registrant against all liability and expense that
may be incurred in connection with any claim, action, suit or proceeding with
respect to which such director, officer or employee is wholly successful or
acted in good faith in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant or such other corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. A director, officer or employee of the Registrant
is entitled to be indemnified as a matter of right with respect to those claims,
actions, suits or proceedings where he has been wholly successful. In all other
cases, such director, officer or employee will be indemnified only if the Board
of Directors of the Registrant or independent legal counsel finds that he has
met the standards of conduct set forth above.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are being filed as part of this Registration
Statement:
2 Agreement and Plan of Merger (included as Appendix A to
Prospectus)
3(i) Articles of Incorporation of the Registrant, as amended
(Incorporated by reference to Exhibit 3.01 of the Registrant's
Annual Report on Form 10-K For the fiscal year ended December
31, 1995)
3(ii) By-Laws of the Registrant, as amended (Incorporated by
reference to Exhibit 3.02 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996)
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<PAGE>
4 The description of ANB's Common Stock (Incorporated herein by
reference to Registrant's Registration Statement on Form 8-A
dated December 6, 1990, including any amendment or report
filed for the purpose of updating such description).
5 Opinion of Krieg DeVault Alexander & Capehart, LLP re:
legality
8 Tax Opinion of Krieg DeVault Alexander & Capehart, LLP copy
re: certain federal income tax matters
10.01 ANB Corporation Stock Option Plan (Incorporated herein by
reference to Exhibit 4.3 of Form S-8 Registration Statement,
Commission File No. 33-95868 filed on August 18, 1995).
10.02 Nonqualified Stock Option Plan of ANB Corporation for Former
Directors of Muncie Federal Savings and Loan Association
(Incorporated herein by reference to Exhibit 28 of the
Registrant's Form 10-Q as of March 31, 1991).
10.03 Agreement to Merge by and between American National Bank and
Trust Company and Muncie Federal Savings Bank dated June 16,
1992 (Incorporated herein by reference to Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
10.04 1993 Amended and Restated Employment Agreement dated September
7, 1993 by and among James R. Schrecongost, ANB Corporation
and a subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.13 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.05 1993 Amended and Restated Employment Agreement dated September
7, 1993 by and among Lloyd M. Townsend, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.14 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
II-2
<PAGE>
10.06 1993 Amended and Restated Employment Agreement dated September
7, 1993 by and among Larry E. Thomas, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.15 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.07 1993 Amended and Restated Employment Agreement dated September
7, 1993 by and among David W. Spade, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.16 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.08 1993 Amended and Restated Employment Agreement dated September
8, 1993 by and among Paul L. Sehnert, Jr., ANB Corporation and
a subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.17 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.09 1994 Amended and Restated Employment Agreement dated November
30, 1994 by and among Christ L. Talley, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.19 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.10 1994 Amended and Restated Employment Agreement dated November
10, 1994 by and among Philip R. Hirschfeld, ANB Corporation
and a subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.20 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.11 ANB Corporation 1995 Stock Option Plan (Incorporated herein by
reference to Exhibit 4.3 of Form S-8 Registration Statement,
Commission File No. 33-95866 filed on August 18, 1995).
II-3
<PAGE>
10.12 ANB Corporation 1996 Directors' Stock Option Plan
(Incorporation herein by reference to Exhibit 10.13 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996).
10.13. Employment Agreement dated December 1, 1997 by and among
Jerome J. Gassen, ANB Corporation and a subsidiary of ANB
Corporation (Incorporated by reference to Exhibit 10.13 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.14 Employment and Noncompetition Agreement dated September 16,
1997 by and among R. Michael Miner, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated by reference to
Exhibit 10.14 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997).
10.15 Employment and Noncompetition Agreement dated October 17, 1997
by and among Mark W. Cremonie, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated by reference to
Exhibit 10.15 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997).
