<PAGE>
[Progressive Bancshares, Inc. Letterhead]
SPECIAL MEETING OF SHAREHOLDERS
A MERGER PROPOSAL -- YOUR
VOTE IS VERY IMPORTANT
The Board of Directors of Progressive Bancshares, Inc. ("PBI") has
unanimously approved a merger with National City Bancshares, Inc. ("NCBE"), a
$2.0 billion multi-bank holding company headquartered in Evansville, Indiana.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF PBI, ITS SHAREHOLDERS, THE COMMUNITIES IT SERVES AND OTHER
CONSTITUENCIES. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT
YOU VOTE TO APPROVE THE MERGER AGREEMENT. A VOTE OF THE NCBE SHAREHOLDERS IS
NOT REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT.
PBI is calling a Special Meeting of shareholders at which you will be asked
to approve the merger agreement. The affirmative vote of the holders of
66 2/3% of the outstanding shares of PBI common stock is required.
If the merger is completed, holders of PBI will receive 179.8462 shares of
NCBE common stock for each share of PBI common stock. The issuance of NCBE
common stock in the merger is expected to be tax-free for federal income tax
purposes.
The date, time and place of the Special Meeting:
November 27, 1998
11:00 a.m.
The Progressive Bank, National Association
1999 Richmond Road, Suite 1
Lexington, Kentucky
The attached Proxy Statement/Prospectus provides you with detailed
information about the proposed merger. In addition, you may obtain other
information about NCBE from documents filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
Whether or not you plan to attend the Special Meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. If you
sign, date and mail your proxy without indicating how you wish to vote, your
proxy will count as a vote in favor of the approval and adoption of the
merger agreement. If you fail to return your proxy, the effect will be a vote
against approval and adoption of the merger agreement. YOUR VOTE IS VERY
IMPORTANT.
ON BEHALF OF THE BOARD OF DIRECTORS OF PBI, I URGE YOU TO VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
GEORGE D. MARTIN
Chairman of the Board of Directors
<PAGE>
TO THE SHAREHOLDERS OF PROGRESSIVE BANCSHARES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held
Friday, November 27, 1998
The Progressive Bank, National Association
1999 Richmond Road, Suite 1
Lexington, Kentucky
The Board of Directors of Progressive Bancshares, Inc. ("PBI") asks you to
attend a Special Meeting of PBI's shareholders. The Special Meeting will be
held at the offices of The Progressive Bank, National Association, 1999
Richmond Road, Suite 1, Lexington, Kentucky. At the Special Meeting, PBI's
shareholders will vote on the following:
1. PROPOSED MERGER. Shareholders will be asked to approve the Agreement
and Plan of Merger dated July 14, 1998 (the "Merger Agreement"), that
provides for the merger of PBI with National City Bancshares, Inc.
("NCBE"). In the merger, PBI shareholders will receive 179.8462 shares
of NCBE common stock for each share of PBI common stock. The Merger
Agreement is attached as Appendix A to the accompanying Proxy
Statement/Prospectus; and
2. OTHER BUSINESS. Shareholders will also consider and vote on any
other matters that properly come before the Special Meeting or
any adjournments or postponements.
You are entitled to notice of and to vote at the Special Meeting (or any
adjournments or postponements of it) if you were a PBI shareholder at the
close of business on October 1, 1998.
By Order of the Board of Directors,
Ellis L. Hefner, Secretary
October 28, 1998
Lexington, Kentucky
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
THE PROXY STATEMENT/PROSPECTUS DESCRIBES YOUR RIGHTS TO DISSENT FROM THE
MERGER AND THE PROCEDURES YOU MUST FOLLOW TO EXERCISE THOSE RIGHTS.
WE INVITE YOU TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY IN
THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY
VOTE IN PERSON, WHICH WILL REVOKE YOUR SIGNED PROXY. YOU MAY ALSO REVOKE
YOUR PROXY AT ANY TIME BEFORE THE VOTING THEREOF AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PROGRESSIVE BANCSHARES, INC.
PROXY STATEMENT FOR SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD
NOVEMBER 27, 1998
-----------------------------------
NATIONAL CITY BANCSHARES, INC.
PROSPECTUS
FOR UP TO 976,744 SHARES OF COMMON STOCK
National City Bancshares, Inc. ("NCBE") proposes to acquire Progressive
Bancshares, Inc. ("PBI") through the merger of PBI into NCBE.
The parties cannot complete the merger unless PBI's shareholders approve
the Agreement and Plan of Merger. PBI shareholders will vote on the
Agreement and Plan of Merger at a Special Meeting of Shareholders of PBI on
November 27, 1998. This Proxy Statement/Prospectus is being furnished to
PBI shareholders in connection with the Board of Directors of PBI's
solicitation of proxies for use at the Special Meeting.
If PBI and NCBE merge, PBI shareholders will receive 179.8462 shares of
NCBE's common stock for each share of PBI common stock. This Proxy
Statement/Prospectus is also a Prospectus of NCBE relating to the shares of
common stock NCBE will issue in the merger.
NCBE's common stock trades on the Nasdaq National Market Tier of the
Nasdaq Stock Market under the symbol "NCBE".
THE "RISK FACTORS" SECTION OF THIS PROXY STATEMENT/PROSPECTUS (BEGINNING
ON PAGE 7) LISTS SOME OF THE FACTORS YOU SHOULD CONSIDER IN EVALUATING THE
MERGER.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the NCBE common stock to be issued in the merger or
determined if this Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
Proxy Statement/Prospectus dated October 28, 1998, and first mailed to
shareholders on October 28, 1998.
<PAGE>
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT NCBE THAT IS NOT INCLUDED IN OR DELIVERED WITH
THIS DOCUMENT. THE INCORPORATED INFORMATION IS AVAILABLE WITHOUT CHARGE TO
PBI SHAREHOLDERS UPON WRITTEN OR ORAL REQUEST. REQUESTS SHOULD BE DIRECTED
AS FOLLOWS:
NATIONAL CITY BANCSHARES, INC.
P.O. BOX 868
EVANSVILLE, INDIANA 47705-0868
ATTN: STEPHEN C. BYELICK, JR.
PH.: 812-464-9864
TO OBTAIN TIMELY DELIVERY, PLEASE REQUEST THE INFORMATION NO LATER THAN
NOVEMBER 20, 1998.
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Risks Associated with Acquisitions. . . . . . . . . . . . . . . . 7
Impact of Interest Rate Changes . . . . . . . . . . . . . . . . . 7
Credit Risk and Loan Concentration. . . . . . . . . . . . . . . . 7
Regulatory Risks. . . . . . . . . . . . . . . . . . . . . . . . . 8
Exposure to Local Economic Conditions . . . . . . . . . . . . . . 8
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Status of NCBE as a Bank Holding Company. . . . . . . . . . . . . 8
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 9
SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Date, Time, Place and Purpose . . . . . . . . . . . . . . . . . . 9
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Voting and Revocation of Proxies. . . . . . . . . . . . . . . . . 9
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . 10
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of the Merger. . . . . . . . . . . . . . . . . . . . . 11
NCBE's Reasons for the Merger . . . . . . . . . . . . . . . . . . 11
PBI's Reasons for the Merger. . . . . . . . . . . . . . . . . . . 11
Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . 12
Recommendation of PBI's Board of Directors. . . . . . . . . . . . 13
Closing and Effective Time. . . . . . . . . . . . . . . . . . . . 13
Conversion of PBI Common. . . . . . . . . . . . . . . . . . . . . 14
Procedures for Exchange of Certificates . . . . . . . . . . . . . 14
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . 15
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . 15
Representations and Warranties. . . . . . . . . . . . . . . . . . 17
Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . 19
Termination and Waiver. . . . . . . . . . . . . . . . . . . . . . 19
No Solicitation; Fees and Expenses. . . . . . . . . . . . . . . . 19
Certain Federal Income Tax Consequences . . . . . . . . . . . . . 20
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . 21
Resale of NCBE Common . . . . . . . . . . . . . . . . . . . . . . 22
Interests of Certain Persons in the Merger. . . . . . . . . . . . 23
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . 24
PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 25
COMPARATIVE STOCK PRICES AND
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
INFORMATION CONCERNING NCBE. . . . . . . . . . . . . . . . . . . . . . 34
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . 34
Year 2000 Issue . . . . . . . . . . . . . . . . . . . . . . . . . 36
Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . . 37
INFORMATION CONCERNING
PROGRESSIVE BANCSHARES, INC. . . . . . . . . . . . . . . . . . . . . . 38
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Selected Financial Data of PBI. . . . . . . . . . . . . . . . . . 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . 40
Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . . 53
DESCRIPTION OF NCBE CAPITAL STOCK. . . . . . . . . . . . . . . . . . . 54
Authorized Shares . . . . . . . . . . . . . . . . . . . . . . . . 54
NCBE Common . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
<PAGE>
NCBE Preferred. . . . . . . . . . . . . . . . . . . . . . . . . . 54
Certain Provisions of Articles of
Incorporation and By-Laws. . . . . . . . . . . . . . . . . . 54
Certain Provisions of the IBCL. . . . . . . . . . . . . . . . . . 55
Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 55
COMPARISON OF SHAREHOLDER RIGHTS . . . . . . . . . . . . . . . . . . . 55
Classified Board of Directors . . . . . . . . . . . . . . . . . . 55
Business Combinations Not Involving
an Interested Shareholder. . . . . . . . . . . . . . . . . . 55
Business Combinations Involving
an Interested Shareholder. . . . . . . . . . . . . . . . . . 56
Removal of Directors. . . . . . . . . . . . . . . . . . . . . . . 56
Amendments to Articles of Incorporation . . . . . . . . . . . . . 57
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Special Meetings of Shareholders. . . . . . . . . . . . . . . . . 57
Control Share Acquisitions. . . . . . . . . . . . . . . . . . . . 57
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 58
Limitation of Liability of Directors. . . . . . . . . . . . . . . 59
Authorization of Preferred Shares . . . . . . . . . . . . . . . . 59
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . . 60
INDEX TO PBI FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . F-1
APPENDIX A -
Agreement and Plan of Merger dated as of
July 14, 1998 between National City
Bancshares, Inc. and Progressive
Bancshares, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B -
Fairness Opinion of Chartwell Capital, Ltd. . . . . . . . . . . . B-1
APPENDIX C -
Excerpts of the Kentucky Business
Corporation Act (Dissenters' Rights). . . . . . . . . . . . . . . C-1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL PBI SHAREHOLDERS RECEIVE IN THE MERGER?
A: In the merger, NCBE will issue 179.8462 shares of its common stock for
each outstanding share of PBI common stock.
The actual value of the shares of NCBE common stock to be issued in the
merger cannot be determined at this time since it will depend on trading
prices reported prior to the time the merger is closed. The last reported
sales price on October 21, 1998 for NCBE common stock as reported by the
Nasdaq Stock Market was $40.00. If the merger was closed on October 21,
1998, the value of 179.8462 shares of NCBE common stock would have been
$7,193.85.
Q: WHY IS PBI PROPOSING TO MERGE WITH NCBE?
A: PBI's Board has unanimously concluded that the proposed merger with NCBE
is in the best interests of PBI, its shareholders, the communities it
serves and other constituencies. In reaching its conclusion, the PBI Board
considered the factors set forth below. To review the reasons in greater
detail, see page 11.
This conclusion is based upon a number of factors, including, but not
limited to: the financial terms of the merger, the opinion of Chartwell
Capital, Ltd. ("Chartwell") as to the fairness of the merger consideration,
the compatibility of the operating philosophies and cultures of NCBE and
PBI, the increased opportunities for the employees of PBI offered by the
affiliation with a larger company, the greater liquidity for shareholders
offered by a publicly traded company, general industry conditions, the
current pricing available for banking transactions, and the tax
consequences of the proposed transaction to PBI shareholders.
Chartwell, PBI's financial advisor, has issued its opinion that the merger
is fair to PBI's shareholders from a financial point of view.
Q: WHAT ARE THE TAX CONSEQUENCES TO PBI SHAREHOLDERS?
A: The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes. No gain or loss will be recognized by PBI
shareholders upon receipt of shares of NCBE common stock. To review the
tax consequences in greater detail, see page 20.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special PBI
shareholders' meeting. The PBI Board unanimously recommends that you vote
FOR approval and adoption of the merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, NCBE will send you written instructions
for exchanging your share certificates.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Neither PBI nor NCBE expects any changes in dividend policies before the
merger. After the merger, the NCBE annualized dividend rate is expected to
be $0.80 per share. After the merger, PBI shareholders will no longer
receive the tax distributions they have received as shareholders of an
"S Corporation."
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. In
addition to the approval of PBI shareholders, we must also obtain
regulatory approvals. We hope to complete the merger by November 30, 1998.
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
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 TO WHICH WE HAVE REFERRED YOU. SEE "WHERE
YOU CAN FIND MORE INFORMATION" ON PAGE 60. WE HAVE INCLUDED PAGE REFERENCES
IN PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE TOPICS
PRESENTED IN THIS SUMMARY.
PARTIES TO THE MERGER
NATIONAL CITY BANCSHARES, INC.
227 MAIN STREET
EVANSVILLE, INDIANA 47708
(812) 464-9677
National City Bancshares, Inc. is an Indiana corporation that owned, as
of August 31, 1998, 15 financial institution subsidiaries. These
subsidiaries provide a wide range of banking services in the tri-state area
of Indiana, Kentucky and Illinois. As of June 30, 1998 (and as restated to
give effect to acquisitions accounted for as poolings of interests and
consummated through August 31, 1998), NCBE had total consolidated assets of
$1.8 billion, total loans of $1.3 billion, total deposits of $1.4 billion and
total shareholders' equity of $187.1 million.
PROGRESSIVE BANCSHARES, INC.
1999 RICHMOND ROAD, SUITE 1
LEXINGTON, KENTUCKY 40502
(606) 266-6571
Progressive Bancshares, Inc. is a Kentucky corporation that owns The
Progressive Bank, National Association. As of June 30, 1998, PBI had total
consolidated assets of $143.3 million, net loans of $114.2 million, total
deposits of $123.7 million, and total shareholders' equity of $11.4 million.
The Bank has four banking offices with offices in Lexington, Lawrenceburg and
Owingsville, Kentucky.
SPECIAL MEETING OF PBI SHAREHOLDERS
MEETING INFORMATION (See page 9).
The Special Meeting of PBI shareholders will be held at the office of
the Bank located at 1999 Richmond Road, Suite 1, Lexington, Kentucky on
November 27, 1998, at 11:00 a.m., local time, to vote to approve and adopt
the merger agreement. The affirmative vote of the holders of 66 2/3% of the
issued and outstanding shares of PBI common stock is required to approve and
adopt the merger agreement. On the record date, there were 5,431 shares of
PBI common stock outstanding.
If you owned shares of PBI common stock as of the close of business on
October 1, 1998, the record date, you are entitled to vote. You will have
one vote for each share you owned on the record date.
SECURITY OWNERSHIP OF MANAGEMENT
As of the close of business on the record date, the directors and
executive officers of PBI and their affiliates beneficially owned 3,895
shares of PBI common stock, or 71.7%, of all outstanding shares entitled to
vote on the merger. As of the close of business on the record date, the
directors and executive officers of NCBE and their affiliates did not
beneficially own any shares of PBI common stock.
SUMMARY OF THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT, AS IT
IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
OPINION OF FINANCIAL ADVISOR TO PBI (See page 12).
Chartwell Capital Ltd. ("Chartwell"), PBI's financial advisor, has
delivered to the PBI Board of Directors a written opinion dated the date of
this Proxy Statement/Prospectus, to the effect that, as of such date and
based upon the procedures and subject to the assumptions made, matters
considered and limitations and qualifications described therein, the merger
consideration is fair to the PBI shareholders from a financial point of view.
The full text of the written opinion of Chartwell is attached as Appendix B
to this Proxy Statement/Prospectus and
2
<PAGE>
PBI shareholders are urged to read carefully the opinion in its entirety.
RECOMMENDATION OF PBI BOARD OF DIRECTORS (See page 13).
The PBI Board of Directors believes that the merger is in the best
interests of PBI shareholders and unanimously recommends that PBI
shareholders vote FOR approval of the merger agreement.
REGULATORY APPROVALS (See page 15).
The merger is subject to approval by banking regulatory authorities.
Regulatory approvals are expected to be received prior to the Special
Meeting.
DISSENTERS' RIGHTS (See page 15).
Under Kentucky law, PBI shareholders can demand the fair value of their
PBI shares if they deliver a written demand for payment before the vote is
taken and do not vote in favor of the merger agreement. Appendix C contains
the applicable portions of Kentucky law.
CONDITIONS TO THE MERGER (See page 19).
PBI and NCBE will not complete the merger unless:
- PBI shareholders and regulatory authorities approve it;
- No legal restrictions prohibit it; and
- NCBE's legal counsel provides a satisfactory opinion concerning the tax
treatment of the merger.
NCBE will not have to complete the merger unless:
- PBI's representations in the merger agreement remain accurate;
- PBI's and the Bank's financial condition do not change materially;
- NCBE can account for the merger as a "pooling of interests;"
- PBI has obtained a tax ruling as to its status as an "S Corporation" for
1997; and
- NCBE has received an opinion from PBI's counsel as to certain legal
matters.
PBI will not have to complete the merger unless:
- NCBE's representations in the merger agreement remain accurate;
- NCBE's financial condition does not change materially; and
- PBI has received an opinion from NCBE's counsel as to certain legal
matters.
TERMINATION OF THE MERGER AGREEMENT (See page 19).
The merger agreement may be terminated and the merger abandoned before
or after PBI shareholders approve the merger agreement:
- by mutual consent of PBI and NCBE;
- by PBI if the "Average Value" of the NCBE common stock falls below
$30.00 for ten consecutive days;
- by PBI if PBI or its Board of Directors accepts or approves a
"Competing Transaction";
- by PBI, if any of the conditions to its obligation to consummate the
merger have not been satisfied by February 28, 1999; or
- by NCBE, if any of the conditions to its obligation to consummate the
merger have not been satisfied by February 28, 1999.
REIMBURSEMENT OF EXPENSES (See page 19).
In the merger agreement, PBI agreed not to seek any "Competing
Transaction" for an acquisition of PBI or the Bank except where required by
fiduciary duties of PBI's Board of Directors.
3
<PAGE>
A "Competing Transaction" includes any of the following:
- an offer by another person (other than NCBE or the shareholders of PBI)
to acquire 50% or more of PBI's or the Bank's common stock;
- a proposal for a merger, consolidation, share exchange, business
combination or similar transaction involving PBI or the Bank; or
- a proposal for a sale, lease, exchange, transfer, or other disposition
of 50% or more of the assets of PBI.
If the merger agreement is terminated under certain circumstances in
connection with a competing transaction, PBI will reimburse NCBE's expenses
incurred in the merger up to $150,000.
FEDERAL INCOME TAX CONSEQUENCES (See page 20).
The merger is intended to qualify as a tax-free reorganization for
federal income tax purposes. No gain or loss will be recognized by PBI
shareholders upon receipt of shares of NCBE common stock.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU.
ACCOUNTING TREATMENT (See page 21).
NCBE expects to account for the merger as a "pooling of interests."
This means that NCBE will carry forward PBI's assets, liabilities and income
in NCBE's consolidated financial statements and that no goodwill will be
recognized in the transaction.
STOCK PRICE DATA
(See page 32).
The following table sets forth as of July 13, 1998 (the last trading day
before the public announcement of the proposed acquisition), the last sale
price per share for the NCBE common stock, and the pro forma equivalent for a
share of PBI common stock. There is no public trading market for the PBI
common stock.
<TABLE>
<CAPTION>
Pro Forma
PBI
NCBE PBI Common
Common Common Stock
Stock Stock Equivalent
------ ------ ----------
<S> <C> <C> <C>
Price Per Share
(as of July 13, 1998) $40 1/2 N/A $7,283.77*
</TABLE>
___________
* Assumes that each share of PBI common stock is converted into
179.8462 shares of NCBE common stock.
COMPARISON OF SHAREHOLDER RIGHTS
(See page 55).
The rights of holders of NCBE common stock are governed by Indiana law
and by the Articles of Incorporation and By-laws of NCBE which differ, in
several respects, from Kentucky law and the Articles of Incorporation and
By-laws of PBI. Some of the material differences include: shareholder votes
required for approving certain business combinations, removing directors, and
amending Articles of Incorporation; the circumstances under which a
shareholder may dissent from corporate action and receive fair value for his
or her shares; and certain statutory takeover provisions.
RISK FACTORS RELATING TO
NCBE COMMON STOCK
(See page 7).
An investment in NCBE common stock involves risks, including those
described in this document.
4
<PAGE>
SUMMARY COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA
The following summary tables present selected comparative per share
data on (i) a historical basis for NCBE and PBI, (ii) a pro forma combined
basis per share of NCBE common stock, giving effect to the Merger and (A) as
of June 30, 1998, the Other Pooling Acquisitions (defined as acquisitions
pending as of August 31, 1998 which are expected to be accounted for as
poolings of interests, see "INFORMATION CONCERNING NCBE--Recent
Developments") and (B) for all prior periods, the Other Pooling Acquisitions,
(iii) an equivalent pro forma basis per share of PBI Common, giving effect to
the Merger only, and (iv) an equivalent pro forma basis per share, giving
effect to the Merger and the Other Pooling Acquisitions. As further
described in "INFORMATION CONCERNING NCBE--Recent Developments", from January
1, 1998 through August 31, 1998, NCBE has acquired the Mayfield Branch and
Bank of Illinois in Mt. Vernon in transactions accounted for as purchases
(the "Purchase Transactions") and Illinois One Bank, National Association,
Trigg County Farmers Bank, Community First Bank of Kentucky and Community
First Bank, N.A. in transactions accounted for as poolings of interests (the
"Completed Pooling Acquisitions"). The Purchase Transactions are not
individually or in the aggregate considered material to NCBE from a financial
statement presentation standpoint, and the pro forma data do not include the
Purchase Transactions (except to the extent they are reflected in NCBE's six
month information). The historical data for NCBE have been restated to
include the results of the Completed Pooling Acquisitions. The data presented
are not necessarily indicative of the results of the future operations of the
combined organization or the actual results that would have occurred if the
Merger or the Other Pooling Acquisitions had been consummated prior to the
periods indicated. The data presented should be read in conjunction with the
more detailed information and financial statements included herein or
incorporated by reference in this Proxy Statement/Prospectus and with the
unaudited pro forma financial statements included elsewhere in this Proxy
Statement/Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION," "SELECTED
FINANCIAL DATA," "INFORMATION CONCERNING PBI" and "INDEX TO PBI FINANCIAL
STATEMENTS."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -----------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
NCBE:
Basic $0.92 $0.90 $1.76 $1.57 $1.36
Diluted 0.91 0.89 1.74 1.56 1.36
PBI:
Basic 168.55 152.86 323.01 277.56 234.79
Diluted 168.55 152.86 323.01 277.56 234.79
NCBE pro forma (Other Pooling
Acquisitions and PBI):
Basic 0.88 0.92 1.73 1.54 1.34
Diluted 0.87 0.91 1.71 1.54 1.34
PBI equivalent pro forma
(NCBE only) (1):
Basic 165.46 161.86 316.53 282.36 244.59
Diluted 163.66 160.06 312.93 280.56 244.59
PBI equivalent pro forma
(Other Pooling Acquisitions
and NCBE) (1):
Basic 158.26 165.46 311.13 276.96 240.99
Diluted 156.47 163.66 307.54 276.96 240.99
DIVIDENDS PER COMMON SHARE:
NCBE 0.33 0.29 0.59 0.55 0.35
PBI (2) 199.62 147.61 264.15 109.99 36.00
PBI equivalent pro forma(1) 59.35 52.16 106.71 110.48 82.73
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
BOOK VALUE PER COMMON SHARE:
<S> <C> <C>
NCBE $13.85 $13.34
PBI 2,097.68 2,044.50
NCBE pro forma (Other Pooling
Acquisitions and PBI) 13.97 13.45
PBI equivalent pro forma
(NCBE only) (1) 2,490.86 2,399.15
PBI equivalent pro forma (Other
Pooling Acquisitions and NCBE)(1) 2,512.45 2,418.93
</TABLE>
(1) Equivalent pro forma per share data represents the pro forma per share
data for NCBE multiplied by 179.8462, the number of shares of NCBE
common stock to be issued in the merger for each share of PBI common
stock.
(2) Beginning in the second quarter of 1997, distributions paid by PBI
have included amounts representing estimated liability for taxes as a
result of PBI's status as an S Corporation. The portion of the
distributions paid for estimated tax liabilities for the quarters
indicated were as follows: 6/30/97 -- $73.95; 9/30/97 -- $42.88;
3/31/98 -- $42.51; 6/30/98 -- $83.45; and 9/30/98 -- $43.00.
6
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE MERGER AGREEMENT, PBI SHAREHOLDERS
SHOULD CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION CONTAINED AND
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS, THE FOLLOWING
RISK FACTORS. CERTAIN CAPITALIZED TERMS USED IN THIS SECTION ARE DEFINED IN
OTHER SECTIONS OF THIS PROXY STATEMENT/PROSPECTUS.
RISKS ASSOCIATED WITH ACQUISITIONS
NCBE has grown significantly as a result of acquisitions. Since January
1, 1995, NCBE has completed numerous acquisitions of financial institutions
or their branches. As the banking industry continues to consolidate, NCBE
expects to pursue other acquisitions. NCBE is currently a party to
definitive agreements relating to four separate pending acquisitions. See
"INFORMATION CONCERNING NCBE--Recent Developments." NCBE's pending
acquisitions are subject to various conditions, including shareholder and
regulatory approval. No assurance can be given that the pending acquisitions
will be consummated.
The future profitability of NCBE will depend upon management's ability
to improve the profitability of acquired institutions and to realize expected
operational synergies. Acquisitions involve numerous risks, including
difficulties in assimilating operations of the acquired company, diversion of
management's attention from other business concerns, risks of entering new
geographic markets, loss of key employees of the acquired company and
assumption of undisclosed liabilities. Future acquisitions may result in
dilutive issuances of equity securities, the incurrence of additional debt
and the amortization of expenses related to goodwill and intangible assets,
any of which could have a material adverse effect on NCBE. In addition, as
consolidation of the banking industry continues, the competition for suitable
acquisition candidates will increase. NCBE competes with other banking
companies for acquisition opportunities and many of these competitors have
greater financial resources and acquisition experience than NCBE.
IMPACT OF INTEREST RATE CHANGES
NCBE derives its results of operations from its subsidiaries' operations
and depends principally on net interest income, which is the difference
between interest earned on loans and investments and interest expense paid on
deposits and other borrowings.
Like other financial institutions, NCBE's interest income and interest
expense are affected by general, regional and local economic conditions and
by the policies of regulatory authorities, including the monetary policies of
the Federal Reserve Board. While management has taken measures intended to
manage the risks of operating in a changing interest rate environment, there
can be no assurance that such measures will effectively avoid undue interest
rate risk.
CREDIT RISK AND LOAN CONCENTRATION
As a lender, NCBE is exposed to the risk that its customers will be
unable to repay their loans according to their terms and that the collateral
securing the payment of their such loans (if any) may not be sufficient to
assure repayment. Credit losses could have a material adverse effect on
NCBE's operating results.
As of June 30, 1998, NCBE's total loan portfolio was approximately $1.3
billion or 70.2% of its total assets. The three components of the loan
portfolio are real estate loans, $717 million or 55.2% of total loans,
commercial and industrial loans, $408 million or 31.4% of total loans, and
consumer loans, $175 million or 13.4% of total loans. NCBE's credit risk
with respect to its consumer installment loan portfolio and commercial loan
portfolio relates principally to the general creditworthiness of individuals
and businesses within its local market area. NCBE's credit risk with respect
to its real estate mortgage and construction loan portfolio relates
principally to the general creditworthiness of individuals and the value of
real estate serving as security for the repayment of the loans.
7
<PAGE>
REGULATORY RISKS
The banking industry is heavily regulated. These regulations are
primarily intended to protect depositors and the FDIC, not NCBE shareholders
or other creditors. Regulations affecting financial institutions are
undergoing continuous change, and the ultimate effect of such changes cannot
be predicted. Regulations and laws affecting NCBE and its subsidiaries may be
modified at any time, and new legislation affecting financial institutions
may be proposed and enacted. There is no assurance that such modifications or
new laws will not materially and adversely affect the business, condition or
operations of NCBE and its subsidiaries.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The success of NCBE and its subsidiaries depends to a certain extent
upon the general economic conditions of the local geographic markets they
serve. Unlike larger banks which are more geographically diversified, NCBE's
subsidiaries provide financial and banking services to customers in the
tri-state area of Indiana, Kentucky and Illinois surrounding Evansville,
Indiana. No assurance can be given concerning the economic conditions that
will exist in such markets.
COMPETITION
NCBE's subsidiaries face substantial competition for deposit, credit and
trust relationships, as well as other sources of funding in the communities
they serve. Competing providers include other national and state banks,
thrifts and trust companies, insurance companies, mortgage banking
operations, credit unions, finance companies, money market funds and other
financial and nonfinancial companies which may offer products functionally
equivalent to those offered by NCBE's subsidiaries. Competing providers may
have greater financial resources than NCBE and offer services within and
outside the market areas served by NCBE's subsidiaries.
RISKS RELATING TO YEAR 2000 ISSUE
Many existing computer programs were designed to use only two digits to
identify a year in the date field without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000. NCBE is
committed to a plan for achieving compliance with the risks created by the
"Year 2000" problem. Management believes that the expenditures required to
bring NCBE systems into compliance will not have a materially adverse effect
on NCBE's financial condition or future performance. However, the Year 2000
problem is pervasive and complex and can potentially effect any computer
process. In addition, the efforts of NCBE and its subsidiaries with respect
to Year 2000 compliance are subject to examination by banking regulatory
agencies. An adverse rating could result in the delay or deferral of
regulatory applications seeking approval of acquisitions or such approvals
may only be given subject to additional conditions. See "INFORMATION
CONCERNING NCBE--Year 2000 Issue."
STATUS OF NCBE AS A BANK HOLDING COMPANY
NCBE is a legal entity separate and distinct from its subsidiaries,
although the principal source of NCBE's cash revenues is dividends from its
subsidiaries. The right of NCBE to participate in the assets of any
subsidiary upon the subsidiary's liquidation, reorganization or otherwise
will be subject to the claims of the subsidiary's creditors, which will take
priority except to the extent that NCBE may itself be a creditor with a
recognized claim. NCBE's principal source of funds is dividends received
from its banking subsidiaries. Regulations limit the amount of dividends
without prior approval. During 1998, the subsidiaries may pay approximately
$3.3 million plus any 1998 net profits to NCBE without prior regulatory
approval.
8
<PAGE>
FORWARD-LOOKING STATEMENTS
This document, and the documents that have been incorporated herein by
reference (see, "WHERE YOU CAN FIND MORE INFORMATION" on page 60), include
forward-looking statements about NCBE that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
future results of operations of NCBE after the Merger, set forth under
"QUESTIONS AND ANSWERS ABOUT THE MERGER," "SUMMARY," "RISK FACTORS" and those
preceded by, followed by or that otherwise include the words "believes,"
"expects," "anticipates," "intends," "estimates" or similar expressions. For
those statements, NCBE claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
NCBE and PBI participate in the financial services industry, which is
characterized by competition and consolidation. You should understand that
the factors discussed under "RISK FACTORS" on page 7, in addition to those
discussed elsewhere in this document and the documents which are incorporated
by reference, could affect the future financial results of NCBE and could
cause actual results to differ materially from those expressed in
forward-looking statements contained or incorporated by reference in this
document.
SPECIAL MEETING
DATE, TIME, PLACE AND PURPOSE
This Proxy Statement/Prospectus is being furnished to holders of the
common stock, without par value, of PBI ("PBI Common") in connection with the
solicitation of proxies by the Board of Directors of PBI for use at the
Special Meeting to be held at the office of the Bank located at 1999 Richmond
Road, Suite 1, Lexington, Kentucky, on November 27, 1998, at 11:00 a.m.,
local time, and at any adjournment or postponement thereof. At the Special
Meeting, the shareholders of PBI will be asked to consider and vote upon the
approval and adoption of the Agreement and Plan of Merger dated July 14, 1998
(the "Merger Agreement") with National City Bancshares, Inc. ("NCBE")
relating to the merger (the "Merger") of PBI with and into NCBE.
RECORD DATE
The Board of Directors of PBI has fixed October 1, 1998, as the record
date for determining the shareholders of PBI entitled to receive notice of
and to vote at the Special Meeting (the "Record Date"). As of the close of
business on the Record Date, there were 5,431 shares of PBI Common issued and
outstanding. Only holders of PBI Common of record at the close of business
on the Record Date are entitled to notice of and to vote at the Special
Meeting. No shares of PBI Common can be voted at the Special Meeting, unless
the record holder is present in person or represented by proxy at the Special
Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of holders of a majority of the
issued and outstanding shares of PBI Common entitled to vote on the Record
Date, or 2,716 shares, is necessary to constitute a quorum at the Special
Meeting. The affirmative vote of the holders of at least 66 2/3% of the
issued and outstanding shares of PBI Common, or 3,621 shares, is required to
approve the Merger Agreement and the transactions contemplated thereby. Each
holder of PBI Common is entitled to one vote per share of PBI Common held at
the close of business on the Record Date.
VOTING AND REVOCATION OF PROXIES
Proxies for use at the Special Meeting accompany this Proxy
Statement/Prospectus. A shareholder may use his or her proxy if he or she is
unable to attend the Special Meeting in person or wishes to have his or her
shares voted by proxy even if he or she does attend the Special Meeting.
Shares of PBI Common represented by a proxy properly signed and returned to
PBI no later than the time of the Special Meeting, unless subsequently
revoked, will be voted at the
9
<PAGE>
Special Meeting in accordance with instructions thereon. If a proxy is
properly signed and returned without voting instructions, any shares of PBI
Common represented by such proxy will be voted FOR approval of the Merger
Agreement and the transactions contemplated thereby, including the Merger.
Any proxy given pursuant to this solicitation may be revoked at any time
before the voting on the matters to be considered at the Special Meeting by
filing with the Secretary of PBI a written revocation or a duly executed
proxy bearing a later date. All written notices of revocation and other
communications with respect to revocation of PBI proxies should be addressed
to Progressive Bancshares, Inc., P.O. Box 28, Lexington, Kentucky
40588-0028, Attention: Corporate Secretary. A holder of PBI Common who
previously signed and returned a proxy and who elects to attend the Special
Meeting and to vote in person may withdraw his or her proxy at any time
before it is exercised by giving notice of such revocation to the Secretary
of PBI at the Special Meeting and voting in person by ballot at the Special
Meeting; however, attendance at the Special Meeting will not in and of itself
constitute a revocation of the proxy.