21 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
23.01 Consent of Krieg DeVault Alexander & Capehart, LLP (included
in Opinion of Krieg DeVault Alexander & Capehart, LLP re:
legality at Exhibit 5)
23.02 Consent of Olive LLP
23.03 Consent of City Securities Corporation
99.01 Form of Proxy
II-4
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
the use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(2) The undersigned registrant hereby undertakes that every
prospectus (i) that is filed pursuant to paragraph (b)(1) immediately preceding
or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act,
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action,
II-5
<PAGE>
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Muncie, State of Indiana, on January 25, 1999.
ANB CORPORATION
By: /s/ JAMES R. SCHRECONGOST
James R. Schrecongost, Vice Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated below as of January 25, 1999.
Name Title
- ---- -----
/s/ Kelly N. Stanley
- ------------------------------- Chairman of the Board of Directors
Kelly N. Stanley
/s/ JAMES R. SCHRECONGOST
- ------------------------------- Vice Chairman, President and Chief
James R. Schrecongost Executive Officer
/s/ LARRY E. THOMAS
- ------------------------------- Treasurer (Chief Financial Officer and
Larry E. Thomas Principal Accounting Officer)
/s/ Ben E. Delk
- ------------------------------- Director
Ben E. Delk
/s/ Madelyn K. Ferris
- ------------------------------- Director
Madelyn K. Ferris
- ------------------------------- Director
R. David Hoover
II-7
<PAGE>
- ------------------------------- Director
William L. Peterson
- ------------------------------- Director
Donald A. Ross
/s/ Chris L. Talley
- ------------------------------- Director
Chris L. Talley
/s/ Leon V. Towne
- ------------------------------- Director
Leon V. Towne
II-8
EXHIBIT 5
---------
January 26, 1999
Board of Directors
ANB Corporation
120 West Charles Street
Munice, Indiana 47305
Re: Issuance of Shares of Common Stock of ANB Corporation in
connection with the Acquisition of Farmers State Bancorp and
its subsidiary, Farmers State Bank of Union City, Ohio
Ladies and Gentlemen:
We have represented ANB Corporation ("ANB"), Muncie, Indiana, as
special counsel in connection with the preparation and filing of a Registration
Statement on Form S-4 ("Registration Statement") with the Securities and
Exchange Commission for the purpose of registering shares of ANB's $1.00 stated
value common stock under the Securities Act of 1933, as amended ("Shares"). The
Shares are to be issued to non-dissenting shareholders of Farmers State Bancorp
("Farmers"), Union City, Ohio, in connection with the proposed merger of Farmers
into ANB ("Merger"), as specified in the Agreement and Plan of Merger, dated
October 21, 1998 ("Agreement"), by and between ANB and Farmers. The Merger will
be accomplished and the Shares will be issued pursuant to the specific terms of
the Agreement. In connection with this opinion, we have reviewed and are
familiar with ANB's Articles of Incorporation and By-Laws and such other
records, documents and information as we have in our judgment deemed relevant.
Based upon the foregoing, it is our opinion that if and when the Merger
is consummated, the Shares will, when issued to non-dissenting shareholders of
Farmers in accordance with all of the terms and conditions of the Agreement, be
legally issued, fully paid and non-assessable. This opinion is limited to the
matters stated herein, and no opinion is to be implied or may be inferred beyond
the matters expressly stated.
This opinion is addressed to you and is solely for your use in
connection with the Registration Statement, and we assume no professional
responsibility to any other person whatsoever. Accordingly, the opinion
expressed herein is not to be relied upon, utilized or
<PAGE>
Board of Directors
January 26, 1999
Page 2
quoted by or delivered or disclosed to, in whole or in part, any other person,
corporation, entity or governmental authority without, in each instance, the
prior written consent of this firm.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference made to us in the Registration
Statement and the Prospectus forming a part thereof under the caption "Legal
Opinions". In giving this consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
Krieg DeVault Alexander & Capehart, LLP
EXHIBIT 8
---------
_______________, 1999
Board of Directors Board of Directors
ANB Corporation Farmers State Bancorp
120 West Charles Street 101 East Elm Street
Muncie, Indiana 47305 Union City, Ohio 45390-1711
RE: Merger of Farmers State Bancorp into ANB Corporation and the
Exchange of Common Stock of Farmers State Bancorp for Common
Stock of ANB Corporation
Ladies and Gentlemen:
The respective Boards of Directors of ANB Corporation ("ANB") and
Farmers State Bancorp ("Farmers") have requested our opinion as to certain
federal income tax consequences of a reorganization involving ANB and Farmers .