PBI intends to count holders of shares of PBI Common present in person
at the Special Meeting but not voting, and holders of shares of PBI Common
for which PBI has received proxies but with respect to which holders of
shares have abstained, as present at the Special Meeting for purposes of
determining the presence or absence of a quorum for the transaction of
business. Brokers may give a proxy to vote the shares they hold in street
name for customers who are the beneficial owners of such shares only if they
receive specific instructions from such customers. Since the affirmative
vote of the holders of 66 2/3% of the issued and outstanding shares of PBI
Common entitled to vote at the close of business on the Record Date is
required to approve and adopt the Merger Agreement, abstentions and shares of
PBI Common that are not voted or for which customers have not given specific
voting instructions will have the effect of a vote against the Merger
Agreement.
If sufficient proxies are not obtained to approve the Merger Agreement,
the persons named as proxies in the enclosed form of proxy intend to propose
and vote for one or more adjournments or postponements of the Special Meeting
to permit further solicitation of proxies voting in favor of the Merger
Agreement. No proxy that is voted against the proposal to approve and adopt
the Merger Agreement will be voted in favor of any such adjournment or
postponement.
SOLICITATION OF PROXIES
In addition to solicitation of proxies from shareholders of PBI Common
by use of the mail, proxies also may be solicited personally or by telephone
by directors, officers and employees of PBI, who will not be specifically
compensated for such services.
NCBE has agreed to bear the entire cost of printing this Proxy
Statement/Prospectus and all filing fees paid to the Securities and Exchange
Commission (the "SEC") and other regulatory filing fees incurred in
connection with the Merger.
THE MERGER
GENERAL
This section of the Proxy Statement/Prospectus describes certain aspects
of the proposed Merger, including the principal provisions of the Merger
Agreement. The following information is qualified in its entirety by
reference to the other information contained elsewhere in this Proxy
Statement/Prospectus, including the Appendices hereto and the documents
incorporated herein by reference. A copy of the Merger Agreement (excluding
the Disclosure Schedule thereto) is attached hereto as Appendix A and is
incorporated by reference in this Proxy Statement/Prospectus. Please refer
to the Merger Agreement for a complete description of the terms of the
Merger. Shareholders of PBI are urged to read carefully the Merger Agreement
in its entirety.
10
<PAGE>
BACKGROUND OF THE MERGER
In late 1997 and early 1998, management of PBI had preliminary
discussions with a large super-regional financial institution regarding a
possible combination with PBI, which discussions were terminated in February
of 1998 because of pricing and other consideration.
On March 27, 1998, George D. Martin, Ellis L. Hefner and Samuel T. Adams
met with Robert D. Vance, the Chairman of the Board of Community First
Financial, Inc., a bank holding company which had recently entered into a
merger agreement with NCBE, to explore possible opportunities for combining
NCBE and PBI. Various general terms were discussed at this meeting to
include likely pricing, operating philosophies and other general issues.
On April 14, 1998, Messrs. Martin, Hefner and Adams, along with John V.
Boardman, met with Michael F. Elliott and Robert A. Keil, the Chairman of the
Board and President, respectively, of NCBE and Mr. Vance to discuss the terms
of a possible transaction between NCBE and PBI.
On April 20, 1998, PBI engaged Chartwell Capital, Ltd. as financial
adviser to assist PBI with negotiating a possible combination with NCBE and
one other similarly sized financial institution. A representative of
Chartwell had discussions with the similarly sized financial institution and
determined that they were not interested in pursuing a combination with PBI
at that time because of other considerations.
On April 28, 1998, Messrs. Martin and Boardman visited NCBE's
headquarters in Evansville, Indiana and also visited an affiliate bank of
NCBE to better understand NCBE's operating philosophy and culture.
On May 13, 1998, representatives of PBI and Chartwell performed a due
diligence review of NCBE's books and records at NCBE's corporate office in
Evansville.
On May 18, 1998, a representative of Chartwell presented a merger
analysis of the NCBE merger proposed to the Board of Directors of PBI.
On June 10, 1998, the PBI Board met to review a draft of the merger
agreement. Representatives of PBI's counsel were present at this meeting and
discussed the draft merger agreement in detail with the PBI Board. The PBI
Board also received the written opinion of Chartwell as to the fairness, from
a financial point of view, of the consideration to be received by the
shareholders of PBI in the merger. The PBI Board of Directors then adopted
the merger agreement.
On July 13, 1998, the PBI Board of Directors adopted and approved
certain changes to the merger agreement which had been previously approved.
A representative of Chartwell informed the PBI Board that the proposed
changes would not affect its fairness opinion previously rendered on June 10,
1998.
On July 14, 1998, the Merger Agreement was executed and delivered on
behalf of NCBE and PBI.
NCBE'S REASONS FOR THE MERGER
In reaching its decision to approve the Merger Agreement, the Board of
Directors of NCBE considered the following factors, without assigning
relative weights to them: the consistency of the acquisition with NCBE's
long-term goal to grow through acquisitions of financials institutions in
NCBE's primary markets; the Merger Consideration to be paid relative to
NCBE's valuation of PBI and consideration paid in other, recent, similar,
reported transactions; and information concerning the business, financial
condition, results of operations and prospects for PBI.
PBI'S REASONS FOR THE MERGER
In reaching its decision to approve the Merger Agreement, the Board of
Directors of PBI consulted with its legal and financial advisors and with
PBI's senior executives. The Board considered a number of factors in
reaching its
11
<PAGE>
decision, including the factors listed below that it deemed material, but did
not assign any specific weight or priority to the factors it considered.
Among the factors considered by the Board of Directors of PBI in
recommending to PBI shareholders the approval of the Merger Agreement were:
(i) the financial terms of the Merger, (ii) the opinion of Chartwell as to
the fairness of the merger consideration, (iii) the operating philosophies
and cultures of NCBE and PBI, (iv) the increased opportunities for the
employees of PBI offered by the affiliation with a larger company, (v) the
effect of the combination on the customers and the communities PBI serves,
(vi) the liquidity for shareholders offered by a publicly traded company,
(vii) industry conditions generally and the current pricing available for
banking transactions, and (viii) the tax consequences of the proposed
transaction to PBI shareholders.
FAIRNESS OPINION
PBI retained Chartwell to act as PBI's financial advisor in connection
with the Merger and related matters based upon Chartwell's qualifications,
experience and reputation. At a meeting of the PBI Board of Directors on
June 8, 1998, at which the terms of the proposed merger were discussed and
considered, Chartwell rendered a written opinion to the PBI Board of
Directors that, as of the date of such opinion, based on and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
Merger Consideration (as hereafter defined) was fair to the holders of PBI
Common from a financial point of view. Chartwell has confirmed its June 8,
1998 opinion by delivery of a written opinion to the PBI Board of Directors
dated the date of this Proxy Statement/Prospectus stating that, as of the
date hereof and based upon and subject to the assumptions, limitations and
qualifications set forth in such opinion, the Merger Consideration is fair to
the holders of PBI Common from a financial point of view.
The full text of Chartwell's opinion dated the date hereof is included
as Appendix B to this Proxy Statement/Prospectus. PBI shareholders are urged
to read the Chartwell opinion in its entirety for assumptions made,
procedures followed, matters considered, and limits of the review undertaken
by Chartwell. The summary of the Chartwell opinion set forth in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion.
Chartwell's opinion is limited to the fairness, from a financial point
of view, of the Merger Consideration to the holders of PBI Common and does
not constitute a recommendation to any holder of PBI Common as to how such
holder should vote with respect to the Merger Agreement. Chartwell's opinion
is based on the economic, market, financial and other conditions as they
existed on, and on the information made available to Chartwell as of the date
of the opinion. Although subsequent developments may effect Chartwell's
opinion, Chartwell is not obligated to update, revise or reaffirm its
opinion. Chartwell's opinion does not address the relative merits of the
Merger and the other business strategies considered by PBI's Board of
Directors, nor does it address the Board's decision to proceed with the
Merger.
Chartwell, a member of the National Association of Securities Dealers,
Inc. ("NASD"), provides specialized investment banking and financial advisory
services to financial institutions and other clients. For its financial
advisory services provided to PBI, Chartwell will receive a fee which is
estimated to be $250,000 as of the date of this Proxy Statement/Prospectus,
of which $225,000 is contingent upon the consummation of the Merger. In
addition, PBI has agreed to reimburse Chartwell for all reasonable out of
pocket expenses as well as indemnify Chartwell for certain liabilities
arising out of rendering its opinion which may include certain liabilities
arising under the federal securities laws.
In arriving at its opinion, Chartwell, among other things, performed a
review and analysis of (a) the Merger Agreement, (b) certain business and
financial information relating to NCBE and PBI, (c) certain contribution
analysis to the merged company, (d) certain financial analysis and ranking of
NCBE with other regional banking institutions, (e) certain financial analysis
of NCBE's prior mergers and acquisitions, (f) certain comparative merger and
acquisition data for recent bank and thrift acquisitions announced in
Indiana, Illinois, Ohio and Kentucky, including comparative transaction data
on a nationwide basis, (g) certain discussions with other financial
institutions that expressed an interest in the acquisition of PBI, (h)
certain financial analysis of the potential acquisition value of NCBE, (i)
certain discounted
12
<PAGE>
earnings analysis for PBI and (j) certain discussions with the managements of
PBI and NCBE. Chartwell performed such other analysis and considered such
other factors as it deemed appropriate.
In conducting its review and rendering its opinion, Chartwell relied
without independent verification upon the accuracy and completeness of all
the financial and other information reviewed by Chartwell or conveyed to
Chartwell in discussions with the senior management of PBI or NCBE for
purposes of this opinion. With respect to financial forecasts, Chartwell
assumed that such forecasts were reasonably prepared on a basis reflecting
the best currently available estimates and judgments of the management of PBI
and NCBE.
Chartwell is not an expert in the evaluation of loan portfolios or
allowances for loan and real estate-owned losses, and, the management of PBI
did not request that Chartwell conduct, nor did Chartwell conduct, an
independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of PBI or NCBE, nor was Chartwell provided with any such
evaluations or appraisals, including loan or lease portfolios or the
allowance for losses with respect thereto, and Chartwell has assumed, with
PBI's consent, that such allowances for PBI and NCBE are in the aggregate
adequate to cover such losses.
In rendering its opinion, Chartwell was advised by PBI and NCBE and
Chartwell assumed that there were no other factors that would delay or
subject to adverse conditions any necessary regulatory or governmental
approval for the Merger, and that all conditions to the Merger will be
satisfied and not waived. Chartwell further assumed that the Merger will
qualify for treatment as a tax-free reorganization and be accounted for as a
pooling of interests. Chartwell is not expressing any opinion as to the
prices at which NCBE Common will trade subsequent to the Merger.
The summary set forth above describes the material analysis performed by
Chartwell and presented to the PBI Board of Directors on June 8, 1998, in
connection with the preparation of its opinion and does not purport to be a
complete description of such analysis. 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. Each analysis conducted by Chartwell was
carried out in order to provide a different perspective on the transaction
and add to the total mix of information available. Chartwell did not form a
conclusion as to whether any individual analysis considered in isolation
supported or failed to support an opinion as to fairness from a financial
point of view. Rather, in reaching its conclusion, Chartwell considered the
results of all analysis taken as a whole. Chartwell did not place particular
reliance or weight on any individual analysis, but instead concluded that its
analysis taken as a whole supported its determination. Accordingly Chartwell
believes that its analysis must be considered as a whole and that selecting
portions of its analysis, without considering all factors and analysis, would
create an incomplete view of the process underlying the analysis by which
Chartwell reached its opinion.
RECOMMENDATION OF PBI'S BOARD OF DIRECTORS
For the reasons described above, the Board of Directors of PBI believes
that the affiliation through the Merger of PBI with NCBE is in the best
interest of PBI, its shareholders, the communities it serves and other
constituencies.
THE PBI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF PBI
COMMON VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
Certain members of the management and Board of Directors of PBI have
interests in the Merger in addition to their interests as shareholders of
PBI. See "-- Interests of Certain Persons in the Merger."
CLOSING AND EFFECTIVE TIME
The Merger Agreement provides that, unless otherwise agreed and assuming
all conditions have been satisfied or waived, the closing of the Merger (the
"Closing") will be held on the date fixed by agreement of NCBE and PBI as
soon
13
<PAGE>
as practicable following the date on which all required approvals are
received and any required waiting periods have expired.
If the Merger Agreement is approved by the requisite vote of PBI
shareholders, all other conditions of the Merger Agreement are satisfied or
waived and the Closing is held, the Merger will become effective at the date
and time (the "Effective Time") specified in the Articles of Merger that are
required to be filed with the Offices of the Secretaries of State of Kentucky
and Indiana. It is presently contemplated that the Effective Time will occur
during the fourth quarter of 1998. The Merger Agreement may be terminated by
either party if, among other things, the Closing does not occur on or before
February 28, 1999. See "--Termination and Waiver."
CONVERSION OF PBI COMMON
As a result of the Merger, each share of PBI Common issued and
outstanding immediately before the Effective Time, other than shares whose
holders have properly exercised their dissenters' rights under Kentucky law,
will be converted into the right to receive 179.8462 shares of NCBE Common.
No fractional shares of NCBE Common will be issued in the Merger. PBI
shareholders will receive cash in lieu of fractional interests in a share of
NCBE Common equal to the product of the fractional interest and the "Average
NCBE Value" which is defined as the average of the means between the highest
and lowest per share trading prices for NCBE Common as reported by the Nasdaq
National Market for the ten (10) consecutive trading days on which NCBE
Common is traded ended on the third trading day prior to the Closing. The
shares of NCBE Common to be issued in the Merger and cash paid in lieu of
fractional interests are referred to as the "Merger Consideration."
PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of PBI Common into the right to receive the Merger
Consideration will occur by operation of law at the Effective Time. After
the Effective Time, certificates that represented shares of PBI Common before
the Effective Time will be deemed, for all corporate purposes other than the
payment of dividends and other distributions on such shares, to evidence
ownership of and entitlement to receive such shares of NCBE Common. Within
five (5) business days after the Effective Time, an exchange agent appointed
by NCBE (the "Exchange Agent"), will send a transmittal letter and
instructions to each record holder of certificates for PBI Common whose
shares were converted into the right to receive the Merger Consideration,
advising such holder of the number of shares of NCBE Common such holder is
entitled to receive pursuant to the Merger, the amount of cash such holder is
due in lieu of any fractional share of NCBE Common, and the procedures for
surrendering PBI stock certificates in exchange for a certificate for the
number of whole shares of NCBE Common, and a check for the cash amount (if
any) such holder is entitled to receive in lieu of a fractional share. The
letter of transmittal will also specify that delivery will be effected, and
risk of loss and title to the certificates for PBI Common will pass, only
upon proper delivery of the certificates for PBI Common to the Exchange
Agent. The letter of transmittal will be in such form and have such other
provisions as the Merger Agreement contains and as NCBE may reasonably
specify. After the receipt by the Exchange Agent of a holder's certificates
for PBI Common, together with a duly executed letter of transmittal and any
other required documents, the Exchange Agent will deliver to such holder the
Merger Consideration such holder is entitled to receive under the Merger
Agreement. SHAREHOLDERS OF PBI ARE REQUESTED NOT TO SURRENDER THEIR
CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL AND
RELATED INSTRUCTIONS. Unless and until a shareholder delivers his or her
certificates for PBI Common to the Exchange Agent, together with a duly
executed letter of transmittal and any other required documents, dividends or
other distributions on the shares of NCBE Common issuable to the shareholder
and any cash payments for fractional shares that would otherwise be payable
will not be delivered to the shareholder. In such a case, cash payment for
fractional shares and any dividends or other distributions on such shares of
NCBE Common with a record date following the Effective Time will be paid to
the shareholder only upon surrender of the certificates for PBI Common,
together with a duly executed letter of transmittal and any other required
documents. No interest on any such cash payment or dividends will accrue or
be paid.
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If a shareholder has lost his or her certificate for PBI Common, the
Exchange Agent will issue the Merger Consideration payable on the shares
represented by the lost certificate only upon receipt of an affidavit as to
such loss, and an indemnity agreement, if required by NCBE.
REGULATORY APPROVALS
NCBE agreed, in the Merger Agreement, to file all regulatory
applications to obtain the requisite regulatory approvals for the Merger.
The Merger cannot proceed in the absence of such regulatory approvals.
The Merger is subject to approval by the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). The BHC Act
provides that the Federal Reserve Board may not approve any transaction (i)
that would result in a monopoly, or that would be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or (ii) the effect of
which in any section of the country may be substantially to lessen
competition, or to tend to create a monopoly, or that in any other manner
would be in restraint of trade, unless the Federal Reserve Board finds that
the anticompetitive effects of the proposed transaction are clearly
outweighed in the public interest by the probable effect of the transaction
in meeting the convenience and needs of the communities to be served. In
conducting its review of any application for approval, the Federal Reserve
Board is required to consider the financial and managerial resources and
future prospects of the company or companies and the banks concerned, and the
convenience and needs of the communities to be served. Under the BHC Act as
interpreted by the Federal Reserve Board and the courts, the Federal Reserve
Board may deny any application if it determines that the financial or
managerial resources of the acquiring bank holding company are inadequate.
The Merger is also subject to approval by the Kentucky Department of
Financial Institutions ("KDFI") under the following criteria: (i) the terms
of the acquisition are in accordance with the laws of the state; (ii) the
financial condition, or the competence, experience and integrity of the
acquiring company or its principals are such as will not jeopardize the
financial stability of the acquired bank or bank holding company; (iii) the
public convenience and advantage will be served by the acquisition; and (iv)
no federal regulatory authority whose approval is required has disapproved
the transaction because it would result in a monopoly or substantially lessen
competition. The Commissioner of the KDFI will approve the Merger within 90
days of submission of a complete application if he finds the forgoing
criteria have been satisfied.
Applications have been filed with the Federal Reserve Bank of St. Louis
and the KDFI. The Federal Reserve Board and the KDFI are expected to act on
the applications prior to the Special Meeting; however, approval cannot be
assured.
The Merger may not be consummated until 30 days following Federal
Reserve Board approval, during which time the Department of Justice ("DOJ")
may challenge the Merger on antitrust grounds and seek the divestiture of
certain assets and liabilities. With the approval of the Federal Reserve
Board and the DOJ, the waiting period may be reduced to no less than fifteen
days. The commencement of an antitrust action by the DOJ would stay the
effectiveness of Federal Reserve Board approval of the Merger unless a court
specifically orders otherwise. In reviewing the Merger, the DOJ could
analyze the effect of the Merger on competition differently than the Federal
Reserve Board and, thus, it is possible that the DOJ could reach a different
conclusion than the Federal Reserve Board regarding the competitive effects
of the Merger.
DISSENTERS' RIGHTS
The rights of PBI shareholders who choose to dissent from the Merger are
governed by the provisions of the Kentucky Business Corporation Act (the
"KBCA"). A copy of the provisions of the KCBA governing dissenters' rights
(KRS 271B.13-010 to 271B.13-280) is attached hereto as Appendix C.
Any shareholder who wishes to assert dissenters' rights must deliver to
PBI a written notice indicating that shareholder's intent to demand payment
for his or her shares if the Merger is effectuated. This notice should be
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addressed to Progressive Bancshares, Inc., 1999 Richmond Road, Suite 1,
Lexington, Kentucky 40502. The shareholder's notice must be delivered to PBI
before the vote is taken at the Special Meeting and the shareholder must not
vote in favor of the proposed Merger. Shareholders who wish to exercise
dissenters' rights must exercise them as to all shares they beneficially own.
Shareholders who own shares beneficially but not of record must, in addition
to the other requirements described herein, submit to PBI the consent of the
record holder of such shares no later than the time dissenters' rights are
asserted. Any shareholder who fails to deliver the shareholder's notice or
votes in favor of the Merger will not be entitled to payment for his shares
as a dissenting shareholder under the KBCA.
If the Merger is approved at the special meeting, PBI will deliver a
written dissenters' notice to all shareholders who satisfied the requirements
set forth above. This dissenters' notice must be sent no later than 10 days
after approval of the Merger by shareholders and must (i) state where demand
for payment should be sent and where and when certificates for certificated
shares should be deposited; (ii) inform holders of uncertificated shares of
the extent of transfer restrictions imposed upon such shares after the demand
for payment is received; (iii) supply a form for demanding payment for shares
that includes the date of the first announcement to the news media or to
shareholders of the terms of the proposed Merger, which occurred on July 14,
1998 with respect to the Merger, and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date; (iv) establish a date by which PBI
must receive a demand for payment, which date shall be no less than 30 nor
more than 60 days after the dissenters' notice is delivered; and (v) be
accompanied by a copy of the provisions of the KBCA pertaining to dissenters'
rights. A dissenting shareholder must demand payment, certify whether
beneficial ownership of his shares was acquired before the date set forth in
the dissenters' notice and deposit his certificates in accordance with the
terms of such notice. Any shareholder who demands payment and deposits
shares in accordance with the terms of the dissenters' notice shall retain
all other rights as a shareholder until the rights are canceled or modified
by consummation of the Merger. Any shareholder who fails to demand payment
or deposit shares as required by the dissenters' notice by the respective
dates set forth therein will not be entitled to payment for his shares under
the dissenters' statute, but shall be entitled to receive the Merger
Consideration.
If a dissenting shareholder was the beneficial owner of his shares on or
before the date of the first announcement to news media or to shareholders of
the terms of the proposed merger (a "Pre-announcement Shareholder"), which
occurred on July 14, 1998 with respect to the Merger, the KBCA requires PBI
to pay such shareholder the amount PBI estimates to be the fair value of his
shares plus accrued interest. Payment shall be made as soon as the Merger is
consummated and must be accompanied by year-end and interim financial
statements of PBI, a statement of PBI's estimate of the fair value of the
shares, an explanation of how interest was calculated, a statement of the
dissenting shareholder's right to demand payment, and a copy of the
provisions of the KBCA pertaining to dissenters' rights. If a dissenting
shareholder was not the beneficial owner of his shares prior to the date of
the first announcement to the news media or to shareholders of the proposed
Merger (a "Post-announcement Shareholder"), PBI may elect to withhold payment
of the fair value of the dissenting shareholder's shares. To the extent such
payment is withheld, PBI is required to estimate the fair value of the
dissenting shareholder's rights plus interest and offer to pay this amount to
each Post-announcement Shareholder who agrees to accept it in full
satisfaction of his demand. The offer must be accompanied by a statement of
PBI's estimate of value, an explanation of how interest was calculated and a
statement of the dissenting shareholder's right to demand payment under the
KBCA.
The KBCA provides that a dissenting shareholder may notify PBI in
writing of his estimate of the fair value of his shares and interest due and
demand payment of the amount of such estimate (less any payment already made
by PBI), or reject PBI's offer (if a Post-announcement Shareholder) and
demand payment of the fair value of his shares if (i) the dissenter believes
the amount paid or offered is less than the fair value of his shares, or if
the interest due is incorrectly calculated, (ii) PBI fails to pay
Pre-announcement Shareholders within 60 days after the date set for demanding
payment, or (iii) if the proposed Merger is not consummated, PBI fails to
return the deposited certificates or release transfer restrictions imposed on
uncertificated shares within 60 days after the date set for demanding
payment. In order to exercise these rights, a dissenter must notify PBI in
writing within 30 days after PBI made or offered payment for the dissenter's
shares.
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If a demand for payment by a dissenting shareholder remains unsettled
within 60 days after PBI's receipt of the demand for payment, PBI must
commence a proceeding in the circuit court of Fayette County, Kentucky and
petition the court to determine the fair value of the shares and accrued
interest. If such a proceeding is not commenced within the 60-day period,
PBI must pay each dissenting shareholder whose demand remains unsettled the
amount demanded. All dissenting shareholders whose demands remain unsettled
must be made parties to the proceeding and must be served with a copy of the
petition. The court may appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. In any such
proceeding, each dissenting shareholder made a party is entitled to a
judgment in the amount of the difference between the fair value found by the
court and the amount paid by PBI plus interest on such difference, in the
case of a Pre-announcement Shareholder; or the fair value, plus accrued
interest, of the dissenting shareholder's shares for which PBI elected to
withhold payment in the case of a Post-announcement Shareholder. The court
in an appraisal proceeding will determine and assess the costs of the
proceeding, including the compensation and expenses of court-appointed
appraisers, against PBI, except the court may assess costs against dissenters
to the extent the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment. The court may also assess fees and expenses of
attorneys and experts for the parties against PBI if the court finds that PBI
did not substantially comply with the requirements of the KBCA regarding
dissenters' rights, or against any party if the court finds that such party
acted arbitrarily, vexatiously or not in good faith. The KBCA also makes
provision for compensation of attorneys for any dissenting shareholder whose
services benefitted other dissenting shareholders similarly situated to be
paid out of the amounts awarded the dissenting shareholders who were
benefitted, if not assessed against PBI.
If the holders of more than approximately 9% of the outstanding shares
of PBI Common properly exercise their dissenters' rights, the Merger would
not qualify as a pooling of interests for accounting and financial reporting
purposes, which qualification is a condition to the obligation of NCBE to
proceed with the Merger. See "-- Accounting Treatment."
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROVISIONS OF THE KBCA RELATING TO THE RIGHTS OF DISSENTING SHAREHOLDERS OF
PBI, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE EXCERPTS FROM THE
KBCA INCLUDED HEREIN AS APPENDIX C.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the parties. The representations and warranties made by NCBE
relate to, among other things: (i) the organization and corporate power of
NCBE, the authorization, execution and delivery of the Merger Agreement and
the Merger Agreement's noncontravention of charter documents, material
agreements, laws and regulations; (ii) the absence of any requirement to
obtain the approval of NCBE's shareholders in connection with the Merger;
(iii) capitalization; (iv) the delivery and accuracy of reports filed by NCBE
with the SEC under the Exchange Act; (v) the conformity of financial
statements in such reports to generally accepted accounting principles
("GAAP"); (vi) the absence of any undisclosed material liabilities and any
material adverse change in NCBE's financial condition, results of operations
or business; (vii) the absence of any litigation, claim, investigation, or
other proceeding which, if adversely determined, would have a material
adverse effect; (viii) the authorization and nonassessability of the shares
of NCBE Common to be issued in the Merger; (ix) the absence of any
circumstances that would prevent the Merger from qualifying as a pooling of
interests for accounting purposes; and (x) the absence of any untrue
statements or omissions of material fact on the part of NCBE in the Merger
Agreement and related documents.
The representations and warranties made by PBI relate to, among other
things: (i) the organization and corporate power of PBI, the capitalization of
PBI, the organization of the Bank, and the capitalization of the Bank; (ii) the
authorization, execution and delivery of the Merger Agreement and the Merger
Agreement's noncontravention of charter documents of PBI and the Bank;
(iii) ownership and organization of subsidiaries; (iv) delivery of financial
statements of PBI and the conformity of such financial statements to GAAP;
(v) the filing of tax returns and payment of taxes; (vi) contracts, commitments
or other agreements in excess of $50,000 to which PBI or the Bank is a party;
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(vii) ownership of real estate; (viii) the absence of any material adverse
change in the business, financial condition, properties, results of
operations or capitalization of PBI or the Bank; (ix) the absence of any
litigation, claim, investigation or other proceeding which, if adversely
determined, would have a material adverse effect on the business or financial
condition of PBI or the Bank and the absence of any investigations, actions
or other legal proceedings involving any director, officer or employee of PBI
or the Bank; (x) insurance; (xi) substantial compliance with applicable laws
and regulations; (xii) the absence of any obligation to pay broker's or
finder's fees in connection with the Merger except to Chartwell; (xiii)
compliance of employee benefit plans with applicable laws, rules and
regulations; (xiv) labor-related matters; (xv) environmental-related
conditions or events; (xvi) the absence of enforcement actions and other
regulatory-related matters; (xvii) the absence of any circumstances that
would prevent the Merger from qualifying as a pooling of interests for
accounting purposes; and (xviii) the absence of any untrue statements or
omissions of material fact on the part of PBI in the Merger Agreement and
related documents.
COVENANTS
The Merger Agreement contains covenants that the parties will take or
refrain from taking certain actions prior to the Effective Time. As to NCBE,
these covenants include, among other things, agreements to: (i) file, at its
sole expense, and prepare all regulatory applications required to consummate
the Merger and keep PBI informed of the status of such applications; (ii)
file a Registration Statement on Form S-4 with the SEC relating to the shares
of NCBE Common to be issued in the Merger; (iii) use its best efforts to list
the shares of NCBE Common to be issued in the Merger on the Nasdaq National
Market; (iv) provide PBI with access during regular business hours to books
and records relating to NCBE's assets, properties, operations and
liabilities; and (v) use its best efforts after the Effective Time to expand
its Board of Directors and elect George D. Martin as a director of NCBE (see
"-- Interests of Certain Persons in the Merger").
The covenants made by PBI include, among other things, agreements by PBI
and the Bank to: (i) conduct their business in the ordinary course, not
default in any obligations under material contracts, maintain insurance and
existing business organization and relationships; and comply with applicable
laws; (ii) notify NCBE of any event that may have a material adverse effect
on the financial condition, operations, business or assets of PBI and the
Bank or would interfere with PBI's ability to satisfy any conditions to its
obligation to consummate the Merger; (iii) not incur any obligation or
liability other than in the ordinary course of business, amend any material
contract, acquire any interest in another entity, sell or dispose of real
property, expand or enhance its data processing system, make any loan,
commitment or line of credit to a single borrower in excess of $1,000,000,
make any capital expenditures except for repairs, renewals or replacements in
excess of $50,000 individually or $100,000 in the aggregate, issue, sell,
pledge or redeem any capital stock of PBI or the Bank, pay cash dividends on
the PBI Common in excess of the amounts specified in the Merger Agreement
(however, holders of PBI Common may receive cash dividends attributable
either to PBI or NCBE, not both, for the quarter in which the Effective Time
occurs), amend the articles of incorporation or by-laws or similar documents
of PBI or the Bank, enter into or amend any employment agreement, pay any
extraordinary bonus, establish any general increase in salaries, compromise
or settle a tax claim, open a new office, close any existing office, or
knowingly take any action that would adversely affect the ability to account
for the Merger as a pooling of interests; (iv) not modify its practices
relating to loans to directors, officers and employees; (v) not knowingly
violate any laws, regulations, judgments or orders; (vi) maintain all books
and records in accordance with GAAP; (vii) provide NCBE with access during
regular business hours to books and records relating to PBI's and the Bank's
assets, properties, operations and liabilities; (viii) provide NCBE with
copies of certain reports to the Board of Directors of PBI or the Bank and
monthly financial statements and confer with NCBE on the general status of
ongoing operations; (ix) notify NCBE of any material change in operations or
certain complaints, investigations or threatened litigation; (x) furnish NCBE
with the information in PBI's possession that is required for any regulatory
applications in connection with the Merger; (xi) obtain and deliver to NCBE
at least 31 days prior to the Closing, an agreement from each person who may
reasonably be deemed an "affiliate" of PBI for purposes of Rule 145 under the
Securities Act, an agreement regarding compliance with Rule 145 and
restricting transfers of NCBE Common following the Merger; (xii) cause a
special meeting of PBI shareholders to be held and recommend approval of the
Merger Agreement and the Merger; (xiii) file a final "S Corporation" tax
return; (xiv) dissolve Progressive Mortgage Company; and (xv) terminate the
Stockholder Agreement dated October 16, 1998.
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CONDITIONS TO THE MERGER
In addition to the approval of PBI shareholders, the obligations of both
parties to consummate the Merger are subject to the satisfaction or waiver of
certain other conditions, including, among others: (i) that all required
regulatory approvals have been obtained; (ii) that no action or proceeding
has been commenced to restrain the Merger; (iii) the absence of any notice
from any governmental agency indicating that the Merger would violate any
law; (iv) the effectiveness of the Registration Statement and the absence of
a stop order with respect thereto; and (v) the receipt of an opinion of Baker
& Daniels to the effect that the Merger will constitute a tax-free
reorganization.
The obligation of NCBE to consummate the Merger is further conditioned
on the following: (i) the continued accuracy in all material respects of the
representations and warranties of PBI in the Merger Agreement, the
performance or satisfaction in all material respects of all covenants to be
performed by PBI under the Merger Agreement, and the absence of any material
adverse change prior to Closing in the business, assets, properties,
financial condition or results of operations of PBI or the Bank; (ii) the
receipt of opinions of counsel to PBI as to certain matters relating to PBI
and the Merger; (iii) the determination by NCBE that the Merger may be
accounted for as a pooling of interests; and (iv) the receipt of a ruling
from the IRS satisfactory to NCBE to the effect that PBI will be treated as
an "S Corporation" for its taxable year ended December 31, 1997.
The obligation of PBI to consummate the Merger is further conditioned on
the following: (i) the continued accuracy in all material respects of the
representations and warranties of NCBE in the Merger Agreement, the
performance or satisfaction in all material respects of all covenants to be
performed by NCBE under the Merger Agreement and the absence of any material
adverse change prior to the Closing in the business assets, properties,
financial conditions of NCBE and its subsidiaries, taken as a whole; (ii) the
receipt of opinions of counsel to NCBE as to certain matters relating to NCBE
and the Merger; and (iii) the receipt, as of the date of mailing this Proxy
Statement/Prospectus of an opinion from its financial advisor to effect that
the Merger Consideration is fair, from a financial viewpoint, to the PBI
shareholders.
TERMINATION AND WAIVER
The Merger Agreement may be terminated and the Merger abandoned prior to
the Effective Time, before or after approval of the Merger Agreement by the
PBI shareholders: (i) by mutual consent of PBI and NCBE; (ii) by PBI if the
Average NCBE Value falls below $30.00 for any ten consecutive trading days;
(iii) by NCBE, if any of the conditions to its obligation to consummate the
Merger have not been satisfied by February 28, 1999; or (iv) by PBI, if any
of the conditions to its obligation to consummate the Merger have not been
satisfied by February 28, 1999.
PBI and NCBE may, by written instrument, amend or modify the Merger
Agreement in whole or in part, or waive compliance with any of the covenants
or conditions of the Merger Agreement, before or after approval of the Merger
Agreement by the PBI shareholders, to the extent authorized by applicable law.
NO SOLICITATION; FEES AND EXPENSES
The Merger Agreement prohibits PBI, the Bank and their officers,
directors and representatives, from soliciting or authorizing the
solicitation of inquiries or proposals from third parties regarding an
acquisition of PBI, the Bank, or all or substantially all of their assets,
unless PBI's Board of Directors has reasonably determined, based on the
written advice of counsel, that the failure to do so would breach its
fiduciary duties. The foregoing prohibition also extends to conducting
discussions or negotiations with third parties or furnishing confidential
information to any person relating to an acquisition proposal. PBI is
required to communicate to NCBE the terms of any such proposal.
Except as described below or as otherwise expressly provided in the
Merger Agreement, each party is to pay its own fees and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated therein.