In summary, the proposed transaction involves the merger of Farmers
with and into ANB ("Merger"), with ANB as the surviving entity. The surviving
entity shall be known as ANB Corporation. In consideration of the Merger,
non-dissenting Farmers shareholders will receive ANB common stock in exchange
for their shares of Farmers common stock. Upon and after consummation of the
Merger, Farmers 's wholly-owned subsidiary, Farmers State Bank of Union City,
Ohio ("Bank"), will be a wholly-owned subsidiary of ANB.
FACTS
-----
In connection with the Merger, the following facts have been provided
to us, and we have relied upon them for purposes of this opinion:
A. ANB CORPORATION
---------------
ANB has its principal office at 120 West Charles Street, Delaware
County, Indiana 47305. ANB is a corporation duly incorporated and existing under
the laws of the State of Indiana and is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended. As of September 30, 1998, ANB
had 20,000,000 shares of voting, $1.00
<PAGE>
ANB Corporation
Farmers State Bancorp
__________, 1999
stated value common stock authorized, of which approximately ____ million shares
were issued and outstanding. ANB common stock is traded in the over-the-counter
market and stock prices are reported on the NASDAQ National Market System. No
shareholder of ANB holds five percent (5%) or more of ANB's outstanding common
stock.
ANB also has 250,000 shares of preferred stock authorized. The
preferred stock has no stated dividend rate. No shares of ANB preferred stock
have been issued, and ANB presently has no intent and no commitments to issue
any of such shares.
ANB maintains its accounting on a calendar year basis, and computes its
income under the accrual method of accounting. ANB is the parent corporation of
an affiliated group of subsidiaries consisting of two (2) operating banks and
one (1) national trust company ("ANB Group"). The ANB Group files a consolidated
federal income tax return and will continue to file consolidated federal income
tax returns after the effective time of the Merger.
B. FARMERS STATE BANCORP
---------------------
Farmers has its principal office at 101 East Elm Street, Union City,
Ohio 45390-1711. Farmers is a corporation duly incorporated and existing under
the laws of the State of Ohio and is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended. As of September 30, 1998, Farmers
had 172,500 shares of voting, $20 par value common stock authorized, of which
153,808 shares were issued and outstanding. As of September 30, 1998, there were
approximately 319 shareholders of Farmers. The common stock of Farmers is not
actively traded and there has never been an established public trading market
for the stock. Certain persons beneficially own more than five percent (5%) or
more of Farmers' outstanding common stock.
Farmers maintains its accounting on a calendar year basis, and computes
its income under the accrual method of accounting. Farmers is the parent
corporation for the Bank, its only subsidiary.
BUSINESS PURPOSES
-----------------
<PAGE>
ANB Corporation
Farmers State Bancorp
__________, 1999
The shareholders of ANB and the shareholders of Farmers desire to
reorganize their stock interests to accomplish the following business
objectives, among others:
1. To obtain greater financial and managerial strength for future
growth and to achieve economies of scale and other operational
benefits.
2. To provide the shareholders of Farmers an interest in a more
widely-held enterprise with potentially more marketable stock.
3. To allow ANB and the Bank to compete more effectively with
other banking organizations and to enable the Bank to provide
new and broader services to its customers.
PROPOSED TRANSACTION
--------------------
As used herein, "Code" refers to the Internal Revenue Code of 1986, as
amended, and "Regulations" refers to regulations promulgated thereunder by the
Secretary of the Treasury, all as in effect as of the date of this opinion.
To accomplish the objectives specified above, ANB and Farmers entered
into an Agreement and Plan of Merger, dated October 21, 1998 ("Agreement").
Under the terms of the Agreement, Farmers will merge with and into ANB, and the
Bank will become a wholly-owned subsidiary of ANB. At the effective time of the
Merger, each issued and outstanding share of Farmers common stock will be
converted into the right to receive 5.4 shares of ANB common stock, subject to
adjustment, if any, as provided for in the Agreement.
No fractional shares of ANB common stock will be issued with respect to
fractional share interests arising from the exchange ratio specified above.
Rather, any shareholder of Farmers entitled to a fractional share interest of
ANB common stock will receive cash in lieu thereof in an amount equal to the
fraction of the average of the bid and ask price of ANB common stock as of the
trading day immediately preceding the effective date of the Merger. The payment
of cash in lieu of fractional share interests of ANB common stock is solely for
the
<PAGE>
ANB Corporation
Farmers State Bancorp
__________, 1999
purpose of avoiding the expense and inconvenience to ANB of issuing fractional
shares of its common stock and does not represent separately bargained-for
consideration.
No cash or other property, except for ANB common stock and cash paid in
lieu of fractional shares, will be allocated to the shareholders of Farmers,
other than to dissenting shareholders, if any, who have the right to receive
cash for the value of their shares of Farmers common stock upon the proper and
timely exercise of their dissenters' rights as provided by applicable law.
Dissenting shareholders of Farmers who have properly perfected their dissenters'
rights have the right to receive cash for the value of their shares of Farmers
common stock in an amount to be determined under the laws of the State of Ohio.
The Agreement will be submitted to the shareholders of Farmers for
their approval at a special meeting called and held in accordance with
applicable law and with Farmers' Articles of Incorporation and By-Laws. The
holders of majority of the outstanding shares of Farmers common stock and a
majority of the Board of Directors of Farmers must approve the Merger. Approval
of the Merger by the shareholders of ANB is not required or contemplated.
The Merger requires the prior approval of the Board of Governors of the
Federal Reserve System and the Ohio Division of Financial Institutions, which
have not yet been received.
The shares of ANB common stock will, when issued to non-dissenting
shareholders of Farmers in accordance with the Agreement, be validly issued,
fully paid and nonassessable and registered under the Securities Act of 1933, as
amended.
ASSUMPTIONS
-----------
In connection with the Merger, we have relied upon the following
assumptions for the purpose of issuing this opinion:
1. The fair market value of the ANB common stock and other
consideration received by each Farmers shareholder will be approximately equal
to the fair market value of the Farmers common stock surrendered in the
exchange.
<PAGE>
ANB Corporation
Farmers State Bancorp
__________, 1999
2. There is no plan or intention by the shareholders of Farmers who own
one percent (1%) or more of the outstanding shares of Farmers common stock and,
to the best knowledge of Farmers' management, there is no plan or intention on
the part of the remaining shareholders of Farmers, to sell, exchange or
otherwise dispose of a number of shares of ANB common stock received in the
transaction that would reduce the Farmers shareholders' ownership of ANB common
stock to be received in the Merger to a number of shares having a value, as of
the effective time of the Merger, of less than fifty percent (50%) of the value
of all of the formerly outstanding common stock of Farmers. For purposes of this
assumption, shares of Farmers common stock exchanged for cash or other property,
surrendered by dissenters, or exchanged for cash in lieu of fractional shares of
ANB common stock will be treated as outstanding Farmers common stock at the
effective time of the Merger. Moreover, shares of Farmers common stock and
shares of ANB common stock held by Farmers shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger have been considered
in making this assumption.
3. ANB has no plan or intention to reacquire any of its common stock
issued in the Merger. ANB may, however, acquire ANB common stock on a periodic
basis through purchases on an anonymous basis on the open market at open market
prices.