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Upon the occurrence of a Triggering Event, PBI is required to reimburse
NCBE for all out-of-pocket expenses incurred by NCBE in connection with the
transactions contemplated by the Merger Agreement up to a maximum of
$150,000. "Triggering Event" means the termination of the Merger Agreement
for any reason other than certain specified conditions to the Merger and the
occurrence of any of the following events within one year: (i) PBI enters
into an agreement with a third party for a Competing Transaction; (ii) the
recommendation of a Competing Transaction by the PBI Board of Directors; or
(iii) the withdrawal or modification of the recommendation of the Merger
Agreement by the PBI Board of Directors following the announcement of a
Competing Transaction. "Competing Transaction" means any of the following
(other than the transactions contemplated by the Merger Agreement or
conducted by current shareholders of PBI): (i) an offer for 50% or more of
the outstanding capital stock of PBI or the Bank; (ii) a proposal for a
merger, consolidation, share exchange, business combination or similar
transaction involving PBI or the Bank; or (iii) a proposal for the sale,
lease, exchange or other disposition of 50% or more of PBI's assets.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to certain PBI shareholders and does not purport
to be a complete analysis or listing of all potential tax considerations or
consequences relevant to a decision whether to vote for the approval of the
Merger Agreement. The discussion does not address all aspects of federal
income taxation that may be applicable to PBI shareholders in light of their
status or personal investment circumstances, nor does it address the federal
income tax consequences of the Merger that are applicable to PBI shareholders
subject to special federal income tax treatment including, without
limitation, foreign persons, insurance companies, tax-exempt entities,
retirement plans, dealers in securities, persons who acquired their PBI
Common pursuant to the exercise of employee stock options or otherwise as
compensation. In addition, the discussion does not address the effect of any
applicable state, local or foreign tax laws, or the effect of any federal tax
laws other than those pertaining to the federal income tax. As a result,
each PBI shareholder is urged to consult his or her own tax advisor to
determine the specific tax consequences of the Merger to such shareholder.
The discussion assumes that shares of PBI Common are held as capital assets
(within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code")) at the Effective Time.
It is a condition to the Merger that as of the Closing the parties
receive an opinion from Baker & Daniels, counsel to NCBE ("Counsel"), to the
effect that, assuming the Merger occurs in accordance with the Merger
Agreement, the Merger will constitute a reorganization for federal income tax
purposes under Section 368(a) of the Code, with the following federal income
tax consequences:
(i) PBI shareholders will recognize no gain or loss as a result of
the exchange of their PBI Common solely for shares of NCBE Common pursuant
to the Merger, except with respect to cash received in lieu of fractional
share interests, if any, as discussed below.
(ii) The aggregate adjusted tax basis of the shares of NCBE Common
received by each PBI shareholder in the Merger (including any fractional
share of NCBE Common deemed to be received, as described in paragraph (iv)
below) will be equal to the aggregate adjusted tax basis of the shares of
PBI Common surrendered.
(iii) The holding period of the shares of NCBE Common received by
each PBI shareholder in the Merger (including any fractional share of NCBE
Common deemed to be received, as described in paragraph (iv) below) will
include the holding period of the shares of PBI Common exchanged therefor.
(iv) An PBI shareholder who receives cash in lieu of a fractional
share of NCBE Common will be treated as if the fractional share had been
received by such shareholder in the Merger and then redeemed by NCBE in
return for the cash amount. The receipt of such cash will cause the
recipient to recognize capital gain or loss equal to the difference between
the amount of cash received and the portion of such holder's adjusted tax
basis in the shares of NCBE Common allocable to the fractional share.
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(v) Cash received by PBI shareholders exercising dissenters' rights
will be treated as (a) a distribution in full payment of such shares,
resulting in capital gain or loss, or (b) ordinary income, as the case may
be, depending upon such shareholder's individual situation.
Counsel's opinion will be subject to certain conditions and customary
assumptions and will rely upon various representations made by NCBE, PBI and
certain shareholders of PBI. If any of these representations or assumptions
is inaccurate, the tax consequences of the Merger could differ from those
described herein. Counsel's opinion will also be based upon the Code,
regulations proposed or promulgated thereunder, judicial precedent relating
thereto, and current administrative rulings and practice, all of which are
subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed herein. An opinion of counsel,
unlike a private letter ruling from the Internal Revenue Service ("Service"),
has no binding effect. The Service could take a position contrary to
Counsel's opinion and, if the matter were litigated, a court could reach a
decision contrary to the opinion. Neither NCBE nor PBI has requested an
advance ruling as to the federal income tax consequences of the Merger, and
the Service is not expected to issue such a ruling.
Based upon the advice of Counsel, the parties believe that the Merger
will qualify as a reorganization for federal income tax purposes.
Accordingly, the material federal income tax consequences to a holder of PBI
Common will be as described in (i) through (v) above.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF PBI WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. EACH SHAREHOLDER OF PBI SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS AND THE POSSIBLE EFFECT OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
PBI has been treated for federal and state income tax purposes as an S
Corporation under Subchapter S of the Code since 1997. As an S Corporation,
PBI's shareholders, rather than PBI, have been taxed directly on the earnings
of PBI and the Bank for federal and certain state income tax purposes,
whether or not such earnings were distributed. As of the Effective Time, PBI
will terminate its status as an S Corporation and the Bank will thereafter be
subject to federal and state income taxes at applicable C Corporation rates.
PBI's quarterly distributions to its shareholders include amounts
representing the shareholders estimated liability for income taxes as a
result of PBI's S Corporation status. At closing, PBI will estimate the
amount of 1998 S Corporation earnings taxable to existing shareholders and
make a distribution to PBI shareholders for the amount beyond the 1998
distributions already paid. The amount of the distribution will be dependant
upon actual year to date earnings and the timing of the closing date.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. Under the pooling of interests
method of accounting, the assets and liabilities of NCBE and PBI will be
carried forward after the Effective Time into the consolidated financial
statements of NCBE at their recorded amounts, the consolidated income of NCBE
will include income of NCBE and PBI for the entire fiscal year in which the
Merger occurs, the separately reported income of NCBE and PBI for prior
periods will be combined and restated as consolidated income of NCBE, and no
goodwill will be recognized.
The Merger Agreement provides that NCBE must determine that the Merger
will qualify as a pooling of interests as a condition to NCBE's obligation to
consummate the Merger. If this condition is not met, the Merger would not be
consummated unless the condition was waived by NCBE. As of the date of this
Proxy Statement/Prospectus, NCBE
21
<PAGE>
and PBI are not aware of any existing facts or circumstances which would
preclude the Merger from qualifying as a pooling of interests.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling of interests
accounting method to account for the Merger.
In connection with the termination of PBI's status as an S Corporation,
PBI is required by Statement of Financial Accounting Standards No. 109 to
record a net deferred tax asset. This net asset is the tax effect of
differences in the accounting and tax treatment of certain of PBI's assets
and liabilities and the amount of which at June 30, 1998 is approximately
$250,000. The asset will be recorded at the time of closing and will result
in a corresponding one time credit to earnings for the same amount.
RESALE OF NCBE COMMON
The shares of NCBE Common issuable pursuant to the Merger will be freely
transferable under the Securities Act except for shares issued to any PBI
shareholder who may be deemed to be an "affiliate" of NCBE for purposes of
Rule 144 under the Securities Act or an "affiliate" of PBI for purposes of
Rule 145 under the Securities Act. Persons who may be deemed to be
affiliates of PBI or NCBE generally include individuals who, or entities
which, control, are controlled by or are under common control with PBI or
NCBE and will include directors and certain officers of PBI and NCBE and may
include principal shareholders of PBI and NCBE, if any.
Rules 144 and 145 under the Securities Act will restrict the sale of
NCBE Common received in the Merger by affiliates and certain of their family
members and related interests. Generally, during the first year following
the Effective Time, those persons who are affiliates of PBI at the time of
the Special Meeting, provided they are not affiliates of NCBE at or following
the Effective Time, may publicly resell any NCBE Common received by them in
the Merger, subject to certain limitations as to, among other things, the
amount of NCBE Common sold by them in any three-month period and as to the
manner of sale. After the one year period, such affiliates may resell their
shares without such restrictions so long as there is adequate current public
information with respect to NCBE as required by Rule 144 under the Securities
Act.
The ability of affiliates to resell shares of NCBE Common received in
the Merger under Rule 144 or 145 under the Securities Act generally will be
subject to NCBE's having satisfied its Exchange Act reporting requirements
for specified periods prior to the time of sale. Affiliates also would be
permitted to resell shares of NCBE Common received in the Merger that have
been registered under the Securities Act or are exempt from the Securities
Act registration requirements.
Guidelines of the SEC regarding qualifying for the pooling of interests
method of accounting also limit sales of shares of the acquiring and acquired
company by affiliates of either company in a business combination.
Guidelines of the SEC indicate further that the pooling of interests method
of accounting will generally not be challenged on the basis of sales by
affiliates of the acquiring or acquired company if they do not dispose of any
of the shares of the corporation they own or shares of a corporation they
receive in connection with a merger during the period beginning 30 days
before the merger and ending when financial results covering at least 30 days
of post-merger operations of the combined entity have been published.
The Merger Agreement provides that PBI will obtain and deliver to NCBE
an agreement from each person who may reasonably be deemed an affiliate of
PBI providing that such affiliate will not transfer any shares of NCBE Common
received in the Merger except in compliance with the Securities Act and in
compliance with the requirements described in the preceding paragraph
regarding the non-disposition of any shares of PBI Common or NCBE Common (or
any interest therein) during the period commencing 30 days prior to the
Effective Time through the date on which financial results covering at least
30 days of combined operations of NCBE and PBI after the Merger have been
published.
22
<PAGE>
This Proxy Statement/Prospectus does not cover resales of shares of NCBE
Common received by any person who may be deemed to be an affiliate of PBI or
NCBE.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the PBI Board of Directors have certain interests in
the transactions contemplated by the Merger Agreement that are in addition to
their interests as PBI shareholders, including those referred to below.
NCBE has agreed to use its best efforts after the Effective Time to
expand its Board of Directors by one member and elect George D. Martin to
fill such vacancy.
23
<PAGE>
SELECTED FINANCIAL DATA
The following tables present selected supplemental consolidated historical
financial data for NCBE. The data have been restated to include the results
from acquisitions made through August 31, 1998, which have been accounted for as
poolings of interests. The data presented are derived from the supplemental
consolidated financial statements of NCBE and should be read in conjunction with
the more detailed information and financial statements incorporated by reference
in this Proxy Statement/Prospectus. See "WHERE YOU CAN FIND MORE INFORMATION."
NCBE
(Dollar amounts other than per share data in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income $35,920 $32,384 $66,083 $61,916 $56,418 $50,403 $47,190
Provision for loan losses 1,876 770 2,185 3,234 335 236 1,115
------- ------- ------- ------- ------- ------- -------
Net interest income 34,044 31,614 63,898 58,682 56,083 50,167 46,075
Noninterest income 7,800 5,952 12,214 10,730 8,961 6,793 8,094
Noninterest expense 23,926 20,133 42,759 38,223 36,636 35,917 35,124
------- ------- ------- ------- ------- ------- -------
Income before income taxes 17,918 17,433 33,353 31,189 28,408 21,043 19,045
Income taxes 5,485 5,365 9,770 9,960 9,668 7,002 5,913
------- ------- ------- ------- ------- ------- -------
Net income $12,433 $12,068 $23,583 $21,229 $18,740 $14,041 $13,132
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
PER SHARE DATA
Net income per share
Basic $0.92 $0.90 $1.76 $1.57 $1.36 $1.02 $0.95
Diluted 0.91 0.89 1.74 1.56 1.36 1.02 0.95
Book value 13.85 12.09 13.34 12.17 11.18 9.82 9.87
Cash dividends 0.33 0.29 0.59 0.55 0.35 0.30 0.26
SUMMARY OF FINANCIAL CONDITION
Total assets $1,832,953 $1,553,391 $1,613,416 $1,468,426 $1,367,266 $1,240,258 $1,225,182
Securities 356,323 358,509 342,726 344,365 330,091 334,388 337,687
Loans, net 1,286,299 1,063,317 1,110,770 992,627 911,607 786,509 704,936
Deposits 1,420,321 1,200,159 1,226,123 1,159,639 1,101,179 1,052,403 1,045,404
Shareholders' equity 187,123 159,742 179,431 157,517 155,095 134,624 131,498
SELECTED FINANCIAL RATIOS
Net income to average assets 1.41% 1.60% 1.52% 1.51% 1.45% 1.15% 1.08%
Net income to average equity 13.73% 15.18% 14.12% 13.55% 12.55% 10.57% 9.99%
Cash dividend payout ratio 35.85% 31.96% 33.49% 33.42% 25.76% 28.90% 26.77%
Average equity to average assets 10.27% 10.55% 10.79% 11.14% 11.53% 10.92% 10.85%
Weighted average shares (basic) 13,485,787 13,346,924 13,393,573 13,561,441 13,818,720 13,764,145 13,869,519
Weighted average shares (diluted) 13,638,444 13,485,340 13,556,688 13,573,403 13,826,513 13,771,938 13,877,312
</TABLE>
24
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following tables contain unaudited pro forma condensed consolidated
financial statements including a balance sheet as of June 30, 1998, and
statements of earnings for the six months ended June 30, 1998 and 1997 and the
years ended December 31, 1997, 1996, and 1995. These statements present
information for NCBE and on a pro forma combined basis giving effect to the
Merger and (A) as of June 30, 1998, the Other Pooling Acquisitions (defined as
acquisitions pending as of August 31, 1998 which are expected to be accounted
for as poolings of interests, see "INFORMATION CONCERNING NCBE" -- "Recent
Developments") and (B) for all prior periods, the Other Pooling Acquisitions.
As further described in "INFORMATION CONCERNING NCBE" -- "Recent Developments,"
NCBE has consummated the Purchase Transactions and the Completed Pooling
Acquisitions. The Purchase Transactions are not individually or in the
aggregate considered material to NCBE from a financial statement presentation
standpoint, and the pro forma data do not include the Purchase Transactions
(except to the extent they are reflected in NCBE's six month information). The
historical data for NCBE have been restated to include the results of the
Completed Pooling Acquisitions. The data presented are not necessarily
indicative of the results of the future operations of the combined organization
or the actual results that would have occurred if the Merger or Other Pooling
Acquisitions had been consummated prior to the periods indicated. The data
presented should be read in conjunction with the more detailed information and
financial statements included herein or incorporated by reference in this Proxy
Statement/Prospectus and with the unaudited pro forma financial statements
included elsewhere in this Proxy Statement/Prospectus. See "WHERE YOU CAN FIND
MORE INFORMATION," "SUMMARY COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA,"
"SELECTED FINANCIAL DATA," "INFORMATION CONCERNING PBI" and "INDEX TO PBI
FINANCIAL STATEMENTS."
25
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER
POOLING PRO FORMA
NCBE ACQUISITIONS PBI ADJUSTMENTS TOTAL
---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $61,850 $71,011 $4,201 $75,397
Time deposits in banks 1,397 1,397 0 1,397
Federal funds sold 4,115 14,090 7,298 21,388
Securities available for sale 356,323 400,946 12,341 413,493
Nonmarketable equity securities 13,100 14,247 1,114 15,361
Loans 1,286,299 1,447,174 114,191 1,561,367
Premises and equipment 41,180 43,653 2,354 46,007
Intangible assets 41,706 41,712 317 42,029
Other Assets 26,983 30,204 1,530 31,267
---------- ---------- -------- ---------- ----------
TOTAL ASSETS $1,832,953 $2,064,434 $143,346 $2,207,706
---------- ---------- -------- ---------- ----------
---------- ---------- -------- ---------- ----------
LIABILITIES
Deposits
Noninterest-bearing $175,951 $195,465 $16,098 $211,563
Interest-bearing 1,244,370 1,412,681 107,597 1,520,278
---------- ---------- -------- ---------- ----------
Total deposits 1,420,321 1,608,146 123,695 1,731,841
---------- ---------- -------- ---------- ----------
Short-term borrowings 73,247 73,247 5,239 78,486
Other borrowings 99,140 114,976 2,293 117,259
Guaranteed preferred beneficial interests in
NCBE's subordinated debenture 34,500 34,500 34,500
Dividends payable 2,040 2,040 2,040
Deferred income taxes 4,090 4,285 72 4,310
Other liabilities 12,492 14,296 655 14,928
---------- ---------- -------- ---------- ----------
TOTAL LIABILITIES 1,645,830 1,851,490 131,954 1,983,364
---------- ---------- -------- ---------- ----------
Common stock owned by ESOPs subject to put options 10,984 (10,984)(1)
EQUITY
Common stock 13,502 15,134 5 911 (3) 16,050
Treasury stock (1,495) 1,495 (2)
Capital surplus 84,869 94,181 1,687 (2,406)(2) 93,462
Unearned ESOP shares (327) (327)
Retained earnings 85,528 101,927 9,635 111,562
Common stock owned by ESOPs subject
to put options (10,984) 10,984 (1)
Unrealized gain on securities available for sale 3,224 3,530 65 3,595
---------- ---------- -------- ---------- ----------
TOTAL EQUITY 187,123 201,966 11,392 10,984 224,342
---------- ---------- -------- ---------- ----------
TOTAL LIABILITIES AND EQUITY $1,832,953 $2,064,360 $143,346 $0 $2,207,706
---------- ---------- -------- ---------- ----------
---------- ---------- -------- ---------- ----------
</TABLE>
Proforma adjustment explanations:
(1) Shares of common stock held by the employee stock ownership plans ("ESOPs")
of Hoosier Hills Financial Corporation ("HHFC"), Princeton Federal Bank fsb
and Downstate Banking Co., subject to put options, will be exchanged for
shares of NCBE Common. The ESOPs will be terminated and the NCBE Common
will be distributed to the participants.
(2) Reflects the retirement of treasury shares reflected on the financial
statements of HHFC, 1st Bancorp Vienna, Inc. and Illinois One Bancorp, Inc.
(3) Reflects 16,050,056 shares of NCBE Common outstanding at June 30, 1998 at
$1.00 stated value.
26
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER
POOLING
NCBE ACQUISITIONS PBI TOTAL
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $55,926 $63,383 $5,498 $68,881
Interest and dividends on securities
Taxable 5,603 6,598 501 7,099
Tax-exempt 5,177 5,440 92 5,532
Interest on federal funds sold 233 452 25 477
Interest on other income 165 194 194
---------- ---------- -------- ----------
TOTAL INTEREST INCOME 67,104 76,067 6,116 82,183
---------- ---------- -------- ----------
INTEREST EXPENSE
Interest on deposits 25,805 29,910 2,682 32,592
Interest on short-term borrowings 1,231 1,264 1,264
Interest on other borrowings 4,148 4,474 192 4,666
---------- ---------- -------- ----------
TOTAL INTEREST EXPENSE 31,184 35,648 2,874 38,522
---------- ---------- -------- ----------
NET INTEREST INCOME 35,920 40,419 3,242 43,661
Provision for loan losses 1,876 2,003 144 2,147
---------- ---------- -------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 34,044 38,416 3,098 41,514
---------- ---------- -------- ----------
NONINTEREST INCOME
Trust income 1,015 1,017 1,017
Service charges on deposit accounts 2,952 3,248 269 3,517
Other service charges and fees 1,911 2,031 2,031
Securities gains (losses) 1,060 1,051 (6) 1,045
Other 862 994 202 1,196
---------- ---------- -------- ----------
TOTAL NONINTEREST INCOME 7,800 8,341 465 8,806
---------- ---------- -------- ----------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 12,355 14,677 1,079 15,756
Occupancy expense 3,352 3,875 184 4,059
Other 8,219 9,206 940 10,146
---------- ---------- -------- ----------
TOTAL NONINTEREST EXPENSE 23,926 27,758 2,203 29,961
---------- ---------- -------- ----------
INCOME BEFORE INCOME TAXES 17,918 18,999 1,360 20,359
Income tax expense 5,485 5,860 444 6,304
---------- ---------- -------- ----------
NET INCOME $12,433 $13,139 $916 $14,055
---------- ---------- -------- ----------
---------- ---------- -------- ----------
Earnings per share:
Basic $0.92 $0.87 $0.88
Diluted 0.91 0.86 0.87
Weighted shares:
Basic 13,485,787 15,032,325 976,744 (1) 16,009,069
Diluted 13,638,444 15,192,667 976,744 (1) 16,169,411
</TABLE>
(1) Based on weighted average outstanding shares times 179.8462 exchange rate.
27
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER
POOLING
NCBE ACQUISITIONS PBI TOTAL
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $47,155 $54,429 $4,813 $59,242
Interest and dividends on securities:
Taxable 6,325 7,421 662 8,083
Tax-exempt 4,430 4,744 91 4,835
Interest on federal funds sold 326 419 48 467
Interest on other income 97 129 129
------- ------- ------ -------
TOTAL INTEREST INCOME 58,333 67,142 5,614 72,756
------- ------- ------ -------
INTEREST EXPENSE
Interest on deposits 21,872 25,783 2,574 28,357
Interest on short-term borrowings 1,610 1,650 1,650
Interest on other borrowings 2,467 2,738 135 2,873
------- ------- ------ -------
TOTAL INTEREST EXPENSE 25,949 30,171 2,709 32,880
------- ------- ------ -------
NET INTEREST INCOME 32,384 36,971 2,905 39,876
Provision for loan losses 770 887 146 1,033
------- ------- ------ -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 31,614 36,084 2,759 38,843
------- ------- ------ -------
NONINTEREST INCOME
Trust income 788 788 788
Service charges on deposit accounts 2,443 2,690 252 2,942
Other service charges and fees 1,538 1,649 43 1,692
Securities gains 619 615 6 621
Other 564 701 91 792
------- ------- ------ -------
TOTAL NONINTEREST INCOME 5,952 6,443 392 6,835
------- ------- ------ -------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 11,265 12,994 984 13,978
Occupancy expense 2,717 3,132 164 3,296
Other 6,151 6,962 764 7,726
------- ------- ------ -------
TOTAL NONINTEREST EXPENSE 20,133 23,088 1,912 25,000
------- ------- ------ -------
INCOME BEFORE INCOME TAXES 17,433 19,439 1,239 20,678
Income tax expense 5,365 6,002 409 6,411
------- ------- ------ -------
NET INCOME $12,068 $13,437 $830 $14,267
------- ------- ------ -------
------- ------- ------ -------
Earnings per share:
Basic $0.90 $0.92 $0.92
Diluted 0.89 0.91 0.91
Weighted shares:
Basic 13,346,924 14,570,998 976,744 (1) 15,547,742
Diluted 13,485,340 14,718,314 976,744 (1) 15,695,058
</TABLE>
(1) Based on weighted average outstanding shares times 179.8462 exchange rate.
28
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER
POOLING
NCBE ACQUISITIONS PBI TOTAL
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $97,099 $108,383 $10,250 $118,633
Tax-exempt 990 990 990
Interest and dividends on securities:
Taxable 12,079 13,604 1,206 14,810
Tax-exempt 9,266 9,819 183 10,002
Interest on federal funds sold 751 928 78 1,006
Interest on other income 214 570 570
------- ------- ------ -------
TOTAL INTEREST INCOME 120,399 134,294 11,717 146,011
------- ------- ------ -------
INTEREST EXPENSE
Interest on deposits 45,418 51,439 5,308 56,747
Interest on short-term borrowings 3,370 3,257 3,257
Interest on other borrowings 5,528 6,495 326 6,821
------- ------- ------ -------
TOTAL INTEREST EXPENSE 54,316 61,191 5,634 66,825
------- ------- ------ -------
NET INTEREST INCOME 66,083 73,103 6,083 79,186
Provision for loan losses 2,185 2,398 290 2,688
------- ------- ------ -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 63,898 70,705 5,793 76,498
------- ------- ------ -------
NONINTEREST INCOME
Trust income 1,956 1,927 1,927
Service charges on deposit accounts 5,476 5,880 507 6,387
Other service charges and fees 2,677 2,677 93 2,770
Securities gains (losses) 798 807 (3) 804
Other 1,307 1,696 188 1,884
------- ------- ------ -------
TOTAL NONINTEREST INCOME 12,214 12,987 785 13,772
------- ------- ------ -------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 24,085 27,175 2,065 29,240
Occupancy expense 2,857 3,448 401 3,849
Furniture and equipment expense 2,847 2,972 2,972
Assessments of the Federal Deposit
Insurance Corporation 294 306 306
Other 12,676 13,990 1,502 15,492
------- ------- ------ -------
TOTAL NONINTEREST EXPENSE 42,759 47,891 3,968 51,859
------- ------- ------ -------
INCOME BEFORE INCOME TAXES 33,353 35,801 2,610 38,411
Income tax expense 9,770 10,638 855 11,493
------- ------- ------ -------
NET INCOME $23,583 $25,163 $1,755 $26,918
------- ------- ------ -------
------- ------- ------ -------
Earnings per share:
Basic $1.76 $1.72 $1.73
Diluted $1.74 $1.70 $1.71
Weighted shares:
Basic 13,393,573 14,617,834 976,744(1) 15,594,578
Diluted 13,556,688 14,789,713 976,744(1) 15,766,457
</TABLE>
(1) Based on weighted average outstanding shares times 179.8462 exchange rate.
29
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER
POOLING
NCBE ACQUISITIONS PBI TOTAL
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $88,156 $98,458 $8,341 $106,799
Tax-exempt 749 749 749
Interest and dividends on securities:
Taxable 14,371 15,848 1,350 17,198
Tax-exempt 5,778 6,392 170 6,562
Interest on federal funds sold 737 922 20 942
Interest on other income 364 761 761
------- ------- ------ -------
TOTAL INTEREST INCOME 110,155 123,130 9,881 133,011
------- ------- ------ -------
INTEREST EXPENSE
Interest on deposits 41,980 47,905 4,446 52,351
Interest on short-term borrowings 2,459 2,381 2,381
Interest on other borrowings 3,800 4,366 299 4,665
------- ------- ------ -------
TOTAL INTEREST EXPENSE 48,239 54,652 4,745 59,397
------- ------- ------ -------
NET INTEREST INCOME 61,916 68,478 5,136 73,614
Provision for loan losses 3,234 3,480 216 3,696
------- ------- ------ -------
Net interest income after provision for loan losses 58,682 64,998 4,920 69,918
------- ------- ------ -------
NONINTEREST INCOME
Trust income 1,818 1,818 1,818
Service charges on deposit accounts 5,143 5,548 502 6,050
Other service charges and fees 2,407 2,407 174 2,581
Securities gains (losses) 69 72 (51) 21
Other 1,293 1,510 174 1,684
------- ------- ------ -------
TOTAL NONINTEREST INCOME 10,730 11,355 799 12,154
------- ------- ------ -------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 21,185 23,903 1,943 25,846
Occupancy expense 2,855 3,404 335 3,739
Furniture and equipment expense 2,681 2,779 2,779
Assessments of the Federal Deposit
Insurance Corporation 887 987 987
Other 10,615 11,961 1,195 13,156
------- ------- ------ -------
TOTAL NONINTEREST EXPENSE 38,223 43,034 3,473 46,507
------- ------- ------ -------
INCOME BEFORE INCOME TAXES 31,189 33,319 2,246 35,565
Income tax expense 9,960 10,594 732 11,326
------- ------- ------ -------
NET INCOME $21,229 $22,725 $1,514 $24,239
------- ------- ------ -------
------- ------- ------ -------
Earnings per share:
Basic $1.57 $1.54 $1.54
Diluted $1.56 $1.54 $1.54
Weighted shares:
Basic 13,561,441 14,780,980 980,881(1) 15,761,861
Diluted 13,573,403 14,798,545 980,881(1) 15,779,426
</TABLE>
(1) Based on weighted average outstanding shares times 179.8462 exchange rate.
30
<PAGE>
NCBE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, OTHER THAN SHARE DATA)
<TABLE>
<CAPTION>
NCBE AND
OTHER
POOLING
NCBE ACQUISITIONS PBI TOTAL
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $76,879 $87,137 $7,064 $94,201
Tax-exempt 693 693 693
Interest and dividends on securities:
Taxable 15,586 16,643 1,671 18,314
Tax-exempt 3,660 4,177 227 4,404
Interest on federal funds sold 1,159 1,246 52 1,298
Interest on other income 697 749 749
------- ------- ------ -------
TOTAL INTEREST INCOME 98,674 110,645 9,014 119,659
------- ------- ------ -------
INTEREST EXPENSE
Interest on deposits 39,574 45,021 4,082 49,103
Interest on short-term borrowings 1,671 1,854 1,854
Interest on other borrowings 1,011 1,192 301 1,493
------- ------- ------ -------
TOTAL INTEREST EXPENSE 42,256 48,067 4,383 52,450
------- ------- ------ -------
NET INTEREST INCOME 56,418 62,578 4,631 67,209
Provision for loan losses 335 535 230 765
------- ------- ------ -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 56,083 62,043 4,401 66,444
------- ------- ------ -------
NONINTEREST INCOME
Trust income 1,599 1,599 10 1,609
Service charges on deposit accounts 4,171 4,489 426 4,915
Other service charges and fees 1,814 1,814 118 1,932
Securities (losses) (72) (62) (4) (66)
Other 1,449 1,652 165 1,817
------- ------- ------ -------
TOTAL NONINTEREST INCOME 8,961 9,492 715 10,207
------- ------- ------ -------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 20,147 23,281 1,680 24,961
Occupancy expense 3,029 3,459 141 3,600
Furniture and equipment expense 2,543 2,651 73 2,724
Assessments of the Federal Deposit
Insurance Corporation 1,474 1,615 196 1,811
Other 9,443 10,116 1,172 11,288
------- ------- ------ -------
TOTAL NONINTEREST EXPENSE 36,636 41,122 3,262 44,384
------- ------- ------ -------
INCOME BEFORE INCOME TAXES 28,408 30,413 1,854 32,267
Income tax expense 9,668 10,267 573 10,840
------- ------- ------ -------
NET INCOME $18,740 $20,146 $1,281 $21,427
------- ------- ------ -------
------- ------- ------ -------
Earnings per share:
Basic $1.36 $1.34 $1.34
Diluted $1.36 $1.34 $1.34
Weighted shares:
Basic 13,818,720 15,033,853 980,881(1) 16,014,734
Diluted 13,826,513 15,051,655 980,881(1) 16,032,536
</TABLE>
(1) Based on weighted average outstanding shares times 179.8462 exchange rate.
31
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Shares of NCBE Common are traded on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol "NCBE". The following table sets forth the
high and low sales prices of NCBE Common and cash dividends declared for the
periods indicated. Prices and dividends have been adjusted to reflect stock
dividends and splits. There is no established public trading market for the
shares of PBI Common.
<TABLE>
<CAPTION>
NCBE COMMON PBI COMMON
------------------------------------ ------------------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
LOW HIGH DECLARED LOW (1) HIGH (1) DECLARED (3)
--- ---- --------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter $21.54 $27.10 $0.11 --- -- $ 73.33
Second Quarter 25.17 26.76 0.14 1/2 -- -- ---
Third Quarter 25.17 26.42 0.15 1/2 -- -- 36.66
Fourth Quarter 25.40 28.57 0.15 $2,350.00 $2,350.00 ---
1997
First Quarter 27.86 32.26 0.15 1/4 -- -- 36.83
Second Quarter 30.24 40.24 0.15 1/4 -- -- 110.78
Third Quarter 38.57 41.67 0.15 1/4 2,520.00 2,520.00 79.71
Fourth Quarter 40.00 51.19 0.18 -- -- 36.83
1998
First Quarter 38.50 45.50 0.18 -- -- 79.34
Second Quarter 37.00 45.00 0.18 -- -- 120.28
Third Quarter 32.75 40.63 0.18 -- -- 79.83
Fourth Quarter (2) 35.75 40.00 -- -- -- ---
</TABLE>
____________
(1) There is no established public trading market for PBI Common. The market
(to the extent one can be said to exist) for PBI Common has generally been
one local to the Lexington, Kentucky area. Trading of PBI Common has been
conducted primarily through private transactions and transfers within
families or estates. Price information for these private transactions has
not been made available to PBI.
(2) Through October 21, 1998.
(3) Beginning in the second quarter of 1997, distributions paid by PBI have
included amounts representing estimated liability for taxes as a result of
PBI's status as an S Corporation. The portion of the distributions paid
for estimated tax liabilities for the quarters indicated were as follows:
6/30/97 - $73.95; 9/30/97 - $42.88; 3/31/98 - $42.51; 6/30/98 - $83.45; and
9/30/98 - $43.00.
On July 13, 1998, the last trading day before the public announcement of
the proposed acquisition, the closing sale price of NCBE Common, was
$40 1/2 per share. Based upon the per share price of NCBE Common on such
date, the equivalent per share price of PBI Common would have been $7,283.77.
The equivalent per share price for PBI Common is calculated by multiplying
the specified closing sale price of NCBE Common by 179.8462, the number of
shares of NCBE Common to be issued for each share of PBI Common in the Merger.
On October 21, 1998, the closing sale price of NCBE Common was
$40.00 per share. Based on the per share price of NCBE Common on such date,
the equivalent per share price for PBI Common would have been $7,193.85.
As of October 1, 1998, there were approximately 2,515 and 17 holders of
record of NCBE Common and PBI Common, respectively.
32
<PAGE>
Both NCBE and PBI depend upon dividends from their financial institution
subsidiaries to pay dividends to their shareholders. The ability of the
financial institution subsidiaries to pay such dividends is limited by
applicable banking laws and regulations.
Shareholders of PBI are advised to obtain current market quotations for
NCBE Common.
33
<PAGE>
INFORMATION CONCERNING NCBE
BUSINESS
NCBE was organized in 1985 to act as a bank holding company for The
National City Bank of Evansville ("NCB"), which remains NCBE's principal banking
subsidiary. As of August 31, 1998, NCBE owned 14 commercial banks (including
NCB), one savings bank, a leasing subsidiary and a property management company.
As of June 30, 1998 (and as restated to give effect to acquisitions accounted
for as poolings of interests and consummated through August 31, 1998), NCBE had
total consolidated assets of $1.8 billion, total loans of $1.3 billion, total
deposits of $1.4 billion and total shareholders' equity of $187.1 million.
NCBE's financial institution subsidiaries provide a wide range of banking
services in the tri-state area of Indiana, Kentucky, and Illinois.
RECENT DEVELOPMENTS
The following is a brief description of the acquisitions completed since
December 31, 1997 or which are presently pending.
MAYFIELD BRANCH. On January 8, 1998, NCBE's subsidiary, First Kentucky
Bank, through an affiliate acquired the Mayfield, Kentucky Branch of Republic
Bank & Trust Company. First Kentucky Bank assumed deposit liabilities of
$65.7 million in consideration of a deposit premium of $4.6 million. First
Kentucky Bank also purchased the office facility and certain loans of the
branch.
BANK OF ILLINOIS IN MT. VERNON. On March 6, 1998, NCBE acquired Vernois
Bancshares, Inc., the holding company for Bank of Illinois in Mt. Vernon
("BOI"), an Illinois banking corporation with three offices in Mount Vernon,
Illinois. NCBE paid $27.5 million in cash for all of the outstanding stock of
the holding company. As of December 31, 1997, BOI had total assets of
$163.5 million, net loans of $109.3 million and total deposits of
$127.7 million. The acquisition was accounted for using the purchase method of
accounting and the results of operations of BOI will be included in NCBE's
consolidated results of operations from the date of acquisition.
The acquisitions of the Mayfield Branch and Bank of Illinois in Mt. Vernon are
referred to as the "Purchase Transactions."
ILLINOIS ONE BANK, NATIONAL ASSOCIATION. On May 31, 1998, NCBE acquired
Illinois One Bancorp., Inc. ("IOBI"), the holding company for Illinois One Bank,
National Association ("IOB"), a national banking association with offices in
Shawneetown, Elizabethtown and Golconda, Illinois. NCBE issued 572,737 shares
of NCBE Common in the transaction. As of March 31, 1998, IOB had total assets
of $87.8 million, and total shareholders' equity of $10.9 million. The
acquisition was accounted for as a pooling of interests.
TRIGG COUNTY FARMERS BANK. On August 31, 1998, NCBE acquired Trigg
Bancorp, Inc. ("TBI"), the holding company for Trigg County Farmers Bank
("TCFB"), a Kentucky banking corporation, which has three offices in Cadiz,
Kentucky. In the transaction, NCBE issued 736,278 shares of NCBE Common to
shareholders of TBI. As of June 30, 1998, TCFB had total assets of
$95.9 million and total shareholders equity of $8.8 million. The acquisition
was accounted for as a pooling of interests.
COMMUNITY FIRST BANK OF KENTUCKY AND COMMUNITY FIRST BANK, N.A. On
August 31, 1998, NCBE acquired Community First Financial, Inc. ("CFF"), the
holding company for Community First Bank of Kentucky, a Kentucky banking
corporation, which has two offices in Warsaw and Dry Ridge, Kentucky, and
Community First Bank, National Association, a national banking association,
which has six offices in Maysville, May's Lick and Mount Olivet, Kentucky and
Aberdeen and Ripley, Ohio. In the transaction, NCBE issued 1,432,202 shares of
NCBE Common to shareholders of CFF. As of June 30, 1998, CFF's subsidiary banks
had total assets of $133.4 million and total shareholders' equity of
$15.6 million. The acquisition was accounted for as a pooling of interests.
34
<PAGE>
The acquisitions of Illinois One Bank, National Association, Trigg County
Farmers Bank, Community First Bank of Kentucky and Community First Bank, N.A.
are referred to as the "Completed Pooling Acquisitions."
THE RIPLEY COUNTY BANK. On October 1, 1998, NCBE acquired Hoosier Hills
Financial Corporation ("HHFC"), the holding company for The Ripley County Bank
("RCB"), an Indiana banking corporation, which has offices in Milan, Osgood, and
Versailles, Indiana. NCBE issued 729,936 shares of NCBE Common in the
transaction. As of June 30, 1998, RCB had total assets of $112.3 million and
total shareholders' equity of $11.3 million. The acquisition will be accounted
for using the pooling of interests method of accounting.
FIRST STATE BANK OF VIENNA. On October 1, 1998, NCBE acquired 1st Bancorp
Vienna, Inc. ("Bancorp"), the holding company for First State Bank of Vienna
("FSBV"), an Illinois banking corporation with a single office in Vienna,
Illinois. NCBE issued 289,134 shares of NCBE Common in a transaction in which
Bancorp was merged into NCBE and FSBV was merged into IOB. As of June 30, 1998,
FSBV had total assets of $39.3 million and total shareholders' equity of
$5.0 million. The acquisition will be accounted for using the pooling of
interests method of accounting.
PRINCETON FEDERAL BANK, FSB. NCBE is a party to an Agreement and Plan of
Reorganization dated May 22, 1998 with Princeton Federal Bank, fsb ("PFB"), a
federal savings bank, with a single office in Princeton, Kentucky. The
agreement relates to the acquisition of PFB in a transaction in which PFB would
merge with an interim subsidiary of NCBE, and approximately 201,000 shares of
NCBE Common are expected to be issued. As of June 30, 1998, PFB had total
assets of $31.3 million and total shareholders' equity of $4.2 million. The
acquisition is subject to regulatory approval and the approval of shareholders
of PFB. The acquisition is expected to qualify for the pooling of interests
method of accounting. The parties expect to close the merger in the fourth
quarter of 1998.
The acquisitions of The Ripley County Bank, First State Bank of Vienna and
Princeton Federal Bank, fsb, are referred to as the "Other Pooling
Acquisitions."
BANK OF CRITTENDEN. NCBE is a party to an Agreement and Plan of Merger
dated June 30, 1998 with Commonwealth Commercial Corp. ("CCC"), the holding
company for Bank of Crittenden ("BC"), a Kentucky banking corporation with a
single office in Crittenden, Kentucky. The agreement relates to the acquisition
of CCC in a merger transaction in which approximately 190,000 shares of NCBE
Common are expected to be issued. As of June 30, 1998, BC had total assets of
$26.5 million and total shareholders' equity of $2.9 million. The acquisition
is subject to the approval of the Federal Reserve. NCBE expects to account for
the acquisition as an immaterial pooling of interests. The parties expect the
merger to close in the fourth quarter of 1998.
DOWNSTATE NATIONAL BANK. NCBE is a party to an Agreement and Plan of
Merger dated July 9, 1998, with Downstate Banking Co. ("DBC"), the holding
company for Downstate National Bank ("DNB"), which has one office in Brookport,
Illinois. The agreement relates to the acquisition of DBC in a merger
transaction in which approximately 107,100 shares of NCBE Common are expected to
be issued. DNB would concurrently merge into and become a branch of NCBE's
subsidiary, Illinois One Bank, National Association. As of June 30, 1998, DNB
had total assets of $22.0 million and total shareholders' equity of $1.4
million. The acquisition is subject to the approval of the Office of the
Comptroller of the Currency. NCBE expects to account for the acquisition as an
immaterial pooling of interests. The parties expect to close the merger in the
fourth quarter of 1998.
The following is a description of a recent securities offering:
TRUST PREFERRED OFFERING. On March 30, 1998, NCBE Capital Trust I (the
"Trust"), an affiliate of NCBE, completed a $34.5 million public offering of its
cumulative trust preferred securities. The Trust used the proceeds of the
public offering and funds from NCBE to purchase $35.6 million principal amount
of subordinated debentures to be issued by NCBE. NCBE used the net proceeds
from the sale of its subordinated debentures to repay indebtedness incurred in
the acquisitions of BOI discussed above.
35
<PAGE>
YEAR 2000 ISSUE
The Year 2000 poses a unique set of challenges to industries reliant on
information technology. As a result of methods employed by early programmers,
many software applications and operational programs may be unable to distinguish
the year 2000 from the year 1900. If not effectively addressed, this problem
could result in the production of inaccurate data, or, in the worst cases, the
inability of the systems to continue to function altogether. Financial
institutions are particularly vulnerable due to the industry's dependence on
electronic data processing systems.
NCBE is committed to a plan for achieving Year 2000 compliance. Management
believes that the expenditures required to bring systems into compliance will
not have a materially adverse effect on NCBE's performance. However, the Year
2000 problem is pervasive and complex and can potentially affect any computer
process. Accordingly, no assurance can be given that Year 2000 compliance can
be achieved without additional unanticipated expenditures and uncertainties that
might affect future financial results.
NCBE and its banking subsidiaries are subject to examination with respect
to their Year 2000 compliance by various state and federal agencies, including
the Federal Reserve Board, the Comptroller of the Currency, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, and state banking
agencies. If NCBE does not maintain at least its current "satisfactory" rating
with respect to its Year 2000 compliance efforts, regulatory applications
seeking approval of acquisitions or such approvals may be deferred until the
rating becomes satisfactory or approvals may only be given subject to additional
conditions. While management expects to devote sufficient corporate resources to
satisfy regulatory concerns in this area, there can be no assurance thereof.
36
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of NCBE Common
beneficially owned as of the Record Date by (i) each person or group of persons
known to NCBE to be the beneficial owner of more than five percent (5%) of the
issued and outstanding shares of NCBE Common and (ii) each director and
executive officer of NCBE. Also set forth below is such information adjusted
for the Merger (assuming the issuance of 976,744 shares of NCBE Common). Except
as otherwise noted, each person or group identified below holds sole voting and
sole investment power with respect to the shares identified as beneficially
owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE MERGER AFTER THE MERGER
----------------------- ---------------------
NAME SHARES PERCENT SHARES PERCENT
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Janice L. Beesley 65,459 (1) * 65,459 *
Ben L. Cundiff 416,976 2.8% 416,976 2.8%
Michael F. Elliott 341,122 (2) 2.3% 341,122 2.3%
Susanne R. Emge 24,580 (3) * 24,580 *
Donald G. Harris 12,095 * 12,095 *
H. Ray Hoops 1,015 * 1,015 *
Robert A. Keil 73,641 (4) * 73,641 *
John D. Lippert 71,797 (5) * 71,797 *
Ronald G. Reherman 9,105 (6) * 9,105 *
Curtis D. Ritterling 7,901 (7) * 7,901 *
Laurence R. Steenberg 29,402 (8) * 29,402 *
Robert D. Vance 716,390 (9) 4.9% 716,390 4.8%
Richard F. Welp 4,154 (10) * 4,154 *
Stephen C. Byelick, Jr. 3,366 (11) * 3,366 *
All directors and executive
officers as a group (14 persons) 1,777,033 (12) 11.9% 1,777,033 11.7%
</TABLE>
____________
* Less than 1%.
(1) Includes 28,218 shares with sole voting and investment power,
28,106 shares with sole voting and investment power by spouse and
9,135 shares that may be purchased pursuant to options exercisable within
60 days.
(2) Includes 271,121 shares with sole voting and investment power;
3,248 shares with shared voting and investment power with spouse; and
66,753 shares subject to options exercisable within 60 days.
(3) Includes 2,028 shares with sole voting and investment power;
14,894 shares with shared voting and investment power with spouse; and
7,658 shares with sole voting and investment power by spouse.
(4) Includes 12,138 shares with shared voting and investment power with
spouse; and 61,503 shares subject to options exercisable within 60 days.
(5) Includes 15,695 shares with sole voting and investment power;
8,274 shares with sole voting and investment power by spouse; and
47,828 shares subject to options exercisable within 60 days.
(6) Includes 3,401 shares with sole voting and investment power; and
5,704 shares with shared voting and investment power with spouse.
(7) Includes 2,500 shares with sole voting and investment power; 151 shares
with shared voting and investment power with spouse; and 5,250 shares
subject to options exercisable within 60 days.
(8) All shares are held in trust for a limited partnership of which
Mr. Steenberg is a general partner with sole voting and investment power.
(9) Includes 705,326 shares with sole voting and investment power; and
11,064 shares with sole voting and investment power by spouse.
(10) Includes 1,960 shares with sole voting and investment power; and
2,194 shares with shared voting and investment power with spouse.
(11) Includes 216 shares with shared voting and investment power with spouse
and 3,150 shares subject to options exercisable within 60 days.
(12) Includes 193,619 shares subject to options exercisable within 60 days.
37
<PAGE>
INFORMATION CONCERNING
PROGRESSIVE BANCSHARES, INC.
BUSINESS
PBI was incorporated under the laws of the Commonwealth of Kentucky on July
22, 1983 to serve as a bank holding company. The Bank is a national banking
association that commenced business in 1866. The business of PBI consists
solely of the ownership, supervision and control of the bank. The Bank has its
main office located in Lexington, Fayette County, Kentucky, one branch office
located in Owingsville, Bath County, Kentucky, and two branch offices located in
Lawrenceburg, Anderson County, Kentucky. As of June 30, 1998, PBI had, on a
consolidated basis, total assets of $143.3 million, net loans of $114.2
million, total deposits of $123.7 million and total shareholders' equity of
$11.4 million.
38
<PAGE>
SELECTED FINANCIAL DATA OF PBI
The selected consolidated data as of and for the years ended December 31,
1997 and 1996 have been derived from financial statements audited by independent
public accountants, whose reports can be found elsewhere in this
Prospectus/Proxy Statement. This data should be read in conjunction with PBI's
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
For the Six Months Ended For the Year Ended
June 30, December 31,
------------------------- -------------------
(DOLLAR AMOUNTS OTHER THAN PER
SHARE DATA IN THOUSANDS) 1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net interest income $ 3,242 $ 2,905 $ 6,083 $ 5,137
Provision for loan losses 144 146 290 216
------- ------- ------- -------
Net interest income after provision
for loan losses 3,098 2,759 5,793 4,921
Noninterest income 465 392 785 798
Noninterest expense 2,204 1,912 3,968 3,473
------- ------- ------- -------
Income before income tax expense 1,359 1,239 2,610 2,246
Income tax expense - 161 161 732
------- ------- ------- -------
Net income $1,359 $1,078 $2,449 $1,514
------- ------- ------- -------
------- ------- ------- -------
Pro forma C Corporation income tax expense(1) 444 409 856 732
------- ------- ------- -------
Pro forma net income $915 $830 $1,754 $1,514
------- ------- ------- -------
------- ------- ------- -------
PER COMMON SHARE
Net income(2) $168.55 $152.86 $323.01 $277.56
Cash dividends declared 199.62 147.61 264.15 109.99
Book value 2,098 1,899 2,044 1,846
TOTALS
Loans 115,608 109,124 115,364 96,490
Allowance for loan losses 1,417 1,202 1,315 1,039
Securities 16,186 21,018 21,836 19,471
Total assets 143,346 137,799 144,203 126,000
Deposits 123,695 117,479 123,296 112,200
Stockholders' equity 11,392 10,314 11,104 10,024
SELECTED FINANCIAL RATIOS
Net income to average assets(2) 1.28% 1.23% 1.25% 1.23%
Net income to average equity(2) 16.25% 16.56% 16.57% 15.92%
Cash dividend payout ratio(2) 79.80% 74.39% 58.59% 39.64%
Average equity to average assets 7.85% 7.77% 7.56% 7.75%
Tangible equity to tangible assets 7.70% 7.21% 7.45% 7.66%
Total capital to risk weighted assets 12.11% 11.44% 11.84% 12.38%
OTHER DATA
Weighted average shares 5,431 5,431 5,431 5,454
Risk weighted assets 101,405 97,098 100,621 85,931
</TABLE>
(1) PBI elected S Corporation status effective January 1, 1997. Amounts
represent the tax expense that would have been recognized as if C
Corporation status had been maintained.
(2) Computed using pro forma net income for comparability.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is presented to facilitate the
understanding of the financial position and results of the operations of PBI
and its subsidiary The Progressive Bank, National Association (the "Bank").
It identifies trends and changes that occurred during the reported periods
and should be read in conjunction with the consolidated financial statements
and accompanying notes.
BUSINESS
PBI is a one-bank holding company which conducts no direct business
activities. All business activities are performed by the Bank. The Bank
operates 4 banking locations and conducts its operations in and throughout
the surrounding communities of Lexington, Lawrenceburg, and Owingsville,
Kentucky. PBI's consolidated results are dependent upon net interest income,
which is the difference between the interest income on interest earning
assets and the interest expense on interest bearing liabilities. Principal
interest earning assets are securities and commercial, agricultural, real
estate mortgage and consumer loans. Interest bearing liabilities consist of
interest bearing deposit accounts and short-term and long-term borrowings.
Other sources of income include fees charged to customers for a variety of
loan and deposit services. Operating expenses consist primarily of employee
salaries and benefits and occupancy and equipment expenses. PBI's results of
operations are significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government
policies and actions of regulatory agencies.
Prior to their merger and name change which was effective January 1,
1998, the Bank operated as two separate subsidiaries of PBI, Farmers Bank
and The Anderson National Bank.
PBI elected S Corporation status, from C Corporation status, effective
January 1, 1997. Earnings and losses after that date are included in the
personal income tax returns of the stockholders and taxed depending on their
personal tax strategies. While PBI has not recorded income tax expense since
electing S Corporation status, for historical comparison purposes as well for
comparability with its acquiror National City Bancshares, Inc., a C
Corporation tax filer, the net earnings of PBI are presented as if the tax
expense had continued to be recorded as a C Corporation.
As of June 30, 1998, PBI and the Bank employ an aggregate of
approximately 58 persons on a full-time equivalent basis.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO JUNE 30, 1997
Pro forma net income increased to $915,000 for the six months ending
June 30, 1998 as compared to $830,000 for the same period in the prior year.
The increase was primarily the result of an 11.6% growth in net interest
income. Returns on average assets and returns on average equity were 1.28%
and 16.25% in 1998 as compared to 1.23% and 16.56% in 1997. As well,
earnings per share increased to $168.55 from $152.86. Net interest income
increased to $3.2 million for the six months ending June 30, 1998 as compared
to $2.9 million for the same period in the prior year. The increase is
primarily the result of a $9 million increase in average interest earning
assets which earn at a higher rate than the rate paid on the corresponding
increase in interest bearing liabilities. Noninterest income increased from
$392,000 to $465,000 primarily from growth in service charges and fees on
loans sold. Noninterest expense, increasing in all categories, increased
from $1.9 million to $2.2 million. Pro forma C Corporation provision for
income taxes increased from $409,000 in 1997 to $444,000 in 1998 and is
attributable to the increase in income before taxes.
40
<PAGE>
FINANCIAL CONDITION
COMPARISON OF JUNE 30, 1998 TO DECEMBER 31, 1997
Total assets decreased slightly to $143.3 million as of June 30, 1998
from $144.2 at December 31, 1997. Cash and cash equivalents increased from
$3.2 million to $7.7 million primarily as a result of the corresponding
decrease in securities available for sale from $17.9 million to $12.3
million. Net loans and deposits only increased marginally from $114.0
million to $114.2 million and from $123.3 million to $123.7 million,
respectively. While the mix of borrowed funds varies from period to period
depending on the volume of securities sold under agreements to repurchase,
total borrowings other than deposits decreased to $7.5 million from $9.0
million primarily from scheduled maturities of advances from the Federal Home
Loan Bank.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
GENERAL. Pro forma net income increased 15.9% or $240,000 over 1996 to
$1.8 million in 1997. The increase is primarily the result of a $946,000 or
18.4% increase in net interest income partially offset by a $496,000 increase
in noninterest expenses and a $123,000 increase in income taxes. Comparing
the same periods, return on average assets and return on average equity
increased to 1.25% and 16.57% from 1.23% and 15.92%. As well, earnings per
share increased to $323.01 from $277.56.
NET INTEREST INCOME. PBI's primary source of revenue is its net
interest income, which is the difference between the interest received on its
earning assets and the interest paid on the funds acquired to support those
assets. Loans made to businesses and individuals are the primary interest
earning assets, followed by investment securities and federal funds sold in
the inter-bank market. Deposits are the primary interest bearing liabilities
used to support the interest earning assets. The level of net interest
income is affected by both the balances and mix of interest earning assets
and interest bearing liabilities, the changes in their corresponding yields
and costs, by the volume of interest earning assets funded by noninterest
bearing deposits, and the level of capital. PBI's long term objective is to
manage this income to provide the largest possible amount of income while
balancing interest rate, credit and liquidity risks.
Net interest income increased 18.4% or $946,000 to $6.1 million in 1997
as compared to $5.1 million in 1996. The increase is attributed primarily to
the 15.0% or $17.6 million overall growth in average interest earning assets
which earn at a higher rate than the rate paid on the corresponding growth in
interest bearing liabilities. Average loans increased $18.4 million due to
continued commercial, agriculture and residential real estate loan demand and
was funded primarily through an increase of $16.4 million in average
deposits. PBI's emphasis on attracting new loans rather than investing in
securities also positively impacted net interest income because of the higher
yield earned on loans over that earned on investment securities.
41
<PAGE>
AVERAGE BALANCE SHEETS AND AVERAGE INTEREST RATES
TABLE 1
(Dollars in Thousands)
<TABLE>
<CAPTION>
------------ 1997 --------------- --------------- 1996 -------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings assets:
Investment securities
Taxable $ 17,959 $ 1,206 6.72% $ 20,307 $1,351 6.65%
Tax-exempt(1) 3,684 277 7.52 3,154 258 8.18
Federal funds sold 1,405 78 5.55 374 20 5.35
Loans (2,3) 111,924 10,250 9.16 93,491 8,341 8.92
-------- ------- ---- -------- ------ ----
Total earning assets $134,972 $11,811 8.75% $117,326 $9,970 8.50%
-------- ------- ---- -------- ------ ----
-------- ------- ---- -------- ------ ----
Allowance for loan losses (1,182) (954)
Non-earning assets:
Cash and due from banks $ 2,109 $ 2,382
Premises and equipment 2,257 2,148
Other assets 1,755 1,728
-------- --------
Total assets $139,911 $122,630
-------- --------
-------- --------
Interest bearing liabilities
Transaction accounts $ 21,876 $ 782 3.56% $ 17,230 $ 528 3.06%
Savings accounts 11,611 357 3.07 13,819 505 3.65
Time deposits 75,525 4,142 5.48 62,141 3,335 5.37
Repurchase agreements and
other borrowed funds 6,170 353 5.72 6,524 377 5.78
-------- ------- ---- -------- ------ ----
Total interest bearing
liabilities $115,182 $ 5,634 4.89% $ 99,714 $4,745 4.76%
-------- ------- ---- -------- ------ ----
-------- ------- ---- -------- ------ ----
Non-interest bearing liabilities
Demand deposits $ 13,305 $ 12,740
Other liabilities 841 668
Stockholders' equity 10,583 9,508
-------- --------
Total liabilities and
stockholders' equity $139,911 $122,630
-------- --------
-------- --------
Net interest income $ 6,177 $5,225
-------- --------
-------- --------
Net interest spread 3.88% 3.74%
---- ----
---- ----
Net interest margin 4.59% 4.45%
---- ----
---- ----
</TABLE>
(1) Income computed on a tax equivalent basis assuming a 34% federal
income tax rate.
(2) Includes loans on non-accrual status.
(3) Also includes fee income.
42
<PAGE>
RATE/VOLUME VARIANCE ANALYSIS - TABLE 2
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
Increase (decrease) due to change in Increase (decrease) due to change in
------------------------------------ ------------------------------------
Net Change Volume Rate Net Change Volume Rate
---------- ------ ---- ---------- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Investment securities
Taxable $ (145) $ (158) $ 13 $ (320) $ (186) $(134)
Tax exempt 19 40 (21) (86) (77) (9)
Federal funds sold 58 37 21 (32) (28) (4)
Loans 1,909 1,683 226 1,277 1,203 74
------ ------ ---- ------ ------ -----
Total interest income $1,841 $1,602 $239 $ 839 $ 912 $ (73)
------ ------ ---- ------ ------ -----
------ ------ ---- ------ ------ -----
Interest expense:
Transaction accounts $ 254 $ 157 $ 97 $ 22 $ 11 $ 11
Savings accounts (148) (74) (74) 18 10 8
Time deposits 807 733 74 245 112 133
Repurchase agreements and
other borrowed funds (24) (20) (4) 77 83 (6)
------ ------ ---- ------ ------ -----
Total interest expense 889 796 93 362 216 146
------ ------ ---- ------ ------ -----
Net interest income $ 952 $ 806 $146 $ 477 $ 696 $(219)
------ ------ ---- ------ ------ -----
------ ------ ---- ------ ------ -----
</TABLE>
NONINTEREST INCOME. Noninterest income decreased $13,000 during 1997 to
$785,000. The primary source of other income is service charge income on
deposit products which increased from $502,000 in 1996 to $507,000 in 1997.
The overall decrease in noninterest income related to the decrease in fees
associated with loans originated for other institutions. Fees associated
with these loans totaled $93,000 in 1997 and $174,000 in 1996 and will vary
from period to period depending on the demand for this type of product.
NONINTEREST EXPENSE. Noninterest expenses increased from $3.5 million
in 1996 to $4.0 million in 1997. The primary component of noninterest
expense is salaries and employee benefits expense which was $2.1 million in
1997 increasing nominally as compared to $2.0 million in 1996. The remainder
of the increase is attributable to increased costs of occupancy and
equipment, miscellaneous taxes, data processing, professional services, and
various other expenses. The increases in noninterest expenses are primarily
attributable to the increased costs associated with the opening of the
Lexington location on January 1, 1997.
INCOME TAXES. As discussed above, PBI elected S Corporation status
effective January 1, 1997. For comparability purposes, management has
computed a pro forma tax provision and pro forma net income as if they had
continued in a C Corporation status. C Corporation provision for income
taxes increased to $855,000 in 1997 as compared to $732,000 in 1996. The
increase is due to the growth in income before income taxes.
43
<PAGE>
FINANCIAL CONDITION
COMPARISON OF DECEMBER 31, 1997 TO DECEMBER 31, 1996
LOANS. Loans represent PBI's largest earning asset and as of December
31, 1997 represented 80.0% of total assets. During 1997, loans increased
19.6% to $115.4 million at December 31, 1997 from $96.5 million at December
31, 1996. The increase was primarily due to strong demand in commercial and
agricultural loans which increased 23.5% to $64.6 million and real estate
loans which increased 16.7% to $40.9 million.
At June 30, 1998, the Bank had no concentrations of loans to borrowers
of similar activities that exceeded 10% of total loans other than those
categories already listed in the table below.
LOAN PORTFOLIO SUMMARY - TABLE 3
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1998 % 1997 % 1996 %
------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural $ 64,048 55.4% $ 64,638 56.0% $ 52,327 54.2%
Real estate 41,094 35.5 40,863 35.4 35,022 36.3
Consumer and installment 10,466 9.1 9,863 8.6 9,141 9.5
-------- ----- -------- ------ -------- -----
Total loans $115,608 100.0% $115,364 100.0% $ 96,490 100.0%
-------- ----- -------- ------ -------- -----
-------- ----- -------- ------ -------- -----
</TABLE>
The table below illustrates PBI's rate sensitivities and repricing
frequency for the commercial and agricultural loans as follows:
<TABLE>
<CAPTION>
SELECTED LOAN DISTRIBUTION - TABLE 4
(Dollars in Thousands)
------------------- June 30, 1998 ----------------------------
(in thousands)
1 YEAR OR LESS 1 - 5 YEARS AFTER 5 YEARS TOTAL
-------------- ----------- ------------- -----
<S> <C> <C> <C> <C>
Fixed rate maturities $ 25,167 $ 27,156 $ 225 $ 52,548
Adjustable rate repricing
frequency 11,500 11,500
-------- -------- ------ --------
$ 36,667 $ 27,156 $ 225 $ 64,048
-------- -------- ------ --------
-------- -------- ------ --------
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES. The allowance for loans losses
is regularly evaluated by management and maintained at a level believed to be
adequate to absorb future loan losses in PBI's portfolios. Periodic
provisions to the allowance are made as needed. The amount of the provision
for loan losses necessary to maintain an adequate allowance is based upon an
assessment of current economic conditions, analysis of periodic loan
reviews, delinquency trends and ratios, changes in the mixture and levels of
the various categories of loans, historical charge-offs, recoveries, and
other information. Management believes that the allowance for loan losses is
adequate. Although management believes it uses the best information
available to make allowance provisions, future adjustments which could be
material may be necessary if management's assumptions differ from the loan
portfolio's actual future performance.
44
<PAGE>
The allowance for loan losses increased $276,000 during 1997 to $1.3
million at December 31, 1997. The increase is primarily attributable to the
growth in commercial and agricultural lending which generally presents a
higher risk than residential lending. PBI's allowance for loan losses to
total loans increased slightly from 1.08% at December 31, 1996 to 1.14%
December 31, 1997. Net charge-offs for 1997 and 1996 were nominal compared to
the loan portfolio and allowance for loan losses.
SUMMARY OF LOAN LOSS EXPERIENCE - TABLE 5
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1998 1997 1996
----------- -----------------------
<S> <C> <C> <C>
Allowance for loan losses at
beginning of year $ 1,315 $ 1,039 $ 872
Charge-offs:
Commercial and agricultural (31) (21) (29)
Real estate - (1) -
Consumer and installment (28) (41) (64)
--------- -------- ------
Total (59) (63) (93)
Recoveries:
Commercial and agricultural 8 34 24
Real estate - - -
Consumer and installment 9 15 20
--------- -------- ------
Total 17 49 44
Net charge-offs (42) (14) (49)
--------- -------- ------
Provision for loan losses 144 290 216
--------- -------- ------
Allowance for loan losses end of period $ 1,417 $ 1,315 $1,039
--------- -------- ------
--------- -------- ------
Net charge-offs to average loans .04% .01% .05%
</TABLE>
The following table is management's allocation of the allowance for loan
losses by loan type. Allowance funding and allocation is based on
management's assessment of economic conditions, past loss experience, loan
volume, past due history and other factors. Since these factors are subject
to change, the allocation is not necessarily predictive of future portfolio
performance.
45
<PAGE>
The allocation for the allowance for loan losses is an estimate of the
portion of the allowance that will be used to cover future charge-offs in each
major loan category, but it does not preclude any portion of the allowance
allocated to one type of loan being used to absorb losses of another loan type.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AND
PERCENT OF LOANS TO TOTAL LOANS - TABLE 6
(Dollars in Thousands)
<TABLE>
<CAPTION>
-------- December 31 --------
JUNE 30, 1998 1997 1996
------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial and agricultural loans $ 926 55.4% $ 871 56.0% $ 660 54.2%
Real estate 228 35.5 193 35.4 152 36.3
Consumer and installment 263 9.1 251 8.4 227 9.5
------- ----- ------- ----- ------- -----
$ 1,417 100.0% $ 1,315 100.0% $ 1,039 100.0%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
ASSET QUALITY. Loans are placed on non-accrual when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection
of interest is doubtful. When loans are placed on non-accrual status, all
unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received. These loans remain
on non-accrual status until the borrower demonstrates the ability to remain
current or the loan is deemed uncollectible and is charged-off. The
following table provides information on non-performing assets.
NON-PERFORMING ASSETS - TABLE 7
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30 -------- December 31, --------
1998 1997 1996
---- ----
<S> <C> <C> <C>
Loans on non-accrual status (1) $ - $ 33 $ 4
Loans past due 90 days or more 101 52 76
----- ----- ---
Total non-performing loans 101 85 80
Other real estate owned 30 - -
----- ----- ---
Total non-performing assets $ 131 $ 85 $80
----- ----- ---
----- ----- ---
Percentage of non-performing assets to
total loans 0.11% 0.07% 0.08%
Percentage of non-performing assets to
total assets 0.09% 0.06% 0.06%
</TABLE>
(1) The interest income that would have been earned and received on
non-accrual loans was not material.
46
<PAGE>
PBI defines impaired loans to be those commercial and agricultural loans
that management believes is probable that all principal and interest amounts
will not be collected according to the loan contract. Impaired loans totaled
$274,000 and $250,000 at December 31, 1997 and 1996. The allowance related
to these loans was $41,000 and $38,000, respectively.
INVESTMENT SECURITIES. The securities portfolio consists of debt and
equity securities which provide PBI with a relatively stable source of
income. Additionally, the investment portfolio provides a balance to interest
rate and credit risks in other categories of the balance sheet. The
securities portfolio is also used as a secondary source of liquidity. PBI
has classified all municipal securities as held to maturity based on
management's positive intent and ability to hold such securities to maturity.
These municipal securities provide tax-free income and are within
management's guidelines with respect to credit risk and market risk. The
municipal securities have been issued principally by Kentucky municipalities.
The U. S. Treasury and Federal Agency securities and asset-backed securities
are classified as available for sale and provide a source of stable income
and can be used as collateral to secure municipal deposits and repurchase
agreements.
Securities as a percentage of interest-earning assets decreased to 11.9%
at June 30, 1998 versus 15.8% at December 31, 1997 and 16.5% at December 31,
1996. These decreases in securities reflect management's emphasis on
originating higher yielding loans and placing a lesser reliance on the
securities portfolio for sources of income.
Excluding those holdings in the investment security portfolio of U.S.
Treasury and U.S. agency and corporation securities, there were no
investments in securities of any one issuer which exceeded 10% of
stockholders' equity at June 30, 1998.
The following tables present the carrying values and maturity
distribution of investment securities.
INVESTMENT PORTFOLIO - TABLE 8
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30 -------- December 31, --------
1998 1997 1996
<S> <C> ---- ----
<C> <C>
Available for sale:
U.S. Treasury and Federal Agencies $ 1,771 $ 3,161 $ 5,349
Asset-backed securities 10,569 14,405 10,794
Equity securities -- 352 600
-------- -------- -------
12,340 17,918 16,743
Held to maturity:
State and municipal obligations 3,846 3,918 2,728
-------- -------- -------
Total $ 16,186 $ 21,836 $19,471
-------- -------- -------
-------- -------- -------
</TABLE>
47
<PAGE>
MATURITY DISTRIBUTION OF SECURITIES - TABLE 9
(Dollars in Thousands)
<TABLE>
<CAPTION>
------------------- As of June 30, 1998 ------------------
One Five
Year Through Through Over
or Five Ten Ten
Less Years Years Years Total
---- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and Federal agencies $ 251 $ 1,520 $ -- $ -- $ 1,771
Asset-backed securities 96 2,535 3,862 4,076 10,569
------- ------- ------- ------- -------
347 4,055 3,862 4,076 12,340
Held to Maturity:
State and municipal obligations 944 603 1,738 561 3,846
------- ------- ------- ------- -------
Total $ 1,291 $ 4,658 $ 5,600 $ 4,637 $16,186
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average yield 5.15% 6.22% 6.15% 6.33% 6.14%
</TABLE>
DEPOSITS. Managing the mix and repricing of deposit liabilities is an
important factor affecting PBI's ability to maximize its net interest margin.
The strategies used to manage interest bearing deposit liabilities are
designed to adjust as the interest rate environment changes. In this regard,
management regularly assesses its funding needs, deposit pricing, and
interest rate outlook.
Deposits increased $11.1 million or 9.9% from $112.2 million at December
31, 1996 to $123.3 at December 31, 1997. The increase was primarily due to
growth in time deposits. Total deposits averaged $122.3 million in 1997 as
compared to $105.9 million in 1996. Non-interest bearing deposits to total
deposits averaged 10.9% in 1997 as compared to 12.0% in 1996.
48
<PAGE>
The table below provides information on the maturities of time deposits of
$100,000 or more at June 30, 1998:
CERTIFICATES OF DEPOSIT OF $100,000 OR MORE - TABLE 10
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30
1998
----
<S> <C>
Maturing 3 months or less $ 6,050
Maturing over 3 through 6 months 1,952
Maturing over 6 through 12 months 4,070
Maturing over 12 months 2,630
-------
Total $14,702
-------
-------
</TABLE>
SHORT TERM BORROWINGS. PBI's short term borrowings consist of federal
funds purchased and securities sold under agreements to repurchase. Short
term borrowings increased $3.1 million during 1997 to $4.8 million. The
increase is primarily due to growth in securities sold under agreements to
repurchase. Amounts outstanding under these agreements can fluctuate greatly
depending on the cash needs of the Bank's customers. See Note 6 to the
Consolidated Financial Statements for additional information on securities
sold under agreements to repurchase.