4. ANB has no plan or intention to sell or otherwise dispose of any of
the assets of Farmers acquired in the Merger, except for dispositions made in
the ordinary course of business or transfers described in Section 368(a)(2)(C)
of the Code.
5. The liabilities of Farmers assumed by ANB and the liabilities to
which the transferred assets of Farmers are subject were incurred by Farmers in
the ordinary course of its business.
6. Following the Merger, ANB will continue the historic business of
Farmers or use a significant portion of Farmers' historic business assets in a
business.
7. ANB, Farmers, and the shareholders of Farmers will pay their
respective expenses, if any, incurred in connection with the Merger.
<PAGE>
ANB Corporation
Farmers State Bancorp
__________, 1999
8. There is no intercorporate indebtedness existing between ANB and
Farmers that was issued, acquired or will be settled at a discount.
9. No parties to the Merger are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
10. Farmers is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
11. The fair market value of the assets of Farmers transferred to ANB
will equal or exceed the sum of the liabilities assumed by ANB plus the amount
of liabilities, if any, to which the transferred assets are subject.
12. The payment of cash in lieu of fractional shares of ANB common
stock resulting from the exchange ratio is solely for the purpose of avoiding
the expense and inconvenience to ANB of issuing fractional shares of ANB common
stock and does not represent separately bargained-for consideration. The total
cash consideration that will be paid in the Merger to the Farmers shareholders
instead of issuing fractional shares of ANB common stock will not exceed one
percent (1%) of the total consideration that will be issued in the Merger to the
Farmers shareholders in exchange for their shares of Farmers common stock. The
fractional share interests of each Farmers shareholder will be aggregated, and
no Farmers shareholder will receive cash in an amount equal to or greater than
the value of one full share of ANB common stock.
13. None of the compensation received by any shareholder-employee of
Farmers will be separate consideration for, or allocable to, any of their shares
of Farmers common stock; none of the shares of ANB common stock received by any
shareholder-employee of Farmers will be separate consideration for, or allocable
to, any employment agreement; and the compensation paid to any
shareholder-employee of Farmers will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
<PAGE>
ANB Corporation
Farmers State Bancorp
__________, 1999
14. The shareholders of Farmers (immediately before the Merger)
receiving shares of ANB common stock in the Merger will not own (immediately
after the Merger) more than fifty percent (50%) of the fair market value of ANB
common stock.
OPINION
-------
Based solely upon the facts, assumptions and other information set
forth above, and so long as such facts, assumptions and other information are
true and correct on the date of the consummation of the Merger, it is our
opinion with respect to the Merger that:
1. Provided that the merger of Farmers with and into ANB
qualifies as a statutory merger under applicable law, the
proposed merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Code.
2. Farmers will recognize no gain or loss upon the transfer of
all of its assets to ANB in exchange for ANB common stock
issued to Farmers shareholders, cash paid to dissenting
Farmers shareholders, if any, or to Farmers shareholders in
lieu of fractional shares of ANB common stock, and the
assumption by ANB of all of Farmers' liabilities.
3. No gain or loss will be recognized by ANB on the receipt of
the assets of Farmers in exchange for common stock of ANB.
4. The shareholders of Farmers will recognize no gain or loss
upon the exchange of their shares of Farmers common stock
solely for shares of ANB common stock.
The opinion expressed herein represents our conclusions as to the
application of existing federal income tax law to the facts as presented to us
relating to the Merger, and we give no assurance that changes in such law or any
interpretation thereof will not affect the opinion expressed by us. Moreover,
there can be no assurance that this opinion will not be challenged by the
Internal Revenue Service or that a court considering the issues will not hold
contrary to such opinion. We express no opinion on the treatment of the Merger
under the income tax laws of any state or other taxing jurisdiction. We assume
no obligation to advise you of any changes
<PAGE>
ANB Corporation
Farmers State Bancorp
__________, 1999
concerning the above, whether or not deemed material, which may hereafter come
or be brought to our attention. The opinions expressed herein are a matter of
professional judgment and are not a guarantee of result.