OTHER BORROWED FUNDS. Other borrowed funds consist of advances from the
Federal Home Loan Bank (FHLB) and long-term debt. FHLB advances increased
$2.8 million during 1997 to $3.2 million. Substantially all of these
advances mature in 1998. Levels of other borrowed funds are routinely
evaluated by management with consideration given to growth in the loan
portfolio, liquidity needs, cost of retail deposits, market conditions, and
other factors.
ASSET/LIABILITY MANAGEMENT
Asset/liability management involves developing, implementing and
monitoring strategies to maintain sufficient liquidity, maximize net interest
income and minimize the impact significant fluctuations in market interest
rates have on earnings. The Asset/Liability Committee of the Bank is
responsible for managing this process. Much of this committee's efforts are
focused on minimizing the Bank's sensitivity to changes in interest rates.
One method of gauging sensitivity is by a static gap analysis.
As seen in the following table as of June 30, 1998, PBI had a cumulative
liability gap position of $24.1 million within the one year time frame. This
position suggests that if market interest rates decline in the next 12
months, PBI has the potential to earn more net interest income. A limitation
of the traditional static gap analysis, however, is that it does not consider
the timing or magnitude of noncontractual repricing. In addition, the static
gap analysis treats interest bearing transaction accounts and savings
accounts as repriceable within 30 days, while experience suggests that these
categories of deposits are actually comparatively resistant to rate
sensitivity. Although the static gap sensitivity varies from time frame to
time frame, management has the ability to adjust rates on deposit accounts to
achieve a neutral interest sensitivity position within the intermediate term.
49
<PAGE>
GAP POSITION - TABLE 11
(Dollars in Thousands)
<TABLE>
<CAPTION>
Up to 4 to 12 1 to 5 After Non-
3 months Months Years 5 years Sensitive Total
-------- ------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ $ $ $ $ 4,202 $ 4,202
Federal funds sold 3,452 3,452
Investment securities 2,552 4,591 8,297 1,860 17,300
Loans 28,932 34,379 50,561 1,736 (1,417) 114,191
Other assets 4,201 4,201
------- ------- ------- ------- ------- --------
Total assets $34,936 $38,970 $58,858 $ 3,596 $ 6,986 $143,346
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
LIABILITIES
Noninterest bearing deposits $ $ $ $ $16,099 $ 16,099
Interest bearing deposits 52,235 38,225 17,070 66 107,596
Repurchase agreements 5,239 5,239
FHLB advances 1,294 1,294
Long-term debt 1,000 1,000
Other liabilities and equity 12,118 12,118
------- ------- ------- ------- ------- --------
Total liabilities and equity $59,768 $38,225 $17,070 $ 66 $28,217 $143,346
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
GAP (24,832) 745 41,788 3,530 (21,231)
Cumulative GAP (24,832) (24,087) 17,701 21,231
Cumulative as a percent of
earning assets (18.4)% (17.8)% 13.1% 15.7%
</TABLE>
50
<PAGE>
LIQUIDITY
Liquidity is generally defined as the ability to meet cash flow
requirements. PBI manages liquidity at two levels, the parent company and
its subsidiary, Progressive Bank, National Association. PBI's primary cash
requirement is to pay dividends to its shareholders and its primary source of
funds is dividends received from the Bank.
The Bank's primary liquidity consideration is to meet the cash flow
needs of its customers, such as borrowings and deposit withdrawals. To meet
cash flow requirements, sufficient sources of liquid funds must be available.
These sources include short-term investments, repayments and maturities of
loans and securities, growth in deposits and other liabilities, and profits.
At June 30, 1998, the Bank had $4.2 million in cash and due from banks and
deposits in other banks. Also, as shown in Table 9, approximately $1.3
million of investment securities were scheduled to mature within one year.
Principal reductions received on loans also provide a continual stream of
cash flows. Another source of liquid funds is net cash provided from
operating activities, which provided $2.9 million in 1997. Also, the Bank
has established federal funds lines of credit with its correspondent banks
which allow the Bank to borrow up to $5.0 million. Finally, the Bank is a
member of the Federal Home Loan Bank of Cincinnati (FHLB). Based on the
Bank's June 30, 1998 stock ownership, an additional $13.0 million borrowing
capacity is available with the FHLB.
CAPITAL RESOURCES
Management believes that a strong capital position is paramount to its
continued profitability and continued depositor and shareholder confidence.
It also provides PBI with flexibility to take advantage of growth
opportunities and to accommodate larger commercial loan customers.
Regulators have established "risk based" capital guidelines for banks and
bank holding companies. Under the guidelines, minimum capital levels are
based on the perceived risk in asset categories and certain off-balance-sheet
items, such as loan commitments and standby letters of credit. Management
monitors its capital levels to comply with regulatory requirements. In order
to be considered "well capitalized" by the FDIC, financial institutions must
maintain a leverage ratio in excess of 5% and a total risk based capital
ratio in excess of 10%. As depicted in Note 15 to the consolidated financial
statements, PBI and the Bank's capital ratios are in excess of regulatory
standards for classification as "well capitalized". Being considered "well
capitalized" is one condition for assessing the federal deposit insurance
premiums at the lowest available rate.
IMPACT OF INFLATION
The consolidated financial statements and notes have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of PBI operations. Nearly all the assets and
liabilities of PBI are financial. As a result, performance is directly
impacted by changes in interest rates, which are indirectly influenced by
inflationary expectations. PBI's ability to match the interest sensitivity of
its financial assets to the interest sensitivity of its financial liabilities
in its asset/liability management may tend to minimize the effect of changes
in interest rates on performance. Changes in interest rates do not
necessarily move to the same extent as do changes in the prices of goods and
services.
YEAR 2000
Management has assessed the operational and financial implications of
its Year 2000 needs and developed a plan to ensure that data processing
systems can properly handle the change. Management has determined that if a
business interruption as a result of the Year 2000 issue occurred, such an
interruption could be material. The primary effort required to prevent a
potential business interruption is the installation of the most current
software release of the Bank's core system as provided by the Bank's third
party processor. The third party processor has stated that Year 2000
remediation and testing efforts have been successfully completed. In further
assurance of this, the Bank has scheduled two testing dates in September, the
results of which will be warranted (but results must be signed off and
acknowledged by Bank's employees) by the third party processor.
Non-compliant hardware is being replaced through routine hardware upgrades.
Non-compliant software is in the remediation stage and will be scheduled for
re-testing before year-end 1998.
51
<PAGE>
Should mission critical system readiness not be achieved by December 31,
1998, the Bank intends to seek alternative solutions from other vendors.
Non-mission critical systems, including systems other than data processing
with embedded technology, has been evaluated and is included in a remediation
schedule according to priority. Management projects the cost of Year 2000
readiness will be in the range of $75,000 to $100,000, the majority of which
will be expensed as occurred. Year 2000 expenses are subject to change and
could vary from current estimates if the final requirements for Year 2000
readiness exceed management's expectations.
52
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth in number of shares of PBI Common
beneficially owned as of the Record Date, by (i) each person or group of
persons known by PBI to be the beneficial owner of more than five percent
(5%) of the issued and outstanding shares of PBI Common and (ii) each
director and executive officer of PBI. Except as otherwise noted, each
person or group of persons identified below has sole voting and sole
investment power with respect to the shares identified as beneficially owned.
<TABLE>
<CAPTION>
NAME BENEFICIAL OWNERSHIP (1)
------------------ ------------------------
SHARES PERCENT
------ -------
<S> <C> <C>
Samuel T. Adams - Executive Vice President and Director 819 15.1%
Douglas J. Beck - Executive Vice President and Director 10 0.0
John V. Boardman, Jr. - President and Director 410 7.6
Walter R. Byrne, Jr. - Director 376 (1) 6.9
Ellis L. Hefner - Secretary/Treasurer and Director 447 (2) 8.2
George D. Martin - Chairman and Director 1,091 20.1
Thomas W. Miller - Director 732 (3) 13.5
James M. Stevens - Executive Vice President and Director 10 0.0
Robert R. Dawson, Jr. 800 14.7
Arthur E. Walker, Jr. 320 5.9
All Directors and Executive Officers as a group (8 persons) 3,895 71.7
</TABLE>
________________
* Less than 1%.
(1) Includes 154 shares held by Mr. Byrne's spouse.
(2) Includes 13 shares held by Mr. Hefner's spouse.
(3) Includes 10 shares held as custodian for a minor child.
The PBI Board believes that substantially all the shares owned by the
above-listed persons and group will be voted in favor of the Merger. The
belief is based on information furnished by the individuals.
53
<PAGE>
DESCRIPTION OF NCBE CAPITAL STOCK
AUTHORIZED SHARES
NCBE's Articles of Incorporation presently authorize the issuance of
29,000,000 shares of NCBE Common and 1,000,000 preferred shares, without par
value ("NCBE Preferred"). As of October 1, 1998, there were 14,546,957
shares of NCBE Common issued and outstanding and no shares of NCBE Preferred
issued and outstanding.
NCBE COMMON
The holders of NCBE Common are entitled to one vote for each share held
of record on all matters submitted to a vote of shareholders. Subject to
preferences that may be applicable to any outstanding NCBE Preferred, holders
of NCBE Common are entitled to receive ratably such dividends as may be
declared by the NCBE Board out of funds legally available therefor. In the
event of a liquidation or dissolution of NCBE, holders of NCBE Common are
entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding NCBE Preferred.
Holders of NCBE Common have no preemptive rights and have no rights to
convert their NCBE Common into any other securities. All of the outstanding
shares of NCBE Common are, and the shares of NCBE Common issued pursuant to
the Merger will be, duly authorized, validly issued, fully paid and
nonassessable.
NCBE PREFERRED
The NCBE Board is authorized to designate any series of NCBE Preferred
and the powers, preferences and rights of the shares of such series and the
qualifications, limitations or restrictions thereof without further action by
the holders of NCBE Common. As of the Record Date, no shares of NCBE
Preferred were issued or outstanding.
The NCBE Board may create and issue a series of NCBE Preferred with
rights, privileges or restrictions, and adopt a shareholder rights plan,
having the effect of discriminating against an existing or prospective holder
of such securities as a result of such security holder beneficially owning or
commencing a tender offer for a substantial amount of NCBE Common. One of
the effects of authorized but unissued and unreserved shares of capital stock
may be to render more difficult or discourage an attempt by a potential
acquiror to obtain control of NCBE by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of NCBE's
management. The issuance of such shares of capital stock may have the effect
of delaying, deferring or preventing a change in control of NCBE without any
further action by the shareholders of NCBE. NCBE has no present intention to
adopt a shareholder rights plan, but could do so without shareholder approval
at any future time.
CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION AND BY-LAWS
Certain provisions of NCBE's Articles of Incorporation and By-laws may
delay or make more difficult unsolicited acquisitions or changes of control
of NCBE. Such provisions could have the effect of discouraging third parties
from making proposals involving an unsolicited acquisition or change in
control of NCBE, although such proposals, if made, might be considered
desirable by a majority of NCBE's shareholders. Such provisions may also
have the effect of making it more difficult for third parties to cause the
replacement of the current management of NCBE without the concurrence of the
Board of Directors. These provisions include: (i) the classification of the
Board of Directors into three classes, each class serving "staggered" terms
of office of three years; (ii) the requirement that any business combination
be approved by the holders of 80% of the shares entitled to vote thereon,
unless the transaction has been approved by NCBE's Board of Directors; and
(iii) requirements for advance notice for making nominations at shareholders'
meetings. See "COMPARISON OF SHAREHOLDER RIGHTS."
NCBE's By-laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors. Although NCBE's By-laws do not give
the
54
<PAGE>
Board of Directors any power to approve or disapprove shareholder nominations
for the election of directors or proposals for action, they may have the
effect of precluding a contest for the election of directors or the
consideration of shareholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
proposals without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to NCBE and its shareholders.
CERTAIN PROVISIONS OF THE IBCL
As an Indiana corporation, NCBE is governed by the Indiana Business
Corporation Law (the "IBCL"). Certain provisions of the IBCL may delay,
prevent or make more difficult changes of control of NCBE. Such provisions
also may have the effect of preventing changes in the management of NCBE. It
is possible that such provisions could make it more difficult to accomplish
transactions which shareholders may otherwise deem to be in their best
interests. See "COMPARISON OF SHAREHOLDER RIGHTS -- Business Combinations
Involving Interested Shareholder" and "COMPARISON OF SHAREHOLDER RIGHTS --
Control Share Acquisitions."
TRANSFER AGENT
The transfer agent for shares of NCBE Common is Fifth Third Bank,
Cincinnati, Ohio.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of holders of shares of NCBE Common are governed by the IBCL
and by NCBE's Articles of Incorporation and By-laws. The rights of holders
of shares of PBI Common are governed by the KBCA and PBI's Articles of
Incorporation and By-laws. The rights of shareholders of NCBE differ in
certain respects from the rights of shareholders of PBI. A summary of the
material differences between the respective rights of the shareholders of
NCBE and PBI is set forth below.
CLASSIFIED BOARD OF DIRECTORS
NCBE. The Articles of Incorporation and By-laws of NCBE divide the
Board of Directors into three classes, as nearly equal in number as possible,
with each class of directors serving a staggered term of three years. The
purpose of a classified Board of Directors is to promote stability and
continuity within the Board. However, a classified Board of Directors also
has the effect of decreasing the number of directors that may otherwise be
elected by holders of NCBE Common and, therefore, may have the effect of
precluding a contest for the election of directors or delay, prevent or make
more difficult changes in control of NCBE.
PBI. PBI does not have a classified Board of Directors. The By-laws of
PBI provide for a Board of Directors of not less than five nor more than 25
members.
BUSINESS COMBINATIONS NOT INVOLVING AN INTERESTED SHAREHOLDER
NCBE. Under the IBCL, a majority of the shares entitled to vote on a
proposed plan of merger or share exchange is required for approval unless any
class or series of shares is entitled to vote separately as a class on the
plan. However, the vote of the shareholders of the surviving corporation on
a plan of merger is not required if (i) the articles of incorporation of the
surviving corporation will not differ from its articles before the merger,
(ii) each shareholder of the surviving corporation whose shares were
outstanding immediately before the effective date of the merger will hold the
same proportionate number of shares held by all such shareholders (except for
shares of the surviving corporation received solely as a result of the
shareholder's proportionate shareholdings in the other corporations party to
the merger), with identical designations, preferences, limitations and
relative rights, immediately after the merger, (iii) the number
55
<PAGE>
of voting shares outstanding immediately after the merger, plus the number of
voting shares issuable as a result of the merger (either by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger), will not exceed by more than 20% the
total number of voting shares of the surviving corporation outstanding
immediately before the merger, and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger (either by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger), will not exceed by more than 20% the
total number of participating shares of the surviving corporation outstanding
immediately before the merger. NCBE's Articles of Incorporation require the
affirmative vote of 80% of the shares entitled to vote on any merger,
consolidation or acquisition of NCBE by another corporation that is not
approved by NCBE's Board of Directors.
PBI. The KBCA is substantially the same as the IBCL. PBI's Articles of
Incorporation require the affirmative vote of at least 66 2/3% of the
outstanding shares entitled to vote on a business combination.
BUSINESS COMBINATIONS INVOLVING AN INTERESTED SHAREHOLDER
NCBE. The IBCL restricts the ability of a "resident domestic
corporation" to engage in any combination with an "interested shareholder"
for five years after the interested shareholder's date of acquiring shares
unless the combination or the purchase of shares by the interested
shareholder on the interested shareholder's date of acquiring shares is
approved by the board of directors of the resident domestic corporation
before that date. If the combination was not previously approved, the
interested shareholder may effect a combination after the five-year period
only if such shareholder receives approval from a majority of the
disinterested shares or the offer meets certain fair price criteria. A
"resident domestic corporation" means an Indiana corporation that has 100 or
more shareholders. "Interested shareholder" means any person, other than the
resident domestic corporation or its subsidiaries, who is (i) the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
outstanding voting shares of the resident domestic corporation or (ii) an
affiliate or associate of the resident domestic corporation and at any time
within the five-year period immediately before the date in question was the
beneficial owner of 10% or more of the voting power of the outstanding shares
of the resident domestic corporation. The above provisions do not apply to a
corporation that so elects in an amendment to its articles of incorporation
approved by a majority of the disinterested shares. Such an amendment,
however, would not become effective for 18 months after its passage and would
apply only to stock acquisitions occurring after its effective date. NCBE's
Articles of Incorporation do not exclude it from the restrictions imposed by
such provisions.
PBI. The KBCA imposes a greater minimum share voting requirement for a
"business combination" which is defined as merger, sale of assets or sale of
shares to an "interested shareholder." However these provisions would not
apply to the Merger because PBI does not have 500 or more beneficial owners
of any class of PBI shares.
REMOVAL OF DIRECTORS
NCBE. Under the IBCL, directors may be removed in any manner provided
in the corporation's articles of incorporation. NCBE's Articles of
Incorporation provide that a member of the Board of Directors may be removed,
only for good cause and only at a meeting of the shareholders called
expressly for that purpose, by the affirmative vote of the holders of
outstanding shares representing at least sixty-six and two-thirds percent
(66-2/3%) of all the votes then entitled to be cast at an election of
directors.
PBI. The KBCA provides that shareholders may remove one or more
directors with or without cause, unless the articles of incorporation provide
that directors may be removed only for cause. PBI's articles of
incorporation do not contain any provisions changing the KBCA provision.
PBI's bylaws provide that any director or the entire board of directors may
be removed, with or without cause, by a majority vote of the shareholders
then entitled to vote at an election of directors.
56
<PAGE>
AMENDMENTS TO ARTICLES OF INCORPORATION
NCBE. The IBCL provides that, unless a greater vote is required under a
specific provision of the IBCL or by a corporation's articles of
incorporation or its board of directors, a corporation may amend its articles
of incorporation upon the affirmative vote of the holders of a greater number
of shares cast in favor of the amendment than the holders of shares cast
against the amendment, unless the amendment would create dissenters' rights
in which case a favorable vote of the holders of a majority of the
outstanding shares is required. Under the IBCL, a corporation's board of
directors may condition its submission of a proposed amendment to the
shareholders of the corporation on any basis, including the requirement of
the affirmative vote of holders of a greater percentage of the voting shares
of the corporation than otherwise would be required under the IBCL. NCBE's
Articles of Incorporation provide that any amendment to the provisions
concerning business combinations must be approved by the holders of eighty
percent (80%) of the outstanding voting shares.
PBI. The KBCA is substantially the same as the IBCL. PBI's Articles of
Incorporation require any amendment to be approved by the holders of 66 2/3%
of the shares entitled to vote.
VOTING RIGHTS
NCBE. Holders of shares of NCBE Common are entitled to one vote per
share on all matters to be voted upon by the shareholders.
PBI. On all matters other than the election of directors, holders of
shares of PBI Common are entitled to one vote per share. PBI shareholders
are entitled to cumulative voting on election of directors. Cumulative
voting permits a shareholder to cast a number of votes equal to the number of
shares owned multiplied by the number of directors to be elected. Such votes
may be cast for one nominee or spread among designated nominees.
SPECIAL MEETINGS OF SHAREHOLDERS
NCBE. The IBCL provides that a corporation with more than 50
shareholders must hold a special meeting of shareholders on demand of its
board of directors or the persons specifically authorized to do so by the
corporation's articles or by-laws. NCBE's Articles of Incorporation and
By-laws provide that the Chairman of the Board of Directors, the President,
or a majority of the Board of Directors may call a special meeting of
shareholders. Further, a special meeting of the shareholders will be called
upon the receipt of a written request describing in reasonable detail the
purposes of the meeting from the holders of shares representing at least
eighty percent (80%) of all the votes entitled to be cast (so long as NCBE
has more than 50 shareholders) on any issue proposed to be considered at the
proposed special meeting.
PBI. The KBCA provides that a corporation must hold a special meeting
of shareholders on the call of its board of directors or the persons
authorized to do so in the corporation's articles of incorporation or by-laws
or at the request of the holders of at least 33 1/3% (or such higher or lower
percentage specified in the articles of incorporation) of the votes entitled
to be cast at a special meeting.
CONTROL SHARE ACQUISITIONS
NCBE. Pursuant to the IBCL, an "acquiring person" who makes a "control
share acquisition" in an "issuing public corporation" may not exercise voting
rights on any "control shares" unless such voting rights are conferred by a
majority vote of the disinterested shareholders of the issuing corporation at
a special meeting of such shareholders held upon the request and at the
expense of the acquiring person. Unless otherwise provided in a
corporation's articles of incorporation or by-laws before a control share
acquisition has occurred, in the event that control shares acquired in a
control share acquisition are accorded full voting rights and the acquiring
person acquires control shares with a majority or more of all voting power,
all shareholders of the issuing corporation have dissenters' rights to
receive the fair value of their shares. "Control shares" means shares
acquired by a person that, when added to all other shares of the issuing
57
<PAGE>
public corporation owned by that person or in respect of which that person
may exercise or direct the exercise of voting power, would otherwise entitled
that person to exercise voting power of the issuing public corporation in the
election of directors within any of the following ranges: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority
or (iii) a majority or more. "Control share acquisition" means, subject to
certain exceptions, the acquisition, directly or indirectly, by any person of
ownership of, or the power to direct the exercise of voting power with
respect to, issued and outstanding control shares. Shares acquired within 90
days or pursuant to a plan to make a control share acquisition are considered
to have been acquired in the same acquisition. "Issuing public corporation"
means a corporation which is organized in Indiana, has 100 or more
shareholders, its principal place of business, its principal office or
substantial assets within Indiana and either (i) more than 10% of its
shareholders resident in Indiana, (ii) more than 10% of its shares owned by
Indiana residents or (iii) 10,000 shareholders resident in Indiana. The
above provisions do not apply if, before a control share acquisition is made,
the corporation's articles of incorporation or by-laws (including a board
adopted by-law) provide that said provisions do not apply. NCBE's Articles
of Incorporation and By-laws do not exclude NCBE from the restrictions
imposed by such provisions. Further, NCBE's Articles of Incorporation opt
into a provision of the IBCL that allows NCBE to redeem an acquiring person's
control shares under certain circumstances, including the person's failure to
file an acquiring person statement regarding the control shares.
PBI. There is no similar provision under the KBCA.
INDEMNIFICATION
NCBE. Pursuant to the IBCL, NCBE is obligated to indemnify certain
officers and directors in connection with liabilities arising from legal
proceedings resulting from such person's service to NCBE in certain
circumstances. NCBE may also voluntarily undertake to indemnify certain
persons acting on NCBE's behalf in certain circumstances. The IBCL provides
for mandatory indemnification of directors and officers of Indiana
corporations and permissive indemnification of directors, officers, employees
and agents of corporations who are made parties to proceedings as a result of
their relationship with such corporation. The IBCL also applies to
individuals who are serving at such corporation's request as directors,
officers, employees and agents of such corporation's subsidiaries. The IBCL
requires corporations, unless limited by their articles of incorporation, to
indemnify any director or officer against reasonable expenses incurred in
connection with any proceeding to which such person was a party if the
individual is wholly successful on the merits. The IBCL authorizes
corporations to indemnify any director, officer, employee or agent against
liability incurred in such a proceeding generally if the individual's conduct
was in good faith and the individual reasonably believed, in the case of
conduct in the individual's official capacity, that his or her conduct was in
the corporation's best interests and in all other cases that his or her
conduct was not opposed to the best interests of such corporation. The IBCL
further authorizes any court of competent jurisdiction, unless the articles
of incorporation provide otherwise, to order indemnification generally if the
court determines a director or officer of a corporation is entitled to
mandatory indemnification or is otherwise fairly and reasonably entitled to
indemnification in view of all the relevant circumstances. The IBCL also
authorizes corporations to advance reasonable expenses in advance of final
disposition of a proceeding generally if the individual affirms in writing a
good faith belief that he satisfies the standard of conduct for permissive
indemnification, the individual undertakes in a signed writing to repay the
advance if it is determined he does not satisfy the standard of conduct for
permissive indemnification and the corporation determines that the facts then
known do not preclude indemnification. Finally, the IBCL authorizes further
indemnification to the extent that the corporation may provide in its
articles of incorporation, by-laws, a resolution of the board of directors or
the shareholders or any other authorization, whenever adopted, after notice,
by a majority vote of holders of all the voting shares then issued and
outstanding. NCBE's Articles of Incorporation do not contain provisions
altering the statutory provisions.
PBI. The KBCA is substantially similar to the IBCL. PBI's Articles of
Incorporation and bylaws contain provisions requiring indemnification of
directors, officers, employees or agents generally in accordance with
Kentucky law.
58
<PAGE>
LIMITATION OF LIABILITY OF DIRECTORS
NCBE. The IBCL provides that a director is not liable for any action
taken as a director, or any failure to act, unless the director has breached
or failed to perform the duties of the director's office in compliance with
the IBCL and the breach or failure to perform constitutes willful misconduct
or recklessness. Subject to this standard, a director who votes for or
assents to distributions in violation of the IBCL is personally liable to the
corporation for the amount of the illegal distribution and is entitled to
contribution from the other directors who voted for or assented to such
distribution and the shareholders who received the distribution. NCBE's
Articles of Incorporation do not contain any provisions that would alter the
statutory provisions.
PBI. The KBCA provides that a corporation may set forth in its articles
of incorporation a provision eliminating or limiting the personal liability
of a director to the corporation or its shareholders for monetary damages for
breach of his duty as a director, provided that such provision shall not
eliminate or limit the liability of a director: (i) for any transaction in
which the director's personal financial interest is in conflict with the
financial interests of the corporation or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or are
known to the director to be a violation of law; (iii) for any vote for or
assent to an unlawful distribution to shareholders as prohibited under
Kentucky law; or (iv) for any transaction from which the director derived an
improper personal benefit. PBI has adopted such a provision in its Articles
of Incorporation.
AUTHORIZATION OF PREFERRED SHARES
NCBE. NCBE's Articles of Incorporation authorize NCBE to issue up to
1,000,000 preferred shares, without par value, in multiple series without
shareholder approval. Prior to issuance, NCBE's Board would set the
preferred shares' voting rights (which may be limited or unlimited),
dividend or distribution rights, rights to priority in relation to common
shares or other series of preferred shares, redemption or conversion prices,
liquidation preferences, and sinking fund provisions. NCBE currently has no
preferred shares outstanding. Depending upon the terms of the preferred
shares issued, such issuance may result in the dilution of the voting rights
of common shareholders and in holders of preferred shares with preferences
and other rights superior to rights of holders of common shares. The
authorized preferred shares may also be viewed as having possible
anti-takeover effects, because the shares could be used in the adoption of a
shareholder rights plan or other defensive measures.
PBI. PBI's Articles of Incorporation do not authorize any preferred
shares.
LEGAL MATTERS
The legality of the securities offered hereby and certain tax
consequences of the Merger will be passed upon by Baker & Daniels,
Indianapolis, Indiana. Certain matters on behalf of PBI in connection with
the Merger will be passed upon by Stites & Harbison, Lexington, Kentucky.
EXPERTS
The consolidated and supplemental consolidated financial statements of
NCBE and subsidiaries as of December 31, 1997 and 1996 and each of the two
years in the two-year period ended December 31, 1997, incorporated by
reference to NCBE's Current Report on Form 8-K dated October 9, 1998, have
been audited by PricewaterhouseCoopers LLP, independent certified public
accountants, as set forth in their report and incorporated herein by
reference. The consolidated and supplemental statements of income,
shareholders' equity and cash flows of NCBE and its subsidiaries for the year
ended December 31, 1995 incorporated by reference to NCBE's Current Report on
Form 8-K dated October 9, 1998, have been audited by McGladrey & Pullen, LLP,
independent certified public accountants, as set forth in their report and
incorporated herein by reference. The financial statements referred to above
are incorporated herein by reference in reliance upon such reports and upon
the authority of such firms as experts in auditing and accounting.
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The consolidated financial statements of PBI as of December 31, 1997 and
1996 and the years then ended, included in this Proxy Statement/Prospectus
have been audited by Eskew & Gresham, PSC, independent accountants, as set
forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
NCBE files annual, quarterly and current reports, proxy statements and
other information with the SEC. Shareholders may read and copy any reports,
statements or other information that NCBE files at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. NCBE's public filings are also available from commercial
document retrieval services and at the Internet web site maintained by the
SEC at http://www.sec.gov.
NCBE has filed a Registration Statement to register with the SEC the
shares of NCBE common stock to be issued to shareholders in the Merger. This
Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of NCBE, as well as a proxy statement of PBI for the
Special Meeting.
As allowed by SEC rules, this Proxy Statement/Prospectus does not
contain all the information that shareholders can find in the Registration
Statement or the exhibits to the Registration Statement.
The SEC allows NCBE to "incorporate by reference" information into this
Proxy Statement/Prospectus, which means that it can disclose important
information to shareholders by referring them to another document filed
separately with the SEC. The information incorporated by reference is deemed
to be part of this Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by references the documents set forth below
that NCBE has previously filed with the SEC. These documents contain
important information about NCBE and its financial condition.
<TABLE>
<CAPTION>
NCBE SEC Filings (File No. 0-13585) Period or Date Filed
- ---------------------------------- --------------------
<S> <C>
Annual Report on Form 10-K and 10-K/A ........ Year ended December 31, 1997
Quarterly Reports on Form 10-Q ............... Quarters ended March 31, 1998 and June 30, 1998
Current Reports on Form 8-K .................. Filed March 11, 1998, April 30, 1998, May 27, 1998,
June 10, 1998, August 7, 1998, October 9, 1998, and October 27, 1998
Proxy Statement .............................. Filed April 22, 1998
</TABLE>
Additional documents that NCBE may file with the SEC between the date of
this Proxy Statement/Prospectus and the date of the Special Meeting are also
incorporated by reference. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
NCBE has supplied all information contained or incorporated by reference
in this Proxy Statement/Prospectus relating to NCBE, and PBI has supplied all
information relating to PBI.
Copies of any of these documents may be obtained from NCBE or the SEC or
the SEC's Internet web site described above. Documents incorporated by
reference are available from NCBE without charge, excluding all exhibits
unless
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<PAGE>
NCBE has specifically incorporated by reference an exhibit in this Proxy
Statement/Prospectus, by requesting them in writing or by telephone from NCBE
at the following address:
National City Bancshares, Inc.
P. O. Box 868
Evansville, IN 47705-0868
Attention: Stephen C. Byelick, Jr.
Telephone: (812) 464-9864
Please request documents by November 20, 1998 to ensure receipt before the
Special Meeting.
PBI SHAREHOLDERS SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE THEIR
SHARES AT THE SPECIAL MEETING. NO ONE HAS BEEN AUTHORIZED TO PROVIDE ANY
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. PBI SHAREHOLDERS SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO SHAREHOLDERS NOR THE ISSUANCE OF NCBE COMMON STOCK IN
THE MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
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INDEX TO PBI FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of June 30, 1998 (Unaudited),
December 31, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income for the Six Months Ended June 30, 1998 and 1997
(Unaudited) and the Years Ended December 31, 1997 and 1996. . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and 1996 and the Six Months Ended June 30, 1998 (Unaudited) . . . . F-5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and
1997 (Unaudited) and the Years Ended December 31, 1997 and 1996 . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Progressive Bancshares, Inc.
Lexington, Kentucky
We have audited the consolidated balance sheets of Progressive
Bancshares, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Progressive Bancshares, Inc. at December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Eskew & Gresham, PSC
February 25, 1998
F-2
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
June 30, 1998 -------------------------------------
(Unaudited) 1997 1996
------------- ---- ----
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 4,201,565 $ 2,895,595 $ 4,865,968
Federal funds sold 3,452,000 262,000 1,275,000
------------ ------------ ------------
Total cash and cash equivalents $ 7,653,565 $ 3,157,595 $ 6,140,968
Investment securities:
Available for sale 12,340,827 17,918,444 16,743,256
Held to maturity 3,845,602 3,918,015 2,728,455
Federal Home Loan Bank and Federal
Reserve stock 1,113,600 1,075,600 1,004,600
Loans 115,610,187 115,370,154 96,511,612
Unearned income (2,151) (5,790) (21,996)
Allowance for loan losses (1,416,645) (1,315,185) (1,039,058)
------------ ------------ ------------
Net loans 114,191,391 114,049,179 95,450,558
Bank premises and equipment, net 2,353,590 2,262,084 2,208,576
Interest receivable 1,261,189 1,332,785 1,113,925
Other assets 586,334 489,080 609,965
------------ ------------ ------------
TOTAL ASSETS $143,346,098 $144,202,782 $126,000,303
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 16,098,589 $ 14,051,539 $ 14,118,113
Time deposits, $100,000 and over 14,702,186 14,464,123 11,238,232
Other interest bearing 92,893,748 94,780,253 86,843,781
------------ ------------ ------------
Total deposits $123,694,523 $123,295,915 $112,200,126
Federal funds purchased 0 1,000,000 325,000
Securities sold under agreements to repurchase 5,239,375 3,797,548 1,415,485
Interest payable 550,368 588,394 480,842
Other liabilities 175,429 219,246 184,544
Advances from Federal Home Loan Bank 1,293,909 3,198,021 364,441
Long-term debt 1,000,000 1,000,000 1,006,000
------------ ------------ ------------
Total liabilities $131,953,604 $133,099,124 $115,976,438
STOCKHOLDERS' EQUITY:
Common stock, 5,431 shares authorized,
issued and outstanding $ 5,431 $ 5,431 $ 5,431
Surplus 1,686,749 1,686,749 1,686,749
Retained earnings 9,635,159 9,360,368 8,346,409
Accumulated other comprehensive income (loss) 65,155 51,110 (14,724)
------------ ------------ ------------
Total stockholders' equity $ 11,392,494 $ 11,103,658 $ 10,023,865
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $143,346,098 $144,202,782 $126,000,303
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31
----------------------------------- ----------------------------------
June 30, 1998 June 30, 1997 1997 1996
(Unaudited) (Unaudited) ---- ----
------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 5,498,260 $ 4,813,059 $ 10,249,631 $ 8,340,604
Investment securities-
Taxable 501,426 661,814 1,206,202 1,350,735
Tax-exempt 91,714 90,796 183,457 170,386
Federal funds sold 24,524 47,859 77,680 19,600
------------ ------------ ------------ ------------
$ 6,115,924 $ 5,613,528 $ 11,716,970 $ 9,881,325
INTEREST EXPENSE:
Deposits $ 2,681,507 $ 2,574,192 $ 5,281,415 $ 4,367,780
Other borrowed funds 192,646 134,854 352,866 376,903
------------ ------------ ------------ ------------
$ 2,874,153 $ 2,709,046 $ 5,634,281 $ 4,744,683
Net interest income $ 3,241,771 $ 2,904,482 $ 6,082,689 $ 5,136,642
Provision for loan losses 144,000 145,697 290,080 216,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses $ 3,097,771 $ 2,758,785 $ 5,792,609 $ 4,920,642
NONINTEREST INCOME:
Service charges $ 269,007 $ 252,847 $ 507,029 $ 502,194
Fees on loans sold 85,560 43,140 93,056 173,805
Insurance commissions 34,696 39,448 76,135 79,596
Investment securities gains (losses), net (5,712) 5,934 (2,914) (51,355)
Other 81,591 51,014 112,112 94,229
------------ ------------ ------------ ------------
$ 465,142 $ 392,383 $ 785,418 $ 798,469
NONINTEREST EXPENSES:
Salaries and employee benefits $ 1,078,884 $ 984,169 $ 2,065,272 $ 1,942,527
Occupancy and equipment expenses 183,661 163,870 401,312 335,219
Taxes other than income, property
and payroll 77,173 76,024 149,375 134,951
Data processing fees 123,010 82,693 194,906 148,408
Legal and professional fees 96,862 71,074 144,330 111,078
Other 644,090 534,511 1,013,213 800,709
------------ ------------ ------------ ------------
$ 2,203,680 $ 1,912,341 $ 3,968,408 $ 3,472,892
Income before income taxes $ 1,359,233 $ 1,238,827 $ 2,609,619 $ 2,246,219
Provision for income taxes 0 161,110 161,110 732,417
------------ ------------ ------------ ------------
NET INCOME $ 1,359,233 $ 1,077,717 $ 2,448,509 $ 1,513,802
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Proforma C Corporation provision for
income taxes 443,819 408,626 855,343 732,417
------------ ------------ ------------ ------------
PRO FORMA NET INCOME $ 915,414 $ 830,201 $ 1,754,276 $ 1,513,802
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Other comprehensive income (loss):
Change in unrealized gain (loss) on
securities $ 8,333 $ 12,378 $ 62,920 $ (67,256)
Reclassification of realized amounts 5,712 (5,934) 2,914 51,355
------------ ------------ ------------ ------------
Net unrealized gains (losses) on securities
recognized in comprehensive income 14,045 6,444 65,834 (15,901)
------------ ------------ ------------ ------------
Pro forma comprehensive income $ 929,459 $ 836,645 $ 1,820,110 $ 1,497,901
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma earnings per share and pro forma
earnings per share assuming dilution $ 168.55 $ 152.86 $ 323.01 $ 277.56
Weighted average shares outstanding 5,431 5,431 5,431 5,454
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX
MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Net
Unrealized
(Gain) Loss
on Securities Total
Common Retained Available Stockholders'
Stock Surplus Earnings for Sale Equity
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1996 $ 5,455 $ 1,743,125 $ 7,432,607 $ 1,177 $ 9,182,364
Net income 0 0 1,513,802 0 1,513,802
Net change in unrealized gain (loss)
on securities available for sale 0 0 0 (15,901) (15,901)
Repurchase of 24 shares of common
Stock (24) (56,376) 0 0 (56,400)
Cash dividends 0 0 (600,000) 0 (600,000)
-------- ------------ ------------ ---------- -------------
Balances, December 31, 1996 $ 5,431 $ 1,686,749 $ 8,346,409 $ (14,724) $ 10,023,865
Net income 0 0 2,448,509 0 2,448,509
Net change in unrealized gain (loss)
on securities available for sale 0 0 0 65,834 65,834
Cash dividends 0 0 (1,434,550) 0 (1,434,550)
-------- ------------ ------------ ---------- -------------
Balances, December 31, 1997 $ 5,431 $ 1,686,749 $ 9,360,368 $ 51,110 $ 11,103,658
Net income (unaudited) 0 0 1,359,233 0 1,359,233
Net change in unrealized gain (loss)
on securities available for sale
(unaudited) 0 0 0 14,045 14,045
Cash dividends (unaudited) 0 0 (1,084,442) 0 (1,084,442)
-------- ------------ ------------ ---------- -------------
Balances, June 30, 1998 (unaudited) $ 5,431 $ 1,686,749 $ 9,635,159 $ 65,155 $ 11,392,494
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31
---------------------------------- ----------------------------------
June 30, 1998 June 30, 1997 1997 1996
(Unaudited) (Unaudited) ---- ----
----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 1,359,233 $ 1,077,717 $ 2,448,509 $ 1,513,802
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 130,964 113,661 233,853 188,522
Goodwill amortization 13,494 13,494 26,998 26,998
Provision for loan losses 144,000 145,697 290,080 216,000
Deferred income taxes 0 0 146,145 (18,405)
Net amortization (accretion) on
investment securities 11,408 (8,121) (5,135) 9,049
Investment securities losses (gains) 5,712 (5,934) 2,914 51,355
Losses on disposal of fixed assets 0 0 9,439 11,117
Federal Home Loan Bank stock
dividends (38,000) (34,200) (71,000) (30,300)
Changes in:
Interest receivable 71,596 (69,558) (218,860) 10,658
Income taxes refundable 39,766 (20,998)
Other assets (111,752) 54,909 (27,872) 84,895
Interest payable (38,026) 93,530 107,552 17,157
Other liabilities (43,817) (20,469) (37,035) 78,376
------------ ------------ ------------ ------------
Net cash provided by
operating activities $ 1,504,812 $ 1,360,726 $ 2,945,354 $ 2,138,226
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of securities available
for sale $ 0 $ (5,805,488) $(13,578,662) $ (5,372,322)
Proceeds from sales and principal
payments of securities available
for sale 1,696,312 3,790,438 10,738,543 12,476,831
Proceeds of calls and maturities of
securities available for sale 3,884,065 1,625,000 1,754,588 1,450,656
Purchase of securities held to maturity (555,422) (1,515,977) (2,297,808) (250,569)
Proceeds of calls and maturities of
securities held to maturity 622,000 380,000 1,094,200 1,525,000
Purchase of Federal Home Loan
Bank stock 0 0 0 (644,900)
Net change in loans (286,212) (12,616,863) (18,888,701) (16,715,988)
Net purchases of bank premises and
equipment (221,466) (182,499) (296,769) (323,329)
------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities $ 5,139,277 $(14,325,389) $(21,474,609) $ (7,854,621)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PROGRESSIVE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31
---------------------------------- ----------------------------------
June 30, 1998 June 30, 1997 1997 1996
(Unaudited) (Unaudited) ---- ----
----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net change in deposits $ 398,608 $ 5,278,765 $ 11,095,789 $ 13,232,006
Net change in federal funds purchased (1,000,000) (35,000) 675,000 (1,700,000)
Net change in securities sold under
agreements to repurchase 1,441,827 1,312,561 2,382,063 (1,584,263)
Net change in advances from the
Federal Home Loan Bank (1,904,112) 4,887,085 2,833,580 (44,133)
Repayment of long-term debt 0 0 (1,006,000) (640,000)
Proceeds from long-term debt 0 0 1,000,000 0
Repurchase of common stock 0 0 0 (56,400)
Dividends paid (1,084,442) (801,931) (1,434,550) (600,000)
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities $ (2,148,119) $ 10,641,480 $ 15,545,882 $ 8,607,210
Net increase (decrease) in cash and
cash equivalents $ 4,495,970 $ (2,323,183) $ (2,983,373) $ 2,890,815
Cash and cash equivalents at beginning
of period 3,157,595 6,140,968 6,140,968 3,250,153
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,653,565 $ 3,817,785 $ 3,157,595 $ 6,140,968
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for -
Interest expense $ 2,912,179 $ 2,615,716 $ 5,526,729 $ 4,727,526
Income taxes $ 0 $ 0 $ 0 $ 771,820
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The consolidated financial statements
include the accounts of Progressive Bancshares, Inc. (the Corporation), a
multi-bank holding company, and its wholly-owned subsidiaries, The Anderson
National Bank and Farmers Bank. Progressive Mortgage Company, included as a
subsidiary in 1996, was dissolved effective December 31, 1996. All material
intercompany transactions and accounts have been eliminated in consolidation.
B. Nature of Operations - The Anderson National Bank operates under a
national bank charter and is subject to regulation by the Office of the
Comptroller of the Currency. Farmers Bank operates under a state bank
charter and is subject to regulation by the Kentucky Department of Financial
Institutions and the Federal Deposit Insurance Corporation. Both Banks
provide full banking services. The Corporation is subject to regulation by
the Federal Reserve Board.
Effective January 1, 1998, Farmers Bank was merged with and into The
Anderson National Bank and the name of the combined bank was changed to The
Progressive Bank, National Association.
C. Estimates in the Financial Statements - 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
D. Cash and Cash Equivalents - For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from banks and
federal funds sold. Generally, federal funds are sold for one-day periods.
E. Investment Securities - The Banks classify their investment
security portfolios into three categories: trading securities, securities
available for sale and securities held to maturity. Fair value adjustments
are made to the securities based on their classification with the exception
of the held to maturity category. The Banks have no investments classified
as trading.
Investment securities available for sale are carried at fair value.
Adjustments from amortized cost to fair value are recorded in stockholders'
equity, net of related income tax, under net unrealized gain (loss) on
securities available for sale. The adjustment is computed on the difference
between fair value and cost, adjusted for amortization of premiums and
accretion of discounts which are recorded to interest income on a constant
yield method.
Investment securities for which the Banks have the positive intent and
ability to hold to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts which are recorded as adjustments to
interest income on a constant yield method.
F-8
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains or losses on dispositions are based on the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
F. Loans - Loans are stated at the amount of unpaid principal, reduced
by unearned interest and an allowance for loan losses. Unearned interest is
recognized as income using a method which approximates the interest method.
Interest income on other loans is recorded on the accrual basis, except for
those loans on a nonaccrual of income status. Accrual of interest is
discontinued on a loan when management believes, after considering economic
and business conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful. When interest
accrual is discontinued, interest income is subsequently recognized only to
the extent cash payments are received.
The allowance for loan losses is established through a provision for
loan losses charged to expense. The allowance is an amount that management
believes will be adequate to absorb possible losses on existing loans that
may become uncollectible, based on evaluations of the collectibility of loans
and prior loan loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay. Loans are charged
against the allowance for loan losses when management believes that the
collection of principal is unlikely.
The allowance for loan losses on impaired loans is determined using the
present value of estimated future cash flows of the loan, discounted at the
loan's effective interest rate or the fair value of the underlying
collateral. A loan is considered to be impaired when it is probable that all
principal and interest amounts will not be collected according to the loan
contract. The entire change in present value of expected cash flows is
reported as provision for loan losses in the same manner in which impairment
initially was recognized or as a reduction in the amount of provision for
loan losses that otherwise would be reported.
G. Bank Premises and Equipment - Bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is recorded over
the estimated useful lives of the respective assets using both straight-line
and accelerated methods.
H. Income Taxes - The Corporation elected S Corporation status
effective January 1, 1997. Earnings and losses after that date are included
in the personal income tax returns of the stockholders and taxed depending on
their personal tax strategies. Accordingly, the Corporation will not incur
additional income tax obligations, and future financial statements will not
include a provision for income taxes. Prior to the change, income taxes
currently payable and deferred income taxes based on differences between the
financial basis of assets and liabilities and their tax basis were recorded
in the financial statements.
F-9
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. Excess of Cost Over Net Assets of Acquired Subsidiaries - The
excess of cost over net assets of acquired subsidiaries (goodwill) is being
amortized on a straight-line basis over twenty-five years. Goodwill is
included in other assets on the accompanying consolidated balance sheets.
J. Advertising Expense - The Corporation charges all advertising
expenses to operations when incurred. No amounts have been established for
any future benefits relative to these expenditures.
K. Reclassifications - Certain reclassifications have been made in the
1996 financial statements to conform to the classifications used in 1997.
L. Effect of New Accounting Standards - In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive
Income". The Statement establishes standards for reporting the components of
comprehensive income and requires that all items that are required to be
recognized under accounting standards as components of comprehensive income
be included in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income includes net
income as well as certain items that are reported directly within a separate
component of stockholders' equity and bypass net income. The provisions of
this Statement are effective beginning with 1998 interim reporting. These
disclosure requirements will have no impact on financial position or results
of operations.
M. Recent Accounting Pronouncements - On June 16, 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This new standard requires companies to record derivatives on
the balance sheet as assets or liabilities at fair value. Depending on the
use of the derivative and whether it qualifies for hedge accounting, gains or
losses resulting from changes in the values of those derivatives would either
be recorded as a component of net income or as a change in stockholders'
equity. The Corporation is required to adopt this new standard January 1,
2000. Management has not yet determined the impact of this standard.
N. Unaudited Financial Statements - Financial information at June 30,
1998 and for the six months ended June 30, 1998 and 1997 is unaudited. In
the opinion of management of the Corporation, all adjustments necessary for a
fair presentation of such financial information have been included. All such
adjustments are of a normal recurring nature. The statements of income, cash
flows and changes in stockholders' equity for the six months ended June 30,
1998 are not necessarily indicative of the statements of income, cash flows
and changes in stockholders' equity which may be expected for the year ending
December 31, 1998.
F-10
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
2. INVESTMENT SECURITIES
Amortized cost and fair value of investment securities by category at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury obligations $ 1,648,852 $ 25,451 $ 0 $ 1,674,303
Obligations of U. S. government agencies 1,492,778 145 (5,910) 1,487,013
Asset-backed securities 14,377,927 46,005 (19,062) 14,404,870
Equity securities 347,777 4,481 0 352,258
------------ --------- ---------- ------------
Total available for sale $ 17,867,334 $ 76,082 $ (24,972) $ 17,918,444
Held to maturity:
Obligations of states and political subdivisions $ 3,918,015 $ 69,247 $ (977) $ 3,986,285
</TABLE>
Amortized cost and fair value of investment securities by category at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale:
U. S. Treasury obligations $ 1,380,246 $ 21,071 $ 0 $ 1,401,317
Obligations of U. S. government agencies 3,947,321 33,504 (32,500) 3,948,325
Asset-backed securities 10,841,878 29,467 (77,333) 10,794,012
Equity securities 596,122 3,480 0 599,602
------------ --------- ---------- ------------
Total available for sale $ 16,765,567 $ 87,522 $ (109,833) $ 16,743,256
Held to maturity:
Obligations of states and political subdivisions $ 2,728,455 $ 45,786 $ (1,242) $ 2,772,999
</TABLE>
The amortized cost and fair value of investment securities by category
at December 31, 1997, by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Available for sale:
Due in one year or less $ 897,327 $ 894,561
Due after one year through five years 2,244,303 2,266,755
Asset-backed securities 14,377,927 14,404,870
Equity securities 347,777 352,258
------------- -------------
$ 17,867,334 $ 17,918,444
</TABLE>
F-11
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
2. INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Held to maturity
Due in one year or less $ 848,686 $ 851,210
Due after one year through five years 1,283,399 1,300,788
Due after five years through ten years 1,448,676 1,485,926
Due after ten years 337,254 348,361
------------- -------------
$ 3,918,015 $ 3,986,285
</TABLE>
Proceeds from sales of investment securities during 1997 and 1996 were
approximately $7,317,000 and $9,380,000, respectively. Gross gains of $24,207
and $12,174 and losses of $27,121 and $63,101, respectively, were realized on
those sales. Proceeds from calls of investment securities during 1997 and
1996 were $0 and $425,000, respectively. Gross losses of $0 and $428,
respectively, were realized on those calls. There were no gross gains
realized on those calls.
Investment securities with a carrying value of approximately $12,549,000
and $10,190,000 at December 31, 1997 and 1996, respectively, were pledged to
secure public deposits and for other purposes as required or permitted by law.
3. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Commercial and agricultural loans $ 64,637,699 $ 52,326,974
Residential mortgage loans 40,862,883 35,021,995
Consumer and installment loans 9,869,572 9,162,643
------------- -------------
$ 115,370,154 $ 96,511,612
Unearned interest (5,790) (21,996)
Allowance for loan losses (1,315,185) (1,039,058)
------------- -------------
$ 114,049,179 $ 95,450,558
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance, beginning of year $ 1,039,058 $ 871,979
Recoveries 49,445 43,893
Loans charged off (63,398) (92,814)
Provision for loan losses 290,080 216,000
------------- -------------
Balance, end of year $ 1,315,185 $ 1,039,058
</TABLE>
F-12
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
3. LOANS (CONTINUED)
Impaired loans totaled $273,873 and $250,190 at December 31, 1997 and
1996. The average recorded investment in impaired loans during 1997 and 1996
was $510,248 and $254,007, respectively. The total allowance for loan losses
related to these loans was $41,081 and $37,529 on December 31, 1997 and 1996,
respectively. Interest income on impaired loans of $41,975 and $24,166 was
recognized for cash payments received in 1997 and 1996, respectively.
Loans to directors, executive officers, principal shareholders and their
related interests were approximately $717,000 and $1,322,000 at December 31,
1997 and 1996, respectively. Such loans were made in the ordinary course of
business at the Banks' normal credit terms and interest rates and, in
management's opinion, do not represent more than a normal risk of collection.
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Land and building $ 2,162,926 $ 2,221,578
Furniture and equipment 1,526,190 1,188,355
------------- -------------
$ 3,689,116 $ 3,409,933
Accumulated depreciation (1,427,032) (1,201,357)
------------- -------------
$ 2,262,084 $ 2,208,576
</TABLE>
Depreciation expense for 1997 and 1996 amounted to $233,853 and $188,522,
respectively.
5. DEPOSITS
The aggregate amount of time deposits with a minimum denomination of
$100,000 was approximately $14,464,000 and $11,238,000 at December 31, 1997
and 1996, respectively.
At December 31, 1997, the scheduled maturities of all time deposits are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 58,685,371
1999 12,203,128
2000 1,978,372
2001 1,972,557
2002 and thereafter 135,503
-------------
$ 74,974,931
</TABLE>
Certain directors and executive officers, and companies in which they
have beneficial ownership, are deposit customers of the Bank. The aggregate
dollar amount of these deposits was approximately $1,598,000 and $618,000 at
December 31, 1997 and 1996, respectively.
F-13
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
6. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within
one to four days from the transaction date. Information concerning securities
sold under agreements to repurchase is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Average balance during the year $ 3,029,853 $ 2,018,332
Average interest rate during the year 4.93% 4.22%
Maximum month-end balance during the year $ 4,377,251 $ 3,113,593
Securities underlying the agreements
at year end:
Carrying value $ 4,461,161 $ 1,473,905
Estimated fair value $ 4,461,161 $ 1,473,905
</TABLE>
7. INCOME TAXES
As discussed in Note 1, the Corporation changed its tax status to
nontaxable effective as of January 1, 1997. Accordingly, the net deferred
tax asset at the date that the election for the change was filed has been
adjusted to the tax effect of the reversals of the Banks' allowance for loan
losses for tax purposes through a charge to the deferred tax provision. The
provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current $ 14,965 $ 750,822
Deferred 146,145 (18,405)
------------- -------------
$ 161,110 $ 732,417
</TABLE>
The Corporation's deferred tax assets and liabilities at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets $ 0 $ 280,835
Deferred tax liabilities (71,737) (198,842)
------------- -------------
Net deferred tax asset (liability) $ (71,737) $ 81,993
</TABLE>
8. FEDERAL HOME LOAN BANK ADVANCES
The Banks own stock of the Federal Home Loan Bank (FHLB) of Cincinnati,
Ohio. This stock allows the Banks to borrow advances from the FHLB which the
Banks use to fund fixed rate mortgages.
F-14
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
8. FEDERAL HOME LOAN BANK ADVANCES (CONTINUED)
At December 31, 1997 and 1996, $3,198,021 and $364,441, respectively,
represented the balance due on advances from the FHLB. The advances are
outstanding for terms ranging from two months to six years and interest rates
related to these advances range from 5.10% to 6.90%. The advances are
secured by the FHLB stock and all single family first mortgage loans of The
Anderson National Bank. Scheduled principal payments due on advances during
the five years subsequent to December 31, 1997 are as follows: 1998 -
$2,928,829; 1999 - $51,395; 2000 - $54,078; 2001 - $56,901; and 2002 - $59,872.
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
---------------------------
1997 1996
---- ----
<S> <C> <C>
Bank note, interest at the prime rate, payable at
June 30, 1998, secured by a security interest in
substantially all of the outstanding shares of
common stock of The Anderson National Bank of
Lawrenceburg, Kentucky and Farmers Bank of $ 1,000,000 $ 1,006,000
Owingsville, Kentucky
</TABLE>
The note and loan agreement require the Corporation and the Banks to
maintain certain capital and operational ratios, all of which have been
complied with as of December 31, 1997. The Corporation may, at its option,
prepay the note in whole or in part at any time.
10. RETIREMENT PLAN
The Corporation has in effect a defined contribution 401(k) retirement
plan covering all employees who meet certain eligibility requirements. Total
contributions were $73,271 and $81,342 in 1997 and 1996, respectively.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents - For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Investment Securities - For investment securities, fair values are based
on quoted market prices or dealer quotes.
Federal Home Loan Bank and Federal Reserve Stock - For FHLB and Federal
Reserve stock, carrying value is a reasonable estimate of fair value.
F-15
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans - Fair value is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Deposit Liabilities - The fair value of demand deposits, savings
accounts, and certain money market deposits is the amount payable on demand
at the reporting date. The fair value of fixed-maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar remaining maturities.
Borrowed Funds - For securities sold under agreements to repurchase,
federal funds purchased and long-term debt, the carrying amount is a
reasonable estimate of fair value. Fair value of FHLB advances was
determined by readily available rates as published by the FHLB.
Commitments to Extend Credit and Standby Letters of Credit - Commitments
to extend credit and standby letters of credit represent agreements to lend
to a customer at the market rate when the loan is extended, thus the
commitments and letters of credit are not considered to have a fair value.
The fair values of the Banks' financial instruments at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,157,595 $ 3,157,595 $ 6,140,968 $ 6,140,968
Investment securities 21,836,459 21,904,729 19,471,711 19,516,255
Federal Home Loan Bank
and Federal Reserve stock 1,075,600 1,075,600 1,004,600 1,004,600
Loans 115,364,364 115,270,731 96,489,616 96,140,577
Less: allowance for loan
losses (1,315,185) (1,315,185) (1,039,058) (1,039,058)
------------- ------------- ------------- -------------
$ 140,118,833 $ 140,093,470 $ 122,067,837 $ 121,763,342
Financial liabilities:
Deposits $(123,295,915) $(123,566,088) $(112,200,126) $(112,632,614)
Securities sold under
agreements to repurchase (3,797,548) (3,797,548) (1,415,485) (1,415,485)
Federal funds purchased (1,000,000) (1,000,000) (325,000) (325,000)
Advances from Federal Home
Loan Bank (3,198,021) (3,192,283) (364,441) (353,185)
Long-term debt (1,000,000) (1,000,000) (1,006,000) (1,006,000)
------------- ------------- ------------- -------------
$(132,291,484) $(132,555,919) $(115,311,052) $(115,732,284)
</TABLE>
F-16
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Banks are party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of their
customers. These financial instruments include standby letters of credit and
commitments to extend credit in the form of unused lines of credit. The Banks
use the same credit policies in making commitments and conditional
obligations as they do for on-balance sheet instruments.
At December 31, 1997 and 1996 the Banks had the following financial
instruments whose approximate contract amounts represent credit risk:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Standby letters of credit $ 226,170 $ 166,090
Commitments to extend credit $ 11,423,000 $ 12,536,000
</TABLE>
Standby letters of credit represent conditional commitments issued by
the Banks to guarantee the performance of a third party. The credit risk
involved in issuing these letters of credit is essentially the same as the
risk involved in extending loans to customers. The Banks hold primarily
certificates of deposit and real estate as collateral to support some of
these commitments in whole or in part, while some are unsecured.
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. The Banks evaluate each customer's
creditworthiness on a case-by-case basis. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Collateral held varies
but primarily includes real estate.
13. CONCENTRATION OF CREDIT RISK
The Banks grant commercial, residential and consumer related loans to
customers primarily located in Anderson, Bath, Fayette and adjoining counties
in Kentucky. Although the Banks have diverse loan portfolios, a portion of
the debtors' ability to perform on their contracts is somewhat dependent upon
the agricultural and manufacturing industries which have a significant impact
on the local economies.
14. LIMITATION ON BANK DIVIDENDS
The Corporation's principal source of funds is dividends received from
the subsidiary Banks. Banking regulations limit the amount of bank dividends
that may be paid without prior approval. Under these regulations, the amount
of dividends that may be paid in any calendar year is limited to the current
year's net profits, as defined, combined with the retained net profits of the
preceding two years. During 1998 the Banks could, without prior approval,
declare dividends of approximately $1,002,000 plus any 1998 net profits
retained to the date of the dividend declaration.
15. REGULATORY MATTERS
The Corporation and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's financial
F-17
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
REGULATORY MATTERS (CONTINUED)
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Corporation and the Banks must meet
specific capital guidelines that involve quantitative measures of the
Corporation's and the Banks' assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The
Corporation and Banks' capital amounts and classifications are also subject
to qualitative judgments by regulators about components, risk weightings, and
other factors.
Quantitative measures, established by regulation to ensure capital
adequacy, require Corporation and the Banks to maintain minimum amounts and
ratios (set forth in the table below) of Total and Tier I capital (as defined
in the regulations) to risk-weighted assets (as defined), and of Tier I
capital to average assets (as defined). Management believes, as of December
31, 1997 and 1996, that the Corporation and the Banks meet all capital
adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized Farmers Bank as well capitalized
under the regulatory framework for prompt corrective action. As of December
31, 1997, the most recent notification from the Office of the Comptroller of
the Currency categorized The Anderson National Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Banks must maintain minimum Total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the following table.
There are no conditions or events since that notification that management
believes have changed the institutions' category.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997:
Total Capital (to Risk Weighted Assets):
Consolidated $11,913,000 11.84% $8,050,000 8.0% $10,062,000 10.0%
The Anderson National Bank 7,971,000 11.21 5,688,000 8.0 7,110,000 10.0
Farmers Bank 3,292,000 11.31 2,328,000 8.0 2,910,000 10.0
Tier I Capital (to Risk Weighted Assets):
Consolidated $10,655,000 10.59% $4,025,000 4.0% $ 6,037,000 6.0%
The Anderson National Bank 7,324,000 10.30 2,844,000 4.0 4,266,000 6.0
Farmers Bank 2,928,000 10.06 1,164,000 4.0 1,746,000 6.0
Tier I Capital (to Average Assets):
Consolidated $10,655,000 7.45% $5,724,000 4.0% $ 7,155,000 5.0%
The Anderson National Bank 7,324,000 7.09 4,131,000 4.0 5,164,000 5.0
Farmers Bank 2,928,000 7.33 1,598,000 4.0 1,998,000 5.0
</TABLE>
F-18
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
15. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $10,640,000 12.38% $6,874,000 8.0% $8,593,000 10.0%
The Anderson National Bank 7,507,000 12.70 4,728,000 8.0 5,910,000 10.0
Farmers Bank 3,168,000 12.03 2,106,000 8.0 2,632,000 10.0
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 9,614,000 11.19% $3,437,000 4.0% $5,156,000 6.0%
The Anderson National Bank 6,799,000 11.50 2,364,000 4.0 3,546,000 6.0
Farmers Bank 2,839,000 10.78 1,053,000 4.0 1,579,000 6.0
Tier I Capital (to Average Assets):
Consolidated $ 9,614,000 7.66% $5,023,000 4.0% $6,279,000 5.0%
The Anderson National Bank 6,799,000 8.13 3,345,000 4.0 4,108,000 5.0
Farmers Bank 2,839,000 7.61 1,497,000 4.0 1,820,000 5.0
</TABLE>
F-19
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
16. PARENT COMPANY FINANCIAL STATEMENTS
The condensed financial statements of Progressive Bancshares, Inc. (parent
company only) as of December 31, 1997 and 1996 and for the years then ended are
presented below:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash $ 896,714 $ 403,196
Investment in subsidiaries 10,783,267 10,114,468
Goodwill 397,342 424,341
Other assets 31,304 89,899
------------- -------------
TOTAL ASSETS $ 12,108,627 $ 11,031,904
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 4,969 $ 2,039
Long-term debt 1,000,000 1,006,000
------------- -------------
Total liabilities $ 1,004,969 $ 1,008,039
Stockholders' equity:
Common stock, 5,431 shares authorized,
issued and outstanding $ 5,431 $ 5,431
Surplus 1,686,749 1,686,749
Retained earnings 9,360,368 8,346,409
Net unrealized gain (loss) on securities available for sale 51,110 (14,724)
------------- -------------
Total stockholders' equity $ 11,103,658 $ 10,023,865
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,108,627 $ 11,031,904
</TABLE>
F-20
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
16. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
Income:
Dividend income $ 2,444,325 $ 1,515,704
Equity in earnings of subsidiaries 602,964 409,660
Other income 174,281 191,964
------------- -------------
Total income $ 3,221,570 $ 2,117,328
Expenses:
Interest expense $ 81,585 $ 115,984
Operating expenses 691,476 662,554
------------- -------------
Total expenses $ 773,061 $ 778,538
Income before income taxes $ 2,448,509 $ 1,338,790
Income tax benefit 0 175,013
------------- -------------
NET INCOME $ 2,448,509 $ 1,513,803
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income: $ 2,448,509 $ 1,513,803
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of goodwill 26,998 26,998
Equity in earnings of subsidiaries (602,964) (409,660)
Changes in:
Other assets 58,595 (41,422)
Other liabilities 2,930 (11,396)
------------- -------------
Net cash provided by operating activities $ 1,934,068 $ 1,078,323
</TABLE>
F-21
<PAGE>
PROGRESSIVE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
16. PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Income:
Return of capital of Progressive Mortgage Company
(former subsidiary) $ 0 $ 30,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt $(1,006,000) $ (640,000)
Proceeds from long-term debt 1,000,000 0
Repurchase of stock 0 (56,400)
Dividends paid (1,434,550) (600,000)
----------- -----------
Net cash used in financing activities $(1,440,550) $(1,296,400)
Net increase (decrease) in cash $ 493,518 $ (188,077)
Cash at beginning of year 403,196 591,273
----------- -----------
CASH AT END OF YEAR $ 896,714 $ 403,196
</TABLE>
F-22
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of the 14th day of July, 1998, by and between National City Bancshares, Inc.,
an Indiana corporation ("NCBE"), and Progressive Bancshares, Inc., a Kentucky
corporation ("PBI").
W I T N E S S E T H:
WHEREAS, PBI owns all of the outstanding capital stock of The
Progressive Bank, National Association, a national banking association with
its principal place of business in Lexington, Kentucky (the "Bank"); and
WHEREAS, the parties desire that PBI merge with and into NCBE (the
"Merger") in a transaction to be accounted for as a pooling-of-interests upon
the terms and conditions contained herein; and
WHEREAS, the Board of Directors of PBI deems the Merger advisable and in
the best interests of PBI and its shareholders and has adopted a resolution
approving this Agreement and directing that this Agreement be submitted for
consideration at a meeting of PBI's shareholders; and
WHEREAS, the Board of Directors of NCBE has adopted a resolution
approving the Merger and this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements, representations, warranties and covenants herein contained and
for the purpose of prescribing the terms and conditions of the Merger, the
mode of carrying the Merger into effect, the manner of converting the capital
stock of PBI, and such other provisions as are deemed desirable in connection
with the Merger, the parties, intending to be bound, hereby agree as follows:
1. THE MERGER.
(a) MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Indiana Business Corporation Law
(the "IBCL") and the Kentucky Business Corporation Act (the "KBCA" and,
together with the IBCL, the "Statutes"), at the Effective Time (as hereafter
defined), PBI will be merged with and into NCBE. PBI shall be the merging
corporation under the Merger and its separate corporate existence shall cease
as of the Effective Time. NCBE shall be the surviving corporation under the
Merger (the "Surviving Corporation") and shall succeed to and assume all
rights and obligations of PBI in accordance with the Statutes.
(b) REGULATORY APPROVALS. The parties acknowledge that certain
approvals must be received from or notices must be given to federal and state
banking regulatory agencies including: (i) the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"); (ii) the Kentucky
Department of Financial Institutions; and (iii) any other banking regulatory
authorities having jurisdiction over the parties or the Merger (the
governmental agencies referred to in items (i)-(iii) above are collectively
referred to herein as the "Applicable Governmental Authorities").
(c) CLOSING; EFFECTIVE TIME. The delivery of the certificates and
opinions called for by this Agreement shall take place at the offices of
NCBE, 227 Main Street, Evansville, Indiana, at a closing (the "Closing")
fixed by agreement of NCBE and PBI as promptly as practicable following the
latest of (i) approval by all the Applicable Governmental Authorities; (ii)
the expiration of any waiting period imposed by law; and (iii) satisfaction
or waiver (to the extent legally permissible) of the conditions set forth in
Sections 11, 12 and 13 of this Agreement. The parties shall execute and file
on or prior to the Closing, articles of merger in the form required by the
Statutes (the "Articles of Merger") relating to the Merger with the Indiana
Secretary of State and the Kentucky Secretary of State. The time at which
the Merger becomes effective shall be specified in the Articles of Merger and
is hereafter referred to as the "Effective Time".
A-1
<PAGE>
(d) TAX TREATMENT; POOLING OF INTERESTS. The parties intend for the
Merger to qualify as a tax-free reorganization within the meaning of Section
368(a)(1)(A) and related provisions of the Internal Revenue Code of 1986, as
amended (the "Code") and as a "pooling of interests" for accounting purposes.
Each of the parties agree to cooperate and take such actions as may be
reasonably necessary to assure such qualification.
2. EFFECTS OF THE MERGER.
(a) EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the Statutes.
(b) ARTICLES OF INCORPORATION AND BY-LAWS. The Articles of
Incorporation and the By-Laws of NCBE as in effect at the Effective Time
shall be the Articles of Incorporation and By-Laws of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(c) DIRECTORS. The directors of NCBE serving at the Effective Time
shall be the directors of the Surviving Corporation until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
(d) OFFICERS. The officers of NCBE serving at the Effective Time shall
be the officers of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.
3. CONVERSION OF PBI CAPITAL STOCK. The Merger shall have the
following effects with regard to shares of the common capital stock, without
par value, of PBI ("PBI Common"):
(a) EXCHANGE RATIO. As of the Effective Time, each issued and
outstanding share of PBI Common other than Dissenting Shares (as hereafter
defined) shall be converted into the right to receive from NCBE 179.8462
shares of NCBE's Common Stock, without par value ("NCBE Common"). If between
the date hereof and prior to the Closing, the number of outstanding shares of
NCBE Common should be changed as the result of a stock dividend, stock split
or reclassification (a "Share Adjustment"), the number of shares of NCBE
Common to be received by holders of PBI Common shall be appropriately
adjusted to reflect the Share Adjustment.
(b) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional shares of NCBE Common shall be issued upon the surrender for
exchange of certificates evidencing PBI Common. Each holder of PBI Common
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fractional interest in a share of NCBE Common shall have the right
to receive cash (without interest) in an amount equal to such fractional
interest of a share of NCBE Common multiplied by the Average Value of the
NCBE Common (as hereafter defined) for ten (10) consecutive trading days
ended on the third trading day prior to the Closing. Such cash, together
with the shares of NCBE Common to be issued pursuant to Section 3(a) is
referred to as the "Merger Consideration." The Average Value of the NCBE
Common shall be equal to the average of the means between the highest and
lowest per share trading prices reported by the Nasdaq National Market
System.