This opinion is addressed to you and is solely for your use in
connection with the Merger and your role as members of your respective Boards of
Directors. We assume no professional responsibility to any other person or
entity whatsoever, including, without limitation, any shareholder of ANB or
shareholder of Farmers . Accordingly, the opinion expressed herein is not to be
utilized or quoted by, or delivered or disclosed to, in whole or in part, any
other person, corporation, entity or governmental authority without, in each
instance, our prior written consent.
Very truly yours,
DRAFT
Krieg DeVault Alexander & Capehart, LLP
EXHIBIT 23.01
-------------
CONSENT OF COUNSEL
------------------
The consent of Krieg DeVault Alexander & Capehart, LLP is included in
its opinion attached to this Registration Statement as Exhibit 5.
EXHIBIT 23.02
-------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference and the inclusion of our reports
with respect to the consolidated financial statements of the following
companies:
ANB Corporation and subsidiaries January 30, 1998
Farmers State Bancorp and subsidiary December 28, 1998
Included and incorporated by reference herein and to the reference to our firm
under the heading "Experts" in the Registration Statement.
/s/ OLIVE LLP
- --------------------
OLIVE LLP
Indianapolis, Indiana,
January 25, 1999.
EXHIBIT 23.03
-------------
CONSENT OF FINANCIAL ADVISOR
----------------------------
We consent to the use of our fairness opinion letter to be dated as of the date
of the Prospectus/Proxy Statement forming a part of the Registration Statement
on Form S-4 filed by ANB Corporation to be included as Appendix C to such
Prospectus/Proxy Statement, subject to the issuance of such opinion by us. We
further consent to the references to our fairness opinion letter and the
analysis conducted by us and the use of our name in such Proxy
Statement/Prospectus in conjunction therewith. In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
CITY SECURITIES CORPORATION
Indianapolis, Indiana
January 26, 1999
EXHIBIT 99.01
-------------
PROXY
FARMERS BANCORP OF UNION CITY, OHIO
SPECIAL MEETING OF SHAREHOLDERS
_______________, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FARMERS
BANCORP
The undersigned hereby appoints ___________________ and
_________________, or either of them, as proxies of the undersigned, each with
full power of substitution and resubstitution, to represent and to vote all of
the shares of common stock of Farmers Bancorp of Union City, Ohio ("Farmers")
which the undersigned beneficially holds of record on ____________________, 1999
and would be entitled to vote at the Special Meeting of Shareholders of Farmers,
to be held at ____________________________, located at
_________________________,________________________, Ohio,________________, on
_________________, 1999, at ___:_____. m., local time, and at any adjournments
thereof, with all of the powers the undersigned would possess if personally
present, on the matters set forth below.
The Board of Directors of Farmers recommends a vote FOR approval of
Proposal 1.
1. Approval and adoption of the merger of Farmers with and into
ANB Corporation ("ANB") pursuant to the Agreement and Plan of
Merger ("Agreement"), dated October 21, 1998, between Farmers
and ANB, pursuant to which each outstanding share of Farmers
common stock will be converted into the right to receive 5.4
shares of ANB common stock, all as provided for in the
Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, on such other matters as may properly
come before the Special Meeting.
Please sign on reverse side
<PAGE>
(continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NOT OTHERWISE DIRECTED, THIS PROXY
WILL BE VOTED FOR APPROVAL OF THE PROPOSAL. ON ANY OTHER MATTERS THAT MAY
PROPERLY COME BEFORE THE SPECIAL MEETING, THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS OF FARMERS. THIS PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
DATED: _______________, 1999 --------------------------------------
(Signature of Shareholder)
----------------------------------------
(Signature of Shareholder)
Please sign exactly as your name
appears on your stock certificates
and on the label placed to the left.
Joint owners should each sign
personally. Trustees, guardians,
executors and others signing in a
representative capacity should
indicate the capacity in which they
sign.