(c) CANCELLATION OF TREASURY STOCK. As of the Effective Time, each
share of PBI Common that is owned by PBI in its treasury shall automatically
be canceled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor. The foregoing shall not apply to any
issued and outstanding shares held by PBI in a fiduciary or similar capacity.
(d) DISSENTING SHARES. "Dissenting Shares" shall mean shares of PBI
Common held by any person who properly exercises and perfects rights under
the KBCA as a dissenting shareholder. The holder of any Dissenting Shares
shall only have the rights accorded a dissenting shareholder under the KBCA
and shall not receive any part of the Merger Consideration.
A-2
<PAGE>
4. EFFECT ON NCBE COMMON. The Merger shall have no effect on the
shares of NCBE Common issued and outstanding immediately prior to the
Effective Time.
5. EXCHANGE OF CERTIFICATES.
(a) SURRENDER OF CERTIFICATES. Within five (5) business days after the
Effective Time an exchange agent appointed by NCBE (the "Exchange Agent"),
shall send to each record holder of each class of PBI Common (except for
holders of Dissenting Shares), a letter of transmittal for use in effecting
the surrender of certificates formerly evidencing PBI Common in exchange for
the Merger Consideration. The letter of transmittal shall specify how
surrender of the certificates formerly evidencing shares of PBI Common shall
be effected. Upon surrender of a certificate formerly evidencing PBI Common
to the Exchange Agent together with such letter of transmittal and such other
documentation that reasonably may be required by NCBE or the Exchange Agent,
the appropriate Merger Consideration shall be issued, and the certificate so
surrendered shall be canceled. No interest shall accrue or be paid with
respect to the Merger Consideration. There shall be no obligation to deliver
the Merger Consideration in respect of any shares of PBI Common until (and
then only to the extent that) the holder thereof validly surrenders the
certificates formerly representing the shares of PBI Common for exchange as
provided in this Section 5, or, in lieu thereof, delivers to the Exchange
Agent an appropriate affidavit of loss and an indemnity agreement as may be
required in any such case by NCBE in its reasonable discretion. If the
Merger Consideration for any shares of PBI Common is to be issued in a name
other than the registered holder of a surrendered certificate, it shall be a
condition to the payment that the certificate shall be properly endorsed or
otherwise in proper form for transfer, that all signatures shall be
guaranteed by a bank, broker or other institutional member of the Medallion
Signature Guarantee Program, and that the person requesting the payment shall
either (i) pay to the Exchange Agent any transfer or other taxes required by
reason of the payment to a person other than the registered holder of a
surrendered certificate or (ii) establish to the satisfaction of the Exchange
Agent that such taxes have been paid or are not payable.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. All dividends or
other distributions with respect to NCBE Common with a record date after the
Effective Time shall be delivered to the holder of a certificate evidencing
shares of PBI Common upon the surrender of such certificate in accordance
with this Section 5.
(c) ESCHEAT. Notwithstanding anything in this Section 5 or elsewhere
in this Agreement to the contrary, neither the Exchange Agent nor any party
hereto shall be liable to a former holder of PBI Common for any property
delivered to a public official pursuant to applicable escheat or abandoned
property laws.
(d) NO FURTHER OWNERSHIP RIGHTS IN PBI COMMON. The Merger
Consideration paid upon the surrender of a certificate evidencing shares of
PBI Common in accordance with the terms of this Section 5 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
PBI Common theretofore represented by such certificate(s), subject, however,
to the Surviving Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time which may
have been declared or made by PBI on such shares of PBI Common in accordance
with the terms of this Agreement or prior to the date of this Agreement and
which remain unpaid at the Effective Time and have not been paid prior to
such surrender, and there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of PBI
Common which were outstanding immediately prior to the Effective Time.
(e) WITHHOLDING RIGHTS. NCBE shall be entitled to deduct and withhold
from the Merger Consideration or any dividends payable to former holders of
PBI Common such amounts as NCBE is required to deduct and withhold with
respect to the making of such payment under the Code. Such withheld amounts
shall be treated as having been paid by any such former holder of shares of
PBI Common.
6. REPRESENTATIONS AND WARRANTIES OF NCBE. NCBE represents and
warrants to PBI as follows:
(a) ORGANIZATION, AUTHORIZATION AND NO VIOLATION. NCBE is a
corporation duly organized and validly existing under the laws of the State
of Indiana. NCBE has all necessary corporate power to own its properties and
assets and
A-3
<PAGE>
to carry on its business as now conducted. Subject to receipt of approvals
from the Applicable Governmental Authorities, the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
by NCBE have been duly authorized by all necessary corporate action on the
part of NCBE, and this Agreement constitutes the legal, valid and binding
obligation of NCBE, enforceable against NCBE in accordance with its terms,
except as limited by (i) bankruptcy, insolvency, moratorium, reorganization,
fraudulent conveyance laws and other similar laws affecting creditors' rights
generally, and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or law. The execution and delivery of
this Agreement by NCBE and the consummation of the transactions contemplated
by this Agreement, will not violate the provisions of, or constitute a breach
or default under, the articles of incorporation or by-laws of NCBE or any
material agreement to which NCBE is a party or is bound, or any other
material license, law, order, rule, regulation or judgment to which NCBE is a
party. NCBE is duly registered with the Federal Reserve Board as a bank
holding company under the Bank Holding Company Act of 1956, as amended.
(b) NO SHAREHOLDER VOTE. No vote by the shareholders of NCBE is
required to approve the Merger under the IBCL, the articles of incorporation
or by-laws of NCBE or the rules of the National Association of Securities
Dealers, Inc. which apply to Nasdaq National Market issuers.
(c) CAPITAL STOCK. The authorized capital stock of NCBE consists of
29,000,000 shares of NCBE Common, of which 11,333,512 shares were issued and
outstanding as of July 8, 1998 and 1,000,000 preferred shares, without par
value, none of which are issued and outstanding. All of the issued and
outstanding shares of NCBE Common are duly and validly issued and outstanding
and are fully paid and non-assessable. None of the shares of NCBE Common
have been issued in violation of any preemptive rights. As of the date of
this Agreement, there are no outstanding options, warrants, rights to
subscribe for, calls, or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, such shares or
contracts, commitments, understandings or arrangements by which NCBE is or
may be obligated to issue additional shares of capital stock or other equity
securities of NCBE other than (i) outstanding options to purchase shares of
NCBE Common pursuant to NCBE's Incentive Stock Option Plan and (ii)
commitments to issue shares of NCBE Common in connection with the proposed
acquisitions of Illinois One Bancorp, Inc., Trigg Bancorp, Inc., Community
First Financial Corporation, Hoosier Hills Financial Corporation, 1st Bancorp
Vienna, Inc., Princeton Federal Bank, fsb, and Downstate Banking Co.
(d) SEC DOCUMENTS. NCBE has provided PBI with copies of the following
reports filed by NCBE with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"): (i) NCBE's annual report on Form 10-K, as amended, for
the year ended December 31, 1997; (ii) NCBE's quarterly report on Form 10-Q
for the quarters ended March 31, 1998; (iii) NCBE's current reports on Form
8-K dated March 11, April 30, May 27, and June 9, 1998; and (iv) the proxy
materials for NCBE's 1998 annual meeting of shareholders (collectively, the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and did not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained therein not misleading.
(e) FINANCIAL INFORMATION. Included in the SEC Documents are the
consolidated balance sheets of NCBE and its subsidiaries as of December 31,
1997 and 1996 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the three (3) years ended December
31, 1997, together with the notes thereto, and the unaudited consolidated
balance sheet of NCBE and its subsidiaries as of March 31, 1998 and the
related unaudited statements of income, changes in shareholders' equity and
cash flow for the three months then ended. Such financial statements (other
than for interim periods) have been audited by McGladrey & Pullen, LLP,
independent auditors, whose report thereon is included with such financial
statements. Such financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent
basis (except for changes, if any, required by GAAP and disclosed therein)
and fairly present in all material respects the consolidated financial
position and the consolidated results of operations, changes in shareholders'
equity and cash flows of NCBE and its consolidated subsidiaries as of the
dates and for the periods indicated (subject, in the case of interim
financial statements, to normal recurring year-end adjustments). At December
31, 1997, there were no material liabilities of NCBE and its subsidiaries
(actual, contingent or accrued) which, in accordance with GAAP applied on a
consistent
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basis, should have been shown or reflected in such financial statements or
the notes thereto, but which are not so reflected.
(f) ABSENCE OF CHANGES. Except as disclosed in the SEC Documents,
since December 31, 1997, NCBE has not incurred any obligation or liability
(absolute or contingent), except normal trade or business obligations or
liabilities incurred in the ordinary course of business, and there has not
been any material adverse change in the financial condition, results of
operations or business of NCBE and its subsidiaries taken as whole, nor have
there been any events or transactions having such a material adverse effect
which should be disclosed in order to make the financial statements described
in subsection (e) not misleading.
(g) LITIGATION. There is no litigation, claim, investigation or other
proceeding pending or, to the knowledge of NCBE, threatened, against or
adversely affecting NCBE or any of its subsidiaries, or of which the property
of NCBE or any of its subsidiaries is or would be subject and which would
have a material adverse effect on the financial condition, results of
operations or business of NCBE and its subsidiaries, taken as a whole. To
the best of NCBE's knowledge, there is no litigation, claim, investigation or
other proceeding to which any director, officer, employee or agent of NCBE or
any of its subsidiaries in their respective capacities as directors,
officers, employees or agents, is a party, pending of threatened against any
such director, officer, employee or agent. There is no outstanding order,
writ, injunction or decree of any court, government or governmental agency
against or, affecting NCBE or any of its subsidiaries, or the assets or
business of NCBE or any of its subsidiaries, which could reasonably be
expected to have a material adverse effect on the financial condition,
results of operations or business of NCBE and its subsidiaries, taken as a
whole, or which challenges the validity of the transactions contemplated by
this Agreement.
(h) SHARES TO BE ISSUED IN THE MERGER. The shares of NCBE Common to be
issued in the Merger are duly authorized and, when issued in accordance with
this Agreement, will be validly issued, fully paid and nonassessable.
(i) POOLING-OF-INTERESTS. As of the date of this Agreement, NCBE has
no reason to believe that the Merger will not qualify as a
pooling-of-interests for accounting purposes.
(j) TRUE AND COMPLETE INFORMATION. No representation or warranty made
by NCBE contained in this Agreement and no statement contained in any
certificate, list, exhibit or other instrument specified in this Agreement,
whether heretofore furnished to PBI or hereinafter required to be furnished
to PBI, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained therein not misleading.
7. REPRESENTATIONS AND WARRANTIES OF PBI. PBI represents and warrants
to NCBE, except as disclosed in the writing delivered to NCBE concurrently
with the execution of this Agreement (the "Disclosure Schedule"), as follows:
(a)(i) ORGANIZATION AND GOOD STANDING OF PBI. PBI is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Kentucky and has all necessary corporate power to own its
properties and assets and to carry on its business as now conducted. PBI
is duly qualified to conduct its business and is in good standing in each
jurisdiction in which the nature of the business transacted by PBI requires
such qualification. PBI is duly registered with the Federal Reserve Board
as a bank holding company under the Bank Holding Company Act of 1956, as
amended.
(ii) CAPITAL STOCK. On the date hereof, PBI has 5,455 shares of PBI
Common authorized, of which 5,431 shares are issued and outstanding. All
of the issued and outstanding shares of PBI Common are duly and validly
authorized and issued, fully paid and nonassessable. None of the issued
and outstanding shares of PBI Common have been issued in violation of any
preemptive rights. There are no other classes of capital stock or equity
securities of PBI other than PBI Common. There are no outstanding
options, warrants, rights to subscribe for, calls, or commitments of any
character whatsoever relating to, or securities convertible into or
exchangeable for,
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shares of PBI Common or any contracts, commitments, understandings or
arrangements by which PBI is or may be obligated to issue additional
shares of PBI Common.
(iii) ORGANIZATION OF THE BANK. The Bank is a national banking
association duly organized, validly existing and in good standing under the
laws of the United States. The deposits of the Bank are insured by the
Bank Insurance Fund administered by the FDIC up to applicable limits.
(iv) CAPITAL STOCK OF THE BANK. On the date hereof, the Bank has
10,000 shares of common stock, $20.00 par value per share ("Bank Stock"),
authorized, of which 10,000 shares are issued and outstanding. PBI is the
record and beneficial owner of all of the issued and outstanding shares of
the Bank Stock. All of the issued and outstanding shares of Bank Stock are
duly and validly authorized and issued, fully paid and non-assessable.
None of the issued and outstanding shares of Bank Stock have been issued in
violation of any preemptive rights. There are no other classes of capital
stock or equity securities of the Bank other than Bank Stock. There are no
outstanding options, warrants, rights to subscribe for, calls, or
commitments of any character whatsoever relating to, or securities
convertible into or exchangeable for, shares of Bank Stock or any
contracts, commitments, understandings or arrangements by which the Bank is
or may be obligated to issue additional shares of Bank Stock.
(b) AUTHORIZATION AND NO VIOLATION. Subject to receipt of approvals
from the Applicable Governmental Authorities and approval by the shareholders
of PBI, the execution and delivery of this Agreement by PBI and the
consummation of the transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action on the part of
PBI and this Agreement constitutes the legal, valid and binding obligation of
PBI, enforceable against PBI in accordance with its terms, except as limited
by (x) bankruptcy, insolvency, moratorium, reorganization, fraudulent
conveyance laws and other similar laws affecting creditors' rights generally,
and (y) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. The execution of this Agreement by PBI and
the consummation of the transactions contemplated by this Agreement will not
violate the provisions of, or constitute a breach or default under (i) the
articles of incorporation or by-laws of PBI or the articles of association
and by-laws of the Bank (ii) any Material Contract (as defined in subsection
(f)) of PBI or the Bank or (iii) any other material license, law, order,
rule, regulation or judgment to which PBI or the Bank is a party, is bound or
by which any of their respective properties or assets is subject. The minute
books of PBI accurately reflect in all material respects all corporate
actions held or taken by its shareholders and Board of Directors (including
committees of the Board of Directors).
(c) SUBSIDIARIES. The Bank is the only entity (including, without
limitation, corporations, partnerships, limited liability companies and joint
ventures) in which PBI, directly or indirectly through the Bank, has any
equity or other ownership interest.
(d) FINANCIAL STATEMENTS. PBI has delivered to NCBE the consolidated
balance sheets of PBI as of December 31, 1997 and the related consolidated
statements of income, cash flows and changes in shareholders equity for the
years then ended. Such financial statements have been audited by Eskew &
Gresham, PSC, certified public accountants, whose report thereon is included
with such financial statements. Such financial statements have been prepared
in conformity with GAAP applied on a consistent basis (except for changes, if
any, required by GAAP and disclosed therein), the consolidated balance sheets
present fairly the financial condition of PBI and the Bank as of their
respective dates and the consolidated statements of income present fairly the
results of operations of PBI and the Bank for the respective periods covered.
At December 31, 1997, there were no material liabilities (actual, contingent
or accrued) of PBI which, in accordance with GAAP applied on a consistent
basis, should have been shown or reflected in such financial statements or
the notes thereto, but which are not so shown or reflected.
(e) TAXES AND TAX RETURNS.
(i) All returns relating to federal, state, local and foreign income,
franchise, excise, payroll, sales, use and property taxes (collectively,
"Taxes") that are required to be filed with respect to PBI and the Bank
have been filed in a timely manner (taking into account all extensions of
due dates). True and accurate copies of all such returns filed for tax
periods ending during 1994 through 1997 (the "Returns") have been provided
to NCBE. Such Returns
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reflect accurately all liability for Taxes of PBI and the Bank for
periods covered thereby. All Taxes payable by or due from PBI or the
Bank relating to all periods ending on or before December 31, 1996
have been paid or accrued on the financial statements identified in
subsection (d). PBI has made a valid and timely election under Subchapter
S of the Code to be treated as an "S Corporation" and to have the Bank
treated as a "qualified Subchapter S subsidiary", which election was
accomplished in compliance with all applicable federal and state laws and
regulations, has been effective since January 1, 1997, remains in effect as
of the date hereof and will remain in effect through the Effective Time.
No election under any Section of the Code, including specifically any
election under Section 341(f) or Section 338(g) of the Code (other than
elections reflected on the Returns and the S Corporation election) has been
filed by or on behalf of PBI and the Bank. Neither PBI nor the Bank has
executed any presently effective waiver or extension of any statute of
limitations against assessment and collection of Taxes with respect to the
Bank for any Taxes have been asserted in writing or assessed against PBI or
the Bank which remain unpaid.
(ii) All monies required to be withheld from employees of PBI and the
Bank for income taxes, social security and unemployment insurance taxes or
collected from customers or others as sales, use or other taxes have been
withheld or collected and paid, when due, to the appropriate governmental
authority, or if such payment is not yet due, a reserve, which in the
opinion of PBI management is adequate, has been established.
(f) MATERIAL CONTRACTS. The Disclosure Schedule contains a list of all
executory contracts, indentures, commitments, and other agreements in excess
of $50,000 to which PBI or the Bank is a party or to which PBI or the Bank or
any of their properties are subject (collectively, the "Material Contracts"
and each a "Material Contract"). All Material Contracts were entered into in
the ordinary course of business. Each of PBI and the Bank has duly performed
all its obligations thereunder to the extent that such obligations to perform
have accrued, and no material breach or default thereunder by PBI or the Bank
or, to the best knowledge of PBI management, any other party thereto has
occurred which will impair the ability of PBI or the Bank to enforce any
material rights thereunder.
(g) REAL ESTATE. PBI has good title to all of the assets reflected as
owned in the financial statements described in subsection (e), and in the
case of real property, transferable and insurable title in fee simple, and in
all cases free and clear of any material liens or other encumbrances. As of
the date hereof, the real properties, structures, buildings, equipment, and
the tangible personal property owned, operated or leased by PBI or the Bank
are (i) to the best knowledge of PBI management, in good repair, order and
condition, except for depletion, depreciation and ordinary wear and tear, and
(ii) to the best knowledge of PBI management, free from any known structural
defects. As of the date hereof, there are no laws, conditions of record or
other impediments which materially interfere with the intended uses by PBI or
the Bank of the real property or tangible personal property owned or leased
by either of them.
(h) NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, there has
been no material adverse change in the business, financial condition,
properties, results of operations, or capitalization of PBI or the Bank.
(i) LITIGATION. Except as set forth on the Disclosure Schedule, there
is no litigation, claim, investigation or other proceeding pending or, to the
knowledge of PBI, threatened, against or adversely affecting PBI or the Bank,
or of which the property of PBI or the Bank is or would be subject and which
would have a material adverse effect on the financial condition, results of
operations or business of PBI and the Bank, taken as a whole. To the best
knowledge of PBI management, there is no litigation, claim, investigation or
other proceeding to which any director, officer, employee or agent of PBI or
the Bank in their respective capacities as directors, officers, employees or
agents, is a party, pending or threatened against any such director, officer,
employee or agent. There is no outstanding order, writ, injunction or decree
of any court, government or governmental agency against or, affecting PBI or
the Bank, or the assets or business of PBI or the Bank, which could
reasonably be expected to have a material adverse effect on the financial
condition, results of operations or business of PBI and the Bank, taken as a
whole, or which challenges the validity of the transactions contemplated by
this Agreement.
(j) INSURANCE. Except as set forth on the Disclosure Schedule, PBI and
the Bank have in effect insurance coverage with reputable insurers, which in
respect to amounts, types and risks insured, is adequate in the opinion of
PBI
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management for the businesses in which PBI and the Bank are engaged. All
policies of insurance owned or held by PBI or the Bank are in full force and
effect, all material premiums with respect thereto covering all periods up to
and including the date hereof is paid (other than retrospective premiums
which may be payable with respect to worker's compensation insurance
policies), and no notice of cancellation or termination has been received
with respect to any such policy.
(k) COMPLIANCE WITH LAWS. Each of PBI and the Bank has conducted its
business in substantial compliance with all applicable federal, state and
local laws, regulations and orders including, without limitation, disclosure,
usury, equal credit opportunity, equal employment, fair credit reporting,
lender liability, and other laws, regulations and orders, and the forms,
procedures and practices used by PBI and the Bank, to the best knowledge of
PBI management, are in compliance with such laws, regulations and orders
except to the extent that non-compliance with any such law, regulation or
order would not have a material adverse effect on PBI and the Bank, taken as
a whole.
(l) BROKER'S AND FINDER'S FEES. Neither PBI nor the Bank has incurred
any obligation or liability, contingent or otherwise, for any brokers or
finders in respect of the matters provided for in this Agreement.
(m) EMPLOYEE BENEFIT PLANS.
(i) Except for the businesses conducted by PBI and the Bank, there
are no other trades or businesses, whether or not incorporated, which,
together with PBI or the Bank, would be deemed to be a "single employer"
within the meaning of Section 414(b), (c) or (m) of the Code.
(ii) The Disclosure Schedule sets forth a true and a complete list of
(A) each employee benefit plan, as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") that PBI or
the Bank or its predecessors by merger currently maintains or has
maintained within the three year period preceding the date hereof (the
"ERISA Plans"), and (B) each other plan, arrangement, program and agreement
providing employee benefits, including, but not limited to, deferred
compensation, bonuses, severance pay or fringe benefits, and consulting or
employment agreements, that are presently maintained by PBI or the Bank for
the benefit of any current or former employees of PBI, the Bank or its
predecessors by merger (the ERISA Plans and such other plans are
collectively referred to as the "Plans"). Except as otherwise set forth on
the Disclosure Schedule, PBI has provided to NCBE copies of all Plans and
related trusts or funding arrangements for such Plans; the most recent
determination letter for each Plan as to which a determination letter has
been issued, or any outstanding request for a determination letter, from
the IRS with respect to each ERISA Plan intended to satisfy the
requirements of Section 401(a) of the Code and a copy of the application on
which the determination letter or request for determination letter is based
and any material correspondence to or from the Internal Revenue Service
("IRS"), the Department of Labor ("DOL") or the Pension Benefit Guaranty
Corporation ("PBGC") within the last three years preceding the date hereof
in connection with any ERISA Plan. Except as otherwise set forth on the
Disclosure Schedule, PBI has also provided to NCBE for each Plan, copies
of any fidelity bonds; actuarial valuations, if applicable, for the most
recent three plan years for which such valuations are available; current
summary plan descriptions; annual returns/reports on Form 5500 and summary
annual report for the three most recent plan years; Form 5310 and any
related filings with the IRS, DOL or PBGC within the last year preceding
the date of this Agreement.
(iii) No Plan provides benefits, including without limitation death
or medical benefits (whether or not insured), with respect to current or
former employees of PBI, the Bank or its predecessors by merger for any
period extending beyond their retirement or other termination of service
other than (A) continuation group health coverage pursuant to Section 4980B
of the Code or applicable state law; (B) benefits, the full cost of which
is borne by the current or former employee (or his or her beneficiary); or
(C) except as otherwise set forth on the Disclosure Schedule, benefits
which in the aggregate are not material.
(iv) Each ERISA Plan intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS that
the Plan is qualified. To the best knowledge of PBI management, nothing
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has occurred since the dates of the respective IRS favorable determination
letters that would adversely affect the qualification of the Plans and
their related trusts.
(v) To the best knowledge of PBI management, all of the Plans, and
any related trust agreement, group annuity contract, insurance policy or
other funding arrangement are in compliance in all material respects with
all applicable laws, rules and regulations, including without limitation,
the rules and regulations promulgated by the DOL, PBGC or IRS pursuant to
the provisions of ERISA and the Code, and each of such Plans has been
administered in compliance with such requirements and its own terms in all
material respects.
(vi) Except as set forth on the Disclosure Schedule, to the knowledge
of PBI management, none of PBI, the Bank or its predecessors by merger
currently maintains or contributes to, or has within the five year period
preceding the date hereof, maintained or contributed to, a Plan that is
subject to Title IV of ERISA or the minimum funding requirements of Section
412 of the Code.
(vii) To the best of PBI's knowledge, none of PBI, the Bank, its
predecessors by merger, any of the Plans or any trust created thereunder,
or, any trustee or administrator thereof has engaged in a transaction in
connection with which PBI or the Bank, any of the Plans or any such trust,
would be subject to either a civil penalty assessed pursuant to Sections
409 or 502 of ERISA or a tax imposed pursuant to Sections 4975 or 4976 of
the Code. Neither of PBI nor the Bank is, or, as a result of any actions,
omissions, occurrences or state of facts existing prior to or at the
Effective Time, will become liable for any tax imposed under Section 4978
of the Code.
(viii) There are no (A) actions, suits, arbitrations or claims (other
than routine claims for benefits), (B) legal, administrative or other
proceedings or governmental investigations or audits, or (C) to the best
knowledge of PBI management, complaints to or by any governmental entity,
which are pending, anticipated or threatened, against any Plan or its
assets, or, to the best knowledge of PBI management, against any Plan
fiduciary or administrator, or against PBI or the Bank or their officers or
employees with respect to any Plan.
(ix) To the best knowledge of PBI management and except as set forth
on the Disclosure Schedule, each ERISA Plan may be terminated directly or
indirectly by the Surviving Corporation, in its discretion, at any time
after the Effective Time, in accordance with its terms, without any
liability on the part of the Surviving Corporation, NCBE, PBI or the Bank,
to any person, entity or government agency for any conduct, practice or
omission which occurred prior to the Effective Time, except for liabilities
to and the rights of the employees thereunder accrued prior to the
Effective Time, or if later, the time of termination.
(x) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
material payment (including, without limitation, severance, golden
parachute or otherwise) becoming due to any director or any employee of PBI
or the Bank from PBI or the Bank under any Plan; (B) materially increase
any benefits otherwise payable under any Plan; or (C) result in any
acceleration of the time of payment or vesting of any such benefits to any
material extent.
(n) LABOR MATTERS. Neither PBI nor the Bank is a party to or has in
effect any organized labor contract or collective bargaining agreement.
(o) ENVIRONMENTAL MATTERS.
(i) As used herein, the term "Environmental Laws" shall mean all
local, state and federal environmental, health and safety laws and
regulations and common law standards in all jurisdictions in which PBI,
the Bank or its predecessors by merger have done business or owned, leased
or operated property, including, without limitation, the Federal Resource
Conservation and Recovery Act, the Federal Comprehensive Environmental
Response, Compensation and Liability Act, the Federal Clean Water Act, the
Federal Clean Air Act, and the Federal Occupational Safety and Health Act.
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(ii) To the best knowledge of PBI management, neither the conduct nor
operation of any of PBI, the Bank or its predecessors by merger nor any
condition of any property presently or previously owned, leased or operated
by any of them violates or has violated Environmental Laws in any respect
that would have a material adverse effect on the financial condition,
results of operations or business of PBI and the Bank, taken as a whole,
and no condition has existed or event has occurred with respect to any of
them or any such property that, with notice or the passage of time, or
both, would constitute a violation of Environmental Laws or obligate (or
potentially obligate) PBI or the Bank to remedy, stabilize, neutralize or
otherwise alter the environmental condition of any such property where the
aggregate cost of such actions would have a material adverse effect on the
financial condition, results of operations or business of PBI and the Bank,
taken as a whole. Neither PBI nor the Bank has received any notice from
any person or entity that any of PBI, the Bank or its predecessors by
merger or the operation or condition of any property ever owned, leased or
operated by any of them are or were in violation of any Environmental Laws
or that any of them are responsible for the cleanup or other remediation of
any pollutants, contaminants, or hazardous or toxic wastes, substances or
materials at, on or beneath any such property.
(p) REGULATORY COMPLIANCE. Neither PBI nor the Bank is a party to any
enforcement action instituted by any memorandum of understanding, agreement,
consent agreement or cease and desist order with the Office of the
Comptroller of the Currency, the Federal Reserve Board, the FDIC or any
federal or state regulatory agency, and neither PBI nor the Bank has been
advised by any federal or state regulatory agency that it is considering
taking such action. There is no material unresolved violation, criticism or
exception cited by any such federal or state regulatory agency with respect
to any examination of PBI or the Bank.
(q) POOLING-OF-INTERESTS. As of the date of this Agreement, PBI has no
reason to believe that the Merger will not qualify as a pooling-of-interests
for accounting purposes.
(r) TRUE AND COMPLETE INFORMATION. No representation or warranty made
by PBI contained in this Agreement and no statement contained in the
Disclosure Schedule or any certificate, list, exhibit or other instrument
specified in this Agreement, whether heretofore furnished to NCBE or
hereinafter required to be furnished to NCBE, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
8. COVENANTS OF NCBE. NCBE agrees with PBI as follows:
(a) REGULATORY APPROVALS. NCBE shall, at its sole expense, be
responsible for the preparation and filing of all regulatory applications or
notices to the Applicable Governmental Authorities. NCBE shall use
reasonable efforts to obtain the approvals of the Applicable Governmental
Authorities for the transactions contemplated by this Agreement; however,
NCBE's obligation to use reasonable efforts to obtain the approvals of the
Applicable Governmental Authorities shall not be construed as including an
obligation to accept any unreasonable terms of or conditions to an approval
of any Applicable Governmental Authority, to change the business practices of
NCBE or any NCBE subsidiary in any material respect or to institute any
litigation in connection with such approvals. NCBE shall keep PBI reasonably
informed as to the status of such applications and shall provide to PBI
copies of such applications and any supplementally filed materials.
(b) REGISTRATION STATEMENT. NCBE shall file with the Commission a
Registration Statement on Form S-4 (the "Registration Statement") relating to
the shares of NCBE Common to be issued pursuant to the Merger, and shall use
its best efforts to cause the Registration Statement to become effective. At
the time the Registration Statement becomes effective, the Registration
Statement, including the Proxy Statement/Prospectus included therein (the
"Proxy Statement/Prospectus"), as amended or supplemented, shall comply in
all material respects with the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder, and the information in the Proxy Statement/Prospectus furnished
by NCBE for inclusion therein shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not false or misleading.
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(c) LISTING. NCBE shall use its best efforts to list the shares of
NCBE Common to be issued in the Merger on the Nasdaq National Market.
(d) ACCESS TO INFORMATION. NCBE shall permit PBI reasonable access
during regular business hours to its properties. NCBE shall disclose and
make available to PBI and shall use its best efforts to cause its agents and
authorized representatives to disclose and make available to PBI, all books,
papers and records relating to its assets, properties, operations,
obligations and liabilities, including, but not limited to, all books of
account, tax records, minute books of directors' and shareholders' meetings,
organizational documents, material contracts and agreements, loan files,
filings with any regulatory authority, accountants' workpapers (if available
and subject to the respective independent accountants' consent), litigation
files (but only to the extent that such review would not result in a material
waiver of the attorney-client or attorney work product privileges under the
rules of evidence), plans affecting employees, and any other business
activities or prospects in which PBI may have a reasonable and legitimate
interest in furtherance of the transactions contemplated by this Agreement.
(e) ELECTION OF ADDITIONAL NCBE DIRECTOR. After the Effective Time,
NCBE agrees to use its best efforts to expand its Board of Directors by one
member and elect George D. Martin to fill the vacancy created by such action.
9. AGREEMENTS WITH RESPECT TO CONDUCT OF PBI AND THE BANK PRIOR TO THE
CLOSING. PBI agrees with NCBE as follows:
(a) ORDINARY COURSE, INSURANCE AND PRESERVATION OF BUSINESS. Each of
PBI and the Bank will, except as otherwise agreed to in writing by NCBE:
(i) carry on its respective business in the ordinary course and
consistent with its respective policies, procedures and practices as
heretofore conducted;
(ii) except as terminated in accordance with their terms or in
accordance with the terms of this Agreement, keep in full force and effect,
and not cause a default of any of its obligations under, any Material
Contracts;
(iii) keep in full force and effect the insurance coverage in effect
on the date hereof;
(iv) maintain, renew, keep in full force and effect and preserve its
business organization, material rights, franchises, permits and licenses,
retain its present employee force, maintain its existing, or substantially
equivalent, credit arrangements with banks and other financial institutions
and use its best efforts to continue its general customer relationships;
and
(v) duly comply in all material respects with all laws applicable to
it and to the conduct of its business.
(b) NOTICE. PBI will promptly notify NCBE of any event of which hereafter
becomes known to PBI management which may reasonably have a material adverse
effect on the financial condition, operations, business or assets of PBI and the
Bank, taken as a whole, or if PBI determines that it may be unable to fulfill
the conditions set forth in Section 11 or 12 hereof.
(c) PROHIBITED ACTION WITHOUT APPROVAL. Neither PBI nor the Bank will,
except with the prior written consent of NCBE, do any of the following:
(i) incur or agree to incur any obligation or liability (absolute or
contingent) other than the taking of deposits and other liabilities
incurred in the ordinary course of business and consistent with prior
practice, and liabilities arising out of, incurred in connection with, or
related to the consummation of this Agreement; make or permit any amendment
or termination of any Material Contract; acquire (by merger, consolidation,
or acquisition of stock or assets) any corporation, partnership, limited
liability company or other business organization or division or substantial
part thereof; sell or otherwise dispose of any substantial part of its
assets; enter into, dispose or divest
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itself of any joint venture or partnership or cause any business
entity to become a subsidiary or affiliate; sell or otherwise dispose
of any real property owned or operated by PBI or the Bank; enhance,
expand, modify, replace or alter any computer or data processing system
owned, leased or licensed by PBI or the Bank (including any software
associated with any such computer or system); make, originate or
otherwise acquire one or more loans, or one or more loan commitments for
one or more loans, or one or more lines of credit, in an aggregate
amount in excess of $1,000,000 to any person other than renewals
or restructurings of loans in existence on the date hereof; or enter into
any contract, agreement, commitment or arrangement with respect to any of
the foregoing; or
(ii) make any capital expenditure, except for ordinary repairs,
renewals and replacements in excess of $25,000 individually or $100,000 in
the aggregate; or
(iii) issue, sell, redeem or acquire for value, or agree to do so,
any shares of the capital stock or other equity securities, options or
other ownership interests of PBI or debt securities, or declare, issue or
pay any dividend or other distribution of assets, whether consisting of
money, other personal property, real property or other things of value, to
its shareholders other than (A) cash dividends on the PBI Common in an
amount equal to $36.826 per share payable June 1, September 1 and
December 1, 1998 and a tax distribution equal to 39.6% of the current year
taxable income of PBI up to the date of Closing to meet PBI shareholders'
tax obligations less tax distributions made on April 10, June 10, and
September 10, 1998, and January 10, 1999, if applicable; provided, however,
that PBI shall coordinate with NCBE the record and payment dates of
dividends (which payments do not include the tax distributions) payable
pursuant to clause (A) for the quarter in which the Effective Time occurs,
such that PBI shareholders shall receive dividends from either PBI or NCBE,
but not both, with respect to such quarter, (B) cash dividends payable by
the Bank, (C) sinking fund or other mandatory payments required under the
terms of any indenture or loan agreement or repurchases of any outstanding
debt securities to be applied against any such sinking fund payments in
amounts which do not exceed, with respect to any series or class of debt
securities, the sinking fund payments required within the next twelve-month
period, (D) the payment of any debt security upon the maturity thereof, and
(E) obligations or liabilities permitted to be incurred pursuant to
Section 9(c)(i) hereof; or
(iv) sell, pledge or redeem any Bank Stock; amend its articles of
incorporation or articles of association, as the case may be, or by-laws;
split, combine or reclassify any shares of capital stock; or enter into
any agreement, commitment or arrangement with respect to any of the
foregoing; or
(v) enter into or amend any employment agreement, pay any
extraordinary bonus or establish any general increase in salaries; or
(vi) compromise or otherwise settle or adjust any assertion or claim
of a deficiency in taxes (or interest thereon or penalties in connection
therewith) or file any appeal from an asserted deficiency, except in a form
previously approved by NCBE, or file any federal or state tax return
before furnishing a copy to NCBE and affording NCBE an opportunity to
consult with the filing entity; or
(vii) open any new office or close any current office of the Bank; or
(viii) knowingly take any actions that would adversely affect the
ability of the Merger to be accounted for using the pooling-of-interests
method.
(d) NO SOLICITATION.
(i) Neither PBI nor the Bank nor any officer, director or any
representative thereof shall solicit or authorize the solicitation of, or,
unless PBI's Board of Directors has reasonably determined in good faith
based upon the written advice of counsel that the failure to do so would
cause the Board of Directors to breach its fiduciary duties under
applicable law, (A) enter into or authorize any discussions with any third
party concerning, or (B) furnish or authorize the furnishing of any
confidential information relating to PBI or the Bank to any third party for
the purpose of studying, considering, soliciting or inducing any offer or
possible offer by any such third party or any
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other third party to acquire PBI or any or all of the capital stock,
other equity securities or other ownership interests, or all or
substantially all of the assets, of PBI or the Bank. PBI will promptly
communicate to NCBE the terms of any proposal or contract it may
receive with respect to any such transactions.
(ii) Upon the execution of this Agreement, PBI shall immediately
terminate all discussions then existing with any third parties regarding
any possible offer to acquire PBI or the Bank.
(e) INSIDER LENDING. The Bank shall not change or modify any of their
current practices relating to the lending of money, secured or unsecured, to
its affiliated persons, including but not limited to its directors, officers
and employees.
(f) NO VIOLATION. Neither PBI nor the Bank will take any action which
knowingly violates any statute, code, ordinance, rule, regulation or
judgment, order, writ, arbitral award, injunction or decree of any court,
governmental agency or body or arbitrator, domestic or foreign, having
jurisdiction over its properties.
(g) ACCOUNTING. Each of PBI and the Bank will maintain its books,
accounts and records in accordance with GAAP. Neither PBI nor the Bank shall
make any change in any method of accounting or accounting practice, or any
change in the method used in allocating income, charging costs or accounting
for income, except as may be required by law, regulation or GAAP. Neither
PBI nor the Bank shall change any practice or policy with respect to the
charging off or loans or the maintenance of their reserve for possible loan
losses, except as required by law, regulation or GAAP.
10. ADDITIONAL AGREEMENTS. PBI agrees as follows:
(a) CONTINUING ACCESS TO INFORMATION. Through the Effective Time, PBI
shall permit NCBE and its authorized representatives reasonable access during
regular business hours to PBI's properties and those of the Bank. PBI shall
make its and the Bank's directors, management and other employees and agents
and authorized representatives (including counsel and independent public
accountants) available to confer with NCBE and its authorized representatives
at reasonable times and upon reasonable request, and PBI shall, and shall
cause the Bank to, disclose and make available to NCBE, and shall use its
best efforts to cause its agents and authorized representatives to disclose
and make available to NCBE, all books, papers and records relating to the
assets, properties, operations, obligations and liabilities of PBI and the
Bank, including, but not limited to, all books of account, tax records,
minute books of directors' and shareholders' meetings, organizational
documents, material contracts and agreements, loan files, filings with any
regulatory authority, accountants' workpapers (if available and subject to
the respective independent accountants' consent), litigation files (but only
to the extent that such review would not result in a material waiver of the
attorney-client or attorney work product privileges under the rules of
evidence), plans affecting employees, and any other business activities or
prospects in which NCBE may have a reasonable and legitimate interest in
furtherance of the transactions contemplated by this Agreement.
(b) MANAGEMENT REPORTS. PBI shall promptly provide to NCBE copies of
any reports to or minutes of meetings of the Board of Directors of PBI or the
Bank or any committee thereof. Throughout the period prior to the Effective
Time, PBI and the Bank will cause one or more designated representatives to
confer with representatives of NCBE on the ongoing operations of PBI and the
Bank.
(c) NOTIFICATION OF CHANGE. PBI shall promptly notify NCBE of any
material change in the ordinary course of business or in the operation of the
properties of PBI or the Bank and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of litigation involving PBI
or the Bank which is material to, or which might have a material adverse
effect on PBI and the Bank, taken as a whole, or of any breach by PBI of any
representation, warranty, covenant or agreement set forth in this Agreement,
and will keep NCBE promptly and fully informed of such events.
(d) INFORMATION FOR REGULATORY FILINGS. Upon request by NCBE, PBI
shall promptly furnish NCBE with any information within its possession which
relates to PBI or the Bank and which is required under any applicable law or
regulation for inclusion in any filing that NCBE is required to make with any
Applicable Governmental Authority. PBI
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agrees that all information so furnished shall be true and correct in all
material respects without omission of any material fact required to be stated
therein or necessary to make the information stated therein not misleading.
(e) RESTRICTION ON RESALES. PBI shall obtain and deliver to NCBE, at
least thirty-one (31) days prior to the Closing, the signed agreement, in the
form of Exhibit A hereto, of each of its officers and directors and shall use
its best efforts to obtain similar agreements from each other person who owns
5% or more of the outstanding shares of PBI Common and any other persons who
may reasonably be deemed by NCBE to be an "affiliate" of PBI within the
meaning of such term as used in Rule 145 under the Securities Act.
(f) SHAREHOLDER APPROVAL. PBI shall cause to be duly called and held a
special meeting of the holders of PBI Common for submission of this Agreement
and the Merger for approval of such shareholders as required by the KBCA. In
connection with such meeting, (i) PBI shall cooperate and assist NCBE in
preparing and filing the Registration Statement, and any amendments or
supplements thereto, including the Proxy Statement/Prospectus with the
Commission and applicable state securities authorities, and PBI shall mail
the Proxy Statement/Prospectus to its shareholders; (ii) PBI shall furnish
NCBE all information within its possession concerning itself that NCBE may
reasonably request in connection with the Proxy Statement/Prospectus; (iii)
the Board of Directors of PBI (subject to compliance with its fiduciary
duties as advised in writing by counsel) shall recommend to its shareholders
the approval of this Agreement and the Merger contemplated hereby and use its
best efforts to obtain such approval; and (iv) PBI agrees that the
information furnished to NCBE for inclusion in the Proxy Statement/Prospectus
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not false or misleading.
(g) FINAL "S CORPORATION" INCOME TAX RETURNS. PBI shall cause to be
prepared and shall file in a timely manner (taking into account any
extensions of due dates) PBI federal and state income tax returns for the
period from January 1, 1998 through the date on which the Effective Time
occurs.
(h) DISSOLUTION OF PROGRESSIVE MORTGAGE COMPANY. Prior to the
Effective Time, and as soon as practicable hereafter, PBI shall dissolve
Progressive Mortgage Company, a shell Kentucky corporation, wholly owned by
PBI.
(i) TERMINATION OF STOCKHOLDER AGREEMENT. Prior to or at the Effective
Time, the shareholders of PBI and PBI shall terminate that certain
Stockholder Agreement dated October 16, 1997, by and among, PBI and all of
PBI's shareholders.
11. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES. The respective
obligations of each party to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing of the following conditions:
(a) SHAREHOLDER APPROVAL. The Merger shall have been approved by the
holders of at least 66-2/3% of the total outstanding shares of PBI Common.
(b) REGULATORY APPROVAL. The transactions contemplated by this
Agreement shall have been approved by all Applicable Governmental Authorities
and all applicable waiting periods shall have expired.
(c) NO ACTION TO PREVENT CONSUMMATION.
(i) No action or proceeding shall have been instituted before a court
or other governmental body, agency or authority or other person which is
reasonably expected to (i) result in an order enjoining the Merger, (ii)
result in a determination that a party has failed to comply with applicable
legal requirements in connection with the Merger; or (iii) have a material
adverse effect on the future conduct of the business of a party;
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(ii) No governmental agency shall have notified either party in
writing to the effect that consummation of the transactions contemplated by
this Agreement would constitute a violation of any statute, rule,
regulation or policy and that it intends to commence proceedings to
restrain consummation of the Merger; and
(iii) No statute, rule, regulation or policy shall have been
promulgated or enacted by any governmental or regulatory agency of
competent jurisdiction which shall prevent or declare the Merger illegal.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be subject of any
stop order or proceeding seeking a stop order.
(e) FEDERAL TAX OPINION. The parties shall have received an opinion of
Baker & Daniels, in form and substance satisfactory to the parties, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Code and such opinion shall not have been
withdrawn or modified in any material respect prior to the Effective Time.
12. CONDITIONS TO OBLIGATIONS OF NCBE. The obligation of NCBE to
effect the Merger is subject to the satisfaction or waiver on or prior to the
Closing of the following conditions:
(a) STATUS AS OF CLOSING. All representations and warranties of PBI
contained in this Agreement shall be true as though made at and as of the
Closing except for such untruths or inaccuracies which individually or in the
aggregate would not have a material adverse effect on PBI and the Bank, taken
as a whole; PBI shall have performed and satisfied or otherwise complied with
all covenants made by it in this Agreement which are to be performed on or
prior to the Closing; there shall not have occurred any material adverse
change in the business, assets, properties, financial condition or results of
operations of PBI and the Bank, taken as a whole; and there shall be
delivered to NCBE a certificate (dated the Closing and signed by the chief
executive officer of PBI) stating that to the best of his knowledge such
conditions have been satisfied.
(b) ATTORNEY'S OPINION. NCBE shall have received an opinion, dated the
Closing, of Stites & Harbison, counsel for PBI, in substantially the form of
Exhibit B attached hereto.
(c) POOLING-OF-INTERESTS. In the opinion of NCBE, after consultation
with its independent auditors, the Merger shall qualify for the
pooling-of-interests method of accounting if consummated in accordance with
this Agreement.
(d) S CORPORATION RULING. PBI shall have obtained a ruling
satisfactory to NCBE from the IRS that PBI will be treated as an S
Corporation within the meaning of Section 1361(a) of the Code for its taxable
year ended December 31, 1997.
13. CONDITIONS TO OBLIGATIONS OF PBI. The obligation of PBI to effect
the Merger is subject to the satisfaction or waiver on or prior to the
Closing of the following conditions:
(a) STATUS AS OF CLOSING. All representations and warranties of NCBE
contained in this Agreement shall be true as though made at and as of the
Closing except for such truths or inaccuracies which individually or in the
aggregate would not have a material adverse effect on NCBE and its
subsidiaries, taken as a whole; NCBE shall have performed and satisfied all
covenants made by it in this Agreement which are to be performed on or prior
to the Closing; there shall not have occurred any material adverse change in
the business, assets, properties, financial condition or results of
operations of NCBE and its subsidiaries, taken as a whole; and there shall be
delivered to PBI a certificate (dated the Closing and signed by the President
of NCBE) stating that to the best of his knowledge such conditions have been
satisfied.
(b) ATTORNEY'S OPINION. PBI shall have received an opinion, dated the
Closing, of Baker & Daniels, counsel for NCBE, in substantially the form of
Exhibit C attached hereto.
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<PAGE>
(c) FAIRNESS OPINION. PBI shall have received, as of the date of
mailing the Proxy Statement/Prospectus contained in the Registration
Statement, an update of the opinion delivered to the Board of Directors of
PBI prior to the date of this Agreement, to the effect that the Merger
Consideration is fair, from a financial viewpoint, to the holders of PBI
Common.
14. INFORMATION. The parties acknowledge the confidential and
proprietary nature of the "Information" (as hereafter defined) which has
heretofore been exchanged and which will be received from each other
hereunder and agree to hold and keep the same confidential. Such Information
shall include any and all financial, technical, commercial, marketing,
customer or other information concerning the business, operations and affairs
of a party that may be provided to the other, irrespective of the form of the
communication, by such party's employees or authorized representatives. Such
Information shall not include information which is or becomes generally
available to the public other than as a result of a disclosure by a party or
its authorized representatives in violation of this Agreement. The parties
agree that the Information will be used solely for the purposes contemplated
by this Agreement and that such Information will not be disclosed to any
person other than employees and authorized representatives of a party who are
directly involved in evaluating the Merger. The Information shall not be
used in any way detrimental to a party, including use directly or indirectly
in the conduct of the other party's business or any business or enterprise in
which such party may have an interest, now or in the future, and whether or
not now in competition with such other party. Upon termination of this
Agreement without the Merger becoming effective, each party shall: (a)
deliver to the other originals and all copies of all Information made
available to such party; (b) not retain any copies, extracts or other
reproductions in whole or in part of such Information; and (c) destroy all
memoranda, notes and other writings prepared by any party or its authorized
representatives based on the Information.
15. PAYMENT OF EXPENSES.
(a) EXPENSES GENERALLY. Except as otherwise provided in subsection (b)
below, each party hereto shall pay its own fees and expenses incident to
preparing for, entering into, and carrying out this Agreement and the
transactions contemplated hereby.
(b) REIMBURSEMENT OF NCBE. Upon the occurrence of a Triggering Event
(as hereafter defined), PBI shall reimburse NCBE for all of its out-of-pocket
expenses and costs, including fees of accountants and attorneys, incurred in
connection with the transactions contemplated by this Agreement up to a
maximum of $150,000. As used herein, the term "Triggering Event" shall mean
both (i) the termination of this Agreement for any reason other than a
failure of any of the conditions set forth in Sections 11(b), 11(c), 11(d),
11(e), 13(a), 13(b), 13(c) or pursuant to Section 16 hereof and (ii) the
occurrence of any of the following within one (1) year of the date of
termination: (A) PBI enters into any agreement with respect to a Competing
Transaction; (B) the Board of Directors of PBI recommends a Competing
Transaction to PBI's shareholders; or (C) following the announcement of a
Competing Transaction, the Board of Directors of PBI withdraws or modifies
its recommendation of the Merger or this Agreement. The term "Competing
Transaction" means any of the following: (x) an offer by any person or group
of persons (other than NCBE or existing shareholders of PBI) to acquire
ownership of fifty percent (50%) or more of the PBI Common; or (y) a proposal
for a merger, consolidation, share exchange, business combination, or similar
transaction involving PBI; or (z) a proposal for a sale, lease, exchange,
transfer or other disposition of fifty percent (50%) or more of the assets of
PBI shall occur. The terms "person" and "group of persons" shall have the
meanings conferred thereon by Sections 3(a)(9) and 13(d)(3) of the Exchange
Act and the regulations promulgated thereunder.
16. TERMINATION OF AGREEMENT. Notwithstanding any provision to the
contrary herein, and notwithstanding the fact that the shareholders of PBI
have approved this Agreement, this Agreement may be terminated at any time on
or prior to the Closing:
(a) MUTUAL CONSENT. By mutual written consent of PBI and NCBE.
(b) AVERAGE VALUE. By PBI, upon written notice to NCBE, if the Average
Value of the NCBE Common falls below $30.00 for any ten (10) consecutive
trading days.
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(c) OTHERWISE. (i) By PBI, upon written notice to NCBE, if by February
28, 1999, any of the conditions set forth in Sections 11 or 13 shall not have
been satisfied or are no longer capable of being satisfied; or (ii) by NCBE,
upon written notice to PBI, if by February 28, 1999, any of the conditions
set forth in Sections 11 or 12 shall not have been satisfied or are no longer
capable of being satisfied.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement by
either NCBE or PBI pursuant to this Section 16, there shall be no liability
by reason of this Agreement or the termination thereof on the part of NCBE or
PBI or the respective directors, officers, employees, agents or stockholders
of either of them unless such termination results from a party's intentional
or reckless misrepresentation or intentional or reckless breach of any
covenant contained herein.
17. PUBLICITY AND REPORTS. NCBE and PBI shall coordinate all publicity
relating to the transactions contemplated by this Agreement and, except as
otherwise required by law, neither party shall issue any press release,
publicity statement or other public notice relating to this Agreement or any
of the transactions contemplated hereby without obtaining the prior written
consent of the other, which consent shall not be unreasonably withheld.
18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND 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. The covenants contained in Sections 1(d), 5,
8(e) and 14 shall survive the Effective Time or the earlier termination of
this Agreement.
19. NOTICES. Any notice of communication required or permitted
hereunder shall be sufficiently given if in writing and (a) delivered in
person; (b) sent by facsimile transmission (with confirmation of receipt by
the recipient) or express delivery service; or (c) mailed by certified or
registered mail, postage prepaid, as follows:
If to NCBE, addressed to:
National City Bancshares, Inc.
227 Main Street
P. O. Box 868
Evansville, Indiana 47705-0868
Attn: Robert A. Keil
Fax No. (812) 464-9825
With a copy addressed to:
Baker & Daniels
300 North Meridian Street, Suite 2700
Indianapolis, Indiana 46204-1782
Attn: David C. Worrell
Fax No. (317) 237-1000
If to PBI, addressed to:
Progressive Bancshares, Inc.
1999 Richmond Road, Suite 1
Lexington, Kentucky 40501-0028
Attn: George D. Martin
Fax No. (606) 266-7378
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With a copy addressed to:
Stites & Harbison
Suite 2300
250 W. Main Street
Lexington, Kentucky 40507
Attn: Walter R. Byrne, Jr.
Fax No. (606) 253-9144
20. MISCELLANEOUS.
(a) ASSIGNMENT. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by either party, in whole or in
part, without the consent of the other party and any attempted assignment in
violation of this prohibition shall be null and void.
(b) LAW GOVERNING. This Agreement will be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Indiana.
(c) COUNTERPARTS. This Agreement may be executed in several
counterparts and one or more separate documents, all of which together shall
constitute one and the same instrument with the same force and effect as
though all of the parties had executed the same documents.
(d) AMENDMENT AND WAIVER. Any of the terms or conditions of this
Agreement may be waived, amended or modified in whole or in part at any time
before or after the approval of this Agreement by the shareholders of PBI, to
the extent authorized by applicable law, by a writing signed by PBI and NCBE.
(e) ENTIRE AGREEMENT. All exhibits and the Disclosure Schedule
referred to in this Agreement are integral parts hereof, and this Agreement,
such exhibits and Disclosure Schedule, constitute the entire agreement among
the parties hereto with respect to the matters contained herein and therein,
and supersede all prior agreements and understandings between the parties
with respect thereto.
(f) REMEDIES. Subject to the terms hereof, in the event of any willful
breach of this Agreement in any material respect by any of the parties
hereto, any other party hereto damaged shall have all the rights, remedies
and causes of action available at law or in equity.
(g) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
NATIONAL CITY BANCSHARES, INC.
By: /s/ Robert A. Keil
------------------------------------
Robert A. Keil, President
ATTEST:
/s/ Curtis D. Ritterling
- -----------------------------------------
Curtis D. Ritterling, Assistant Secretary
PROGRESSIVE BANCSHARES, INC.
By: /s/ George D. Martin
------------------------------------
George D. Martin, Chairman
ATTEST:
/s/ Ellis L. Hefner
- -----------------------------------------
Ellis L. Hefner, Secretary
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EXHIBIT A
FORM OF AFFILIATE LETTER
Gentlemen:
In connection with the merger (the "Merger") of Progressive Bancshares,
Inc., a Kentucky corporation ("PBI"), with and into National City Bancshares,
Inc., an Indiana corporation ("NCBE"), pursuant to the Agreement and Plan of
Merger dated as of ________ __, 1998 (the "Agreement"), I have been advised
that I may be deemed to be an "affiliate" within the meaning of Rule 145
promulgated by the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), for the purposes of any
resales of shares of the common stock, without par value ($1.00 stated value
per share), of NCBE to be issued to me in the Merger (the "Shares"). I have
also been advised that I may be deemed an "affiliate" of PBI for purposes of
qualifying the Merger for pooling of interests accounting treatment under
Opinion 16 of the Accounting Principles Board. Based on such advice and in
order to induce NCBE and PBI to cause the Merger to be consummated, I hereby
represent and warrant to, and agree with NCBE and PBI as follows:
A. I hereby consent to the placing of a legend on the certificate or
certificates evidencing the Shares referring to the issuance thereof in a
transaction to which Rule 145 under the 1933 Act is applicable and to the
giving of stop transfer instructions to the transfer agent for the Shares
with respect to such certificate or certificates. The legend will state in
substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 under the Securities Act of 1933 applies
and may be sold or otherwise transferred only in compliance with the
terms of such Rule."
B. I understand that NCBE is under no obligation to take any action
to facilitate the sale, transfer, or other disposition by me or on my
behalf of any of the Shares.
C. In the event of any sale or transfer of any of the Shares in a
transaction not involving a sale within the limits and in accordance with
the applicable provisions of Rule 145 or a sale in a registered public
offering, I will obtain from each transferee of the Shares in such
transaction a letter agreement substantially similar hereto, or a letter
containing such other information reasonably required by NCBE to evidence
an exception from the applicable registration requirements of federal or
state securities laws, which is binding and enforceable by NCBE against the
transferee.
It is understood and agreed that the legend set forth in Paragraph A
above shall be removed, and the related stock transfer restrictions shall be
lifted forthwith (i) if the sale or other transfer by me or on my behalf of
my Shares shall have been registered under the 1933 Act, (ii) if the sale or
other transfer by me or on my behalf of my Shares is not so registered, such
sale is exempt from the registration requirements of the 1933 Act, or (iii)
upon the expiration of the period specified in Rule 145(d)(3) under the 1933
Act, as it may be amended from time to time.
I further represent to and covenant with NCBE that I have not, within
the preceding 30 days, sold, transferred or otherwise disposed of any shares
of capital stock of PBI held by me and that I will not sell, transfer or
otherwise dispose of any of the Shares received by me in the Merger until
after such time as results covering at least 30 days of combined operations
of PBI and NCBE have been published by NCBE, in the form of a quarterly
earnings report, an effective
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registration statement filed with the SEC, a report to the SEC on Form 10-K,
10-Q or 8-K, or any other public filing or announcement which includes such
combined results of operations.
Very truly yours,
_______________________________________
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EXHIBIT B
FORM OF OPINION OF COUNSEL FOR PBI
Capitalized terms used and not otherwise defined herein have the
meanings given them in the Plan and Agreement of Merger (the "Agreement").
1. PBI is a corporation validly existing and in good standing under
the laws of the Commonwealth of Kentucky and is registered as a bank holding
company with the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. The Bank is a national banking association validly
existing and in good standing under the laws of the United States.
2. Each of PBI and the Bank have the requisite corporate power and
authority necessary to carry out their respective businesses as currently
conducted.
3. The authorized capital stock of PBI consists of 5,455 shares of PBI
Common. Based solely on a review of PBI's stock records, there are 5,431
shares of PBI Common issued and outstanding. The authorized capital stock of
the Bank consists of 10,000 shares of Bank Stock. Based solely on a review
of the Bank's stock transfer records, there are 10,000 shares of Bank Stock
issued and outstanding, all of which are owned of record by PBI. To the best
of our knowledge, all the outstanding shares of PBI Common and Bank Stock
have been duly authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive rights.
4. The Agreement has been duly executed and delivered by PBI and
constitutes a valid and binding obligation of PBI, enforceable against PBI in
accordance with its terms, except to the extent limited by general principles
of equity and by bankruptcy, insolvency, reorganization, liquidation,
fraudulent conveyance, moratorium, readjustment of debt or other laws of
general application relating to or affecting the enforcement of creditors'
rights.
5. All consents or approvals from Applicable Governmental Authorities
that are required to be obtained by PBI in connection with the Merger have
been obtained.
6. The execution and delivery by PBI of, and the performance by PBI of
its agreements in, the Agreement do not: (a) violate its articles of
incorporation or by-laws or the articles of association, or by-laws of the
Bank, or (b) to the best of our knowledge after due inquiry, violate, result
in a breach of or constitute a default under any Material Contract to which
PBI or the Bank is a party or by which its respective properties are bound.
7. Upon the filing and acceptance of the Articles of Merger by the
Kentucky Secretary of State and assuming the Merger is effective under the
laws of the State of Indiana, the Merger will become effective under the KBCA
upon the issuance of a Certificate of Merger by the Kentucky Secretary of
State.
8. The meeting of shareholders of PBI held on ________ __, 1998, was
duly held in accordance with all applicable requirements of the KBCA and the
articles of incorporation and bylaws of PBI. The Agreement was duly adopted
by the affirmative vote of the holders of at least 66-2/3% of the total
outstanding shares of PBI Common. No other action on the part of the holders
of any class of PBI capital stock is required to approve the Merger.
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EXHIBIT C
FORM OF OPINION OF COUNSEL FOR NCBE
Capitalized terms used and not otherwise defined herein have the
meanings given them in the Plan and Agreement of Merger (the "Agreement").
1. NCBE is a corporation organized and validly existing under the laws
of Indiana and is registered as a bank holding company with the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended.
2. NCBE has all requisite corporate power and authority necessary to
carry out its business as currently conducted.
3. The authorized capital stock of NCBE consists of __________ shares
of common stock, without par value (stated value $1.00 per share) and
________ shares of Preferred Stock, without par value. All shares of NCBE
Common to be issued to shareholders of PBI pursuant to the Merger have been
duly authorized and, when issued in accordance with the Agreement, will be
fully paid and non-assessable.
4. The Agreement has been duly executed and delivered by NCBE and
constitutes a valid and binding obligation of NCBE, enforceable against NCBE
in accordance with its terms, except to the extent limited by general
principles of equity and by bankruptcy, insolvency, reorganization,
liquidation, fraudulent conveyance, moratorium, readjustment of debt or other
laws of general application relating to or affecting the enforcement of
creditors' rights.
5. All consents or approvals of any Applicable Governmental
Authorities required to be obtained by NCBE in connection with the Merger
have been obtained.
6. No vote by the holders of any of the capital stock of NCBE to
approve the Merger is required under Indiana law, the articles of
incorporation or by-laws of NCBE or rules of the National Association of
Securities Dealers, Inc. which apply to Nasdaq National Market issuers.
7. The execution and delivery by NCBE of, and the performance by NCBE
of its agreements in, the Agreement do not: (a) violate its articles of
incorporation or by-laws; or (b) to the best of our knowledge, after due
inquiry, violate, result in a breach or constitute a default under any
material contract, agreement or other instrument to which NCBE is a party or
by which its respective properties are bound.
8. Upon the filing and acceptance of the Articles of Merger by the
Indiana Secretary of State and assuming the Merger is effective under the
laws of the Commonwealth of Kentucky, the Merger will become effective under
the IBCL at the time specified in the Articles of Merger.
9. The Registration Statement has become effective under the
Securities Act and, to our knowledge, is not the subject of any stop order or
proceedings seeking a stop order.
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APPENDIX B
October 28, 1998
Board of Directors
Progressive Bancshares, Inc.
1999 Richmond Road
Lexington, Kentucky 40502
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from
a financial point of view, to the common shareholders of Progressive
Bancshares, Inc. ["Progressive"] of the consideration to be paid to such
shareholders pursuant to the proposed merger ["Merger"] of Progressive with
National City Bancshares, Inc., Evansville, Indiana ["NCBE"]. In the proposed
Merger, Progressive shareholders will receive 179.8462 shares of NCBE for
each share of Progressive, representing an aggregate of 976,744.7 NCBE common
shares for all 5,431 shares of Progressive, as further defined in the
Agreement and Plan of Merger ["Agreement"] between NCBE and Progressive.
Chartwell Capital Ltd. provides specialized investment banking and financial
advisory services to financial institutions and other clients. Other than
disclosed herein, we are independent with respect to the parties of the
proposed transaction.
For purposes of this opinion, Chartwell performed a review and analyses of [a]
the Agreement and Plan of Merger, [b] certain business and financial
information relating to NCBE and Progressive, [c] certain contribution
analysis to the merged company, [d] certain financial analyses and ranking of
NCBE with other regional banking institutions, [e] certain financial analysis
of NCBE's prior mergers and acquisitions, [f] certain comparative merger and
acquisition data for recent bank and thrift acquisitions announced in
Indiana, Illinois, Ohio and Kentucky, including comparative transaction data
on a nationwide basis, [g] certain discussions with other financial
institutions that expressed an interest in the acquisition of Progressive, [h]
certain financial analysis of the potential acquisition value of NCBE, [i]
certain discounted earnings analysis for Progressive and [j] certain
discussions with the managements of Progressive and NCBE.
We have relied without independent verification upon the accuracy and
completeness of all the financial and other information reviewed by us or
conveyed to us in discussions with senior managements of Progressive and NCBE
for purposes of this opinion. With respect to the financial forecasts, we
have assumed that such forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and judgements of the
managements of Progressive and NCBE as to the future financial performance of
Progressive and NCBE. We have not been requested to conduct, and have not
conducted, a review of individual credit files or made independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of
Progressive or NCBE, nor have we been furnished with any such evaluations or
appraisals, including loan or lease portfolios or the allowance for losses
with respect thereto, and have assumed, with your consent, that such
allowances for Progressive and NCBE are in the aggregate adequate to cover
such losses.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated
benefits of the Merger or the ability to consummate the Merger. Our opinion
is based on the market, economic and other relevant considerations as they
exist and can be evaluated on the date hereof. We are not expressing any
opinion as to the prices at which NCBE common stock will trade subsequent to
the Merger. This opinion does not in any manner address the underlying
business decision as to whether the Board of Directors of Progressive should
proceed with or effect the Merger. It is understood that this letter is for
the information of the Board of Directors of Progressive in connection with
its evaluation of the Merger, and does not constitute a recommendation to any
shareholder as to how such shareholder should vote with respect to the Merger.
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We have acted as the financial advisor to Progressive in connection with the
Merger and will receive a fee for such services, the majority of which is
contingent upon the consummation of the Merger. In addition, Progressive has
agreed to indemnify us for certain liabilities arising out of rendering this
opinion.
Based upon and subject to the foregoing and all other factors we consider
relevant, it is our opinion as investment bankers, that, as of the date
hereof, the financial terms of the proposed Merger as set forth in the
Agreement, are fair to the shareholders of Progressive from a financial point
of view.
Sincerely,
Chartwell Capital Ltd.
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APPENDIX C
Excerpts of the Kentucky Business Corporation Act
(Dissenters' Rights)
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
271B.13-010 DEFINITIONS. - As used in this subtitle:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to
dissent from corporate action under KRS 271B.13-020 and who exercises that
right when and in the manner required by KRS 271B.13-200 to 271B.13-280.
(3) "Fair value," with respect to a dissenter's shares, means
the value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable. In any transaction subject to the requirements of KRS
271B.12-210 or exempted by KRS 271B.12-220(2), "fair value" shall be at least
an amount required to be paid under KRS 271B.12-220(2) in order to be exempt
from the requirements of KRS 271B.12-210.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, at a rate
that is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee as the
record shareholder.
(7) "Shareholder" means the record shareholder or the
beneficial shareholder.
271B.13-020 RIGHT TO DISSENT - (1) A shareholder shall be entitled to
dissent from, and obtain payment of the fair value of his shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation
is a party:
1. If shareholder approval is required for the merger by KRS
271B.11-040 or the articles of incorporation and the shareholder is entitled
to vote on the merger; or
2. If the corporation is a subsidiary that is merged with
its parent under KRS 271B.11-040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if
the shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the
ususal and regular course of business, if the shareholder is entitled to vote
on the sale or exchange, including a sale in dissolution, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be distributed
to the shareholders within one (1) year after the date of sale;
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(d) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it:
1. Alters or abolishes a preferential right of the shares to
a distribution or in dissolution;
2. Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
3. Excludes or limits the right of the shares to vote on any
matter other than a limitation by dilution through issuance of shares or
other securities with similar voting rights; or
4. Reduces the number of shares owned by the shareholder to
a fraction of a share if the fractional share so created is to be acquired
for cash under KRS 271B.6-040;
(e) Any transaction subject to the requirements of KRS
271B.12-210 or exempted by KRS 271B.12-220(2); or
(f) Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws, or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his
shares under this chapter shall not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation.
271B.13-030 DISSENT BY NOMINEE AND BENEFICIAL OWNERS - (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he shall dissent with respect to all shares
beneficially owned by any one (2) person and notify the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection
shall be determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
(a) He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(b) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
271B.13-200 NOTICE OF DISSENTERS' RIGHTS - (1) If proposed corporate
action creating dissenters' rights under KRS 271B.13-020 is submitted to a
vote at a shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters' rights under this
subtitle and the corporation shall undertake to provide a copy of this
subtitle to any shareholder entitled to vote at the shareholders' meeting
upon request of that shareholder.
(2) If corporate action creating dissenters' rights under KRS
271B.13-020 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in KRS
271B.13-220.
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271B.13-210 NOTICE OF INTENT TO DEMAND PAYMENT - (1) If proposed
corporate action creating dissenters' rights under KRS 271B.13-020 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights:
(a) Shall deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Shall not vote his shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of
subsection (1) of this section shall not be entitled to payment for his
shares under this chapter.
271B.13-220 DISSENTERS' NOTICE - (1) If proposed corporate action creating
dissenters' rights under KRS 271B.13-020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of KRS 271B.13-210.
(2) The dissenters' notice shall be sent no later than ten (10)
days after the date the proposed corporate action was authorized by the
shareholders or, if no shareholder authorization was obtained, by the board
of directors, and shall:
(a) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(c) Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders of the terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership of
the shares before that date;
(d) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty (30), nor more than
sixty (60) days after the date the notice provided in subsection (1) of this
section is delivered; and
(e) Be accompanied by a copy of this subtitle.
271B.13-230 DUTY TO DEMAND PAYMENT - (1) A shareholder who is sent a
dissenters' notice described in KRS 271B.13-220 shall demand payment, certify
whether he acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to subsection
(2)(c) of KRS 271B.13-220, and deposit his certificates in accordance with
the terms of the notice.
(2) The shareholder who demands payment and deposits his share
certificates under subsection (1) of this section shall retain all other
rights of a shareholder until these rights are cancelled or modified by the
taking of the proposed corporate action.
(3) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
shall not be entitled to payment for his shares under this subtitle.
271B.13-240 SHARE RESTRICTIONS - (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment
is received until the proposed corporate action is taken or the restrictions
released under KRS 271B.13-260.
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(2) The person for whom dissenters' rights are asserted as to
uncertificated shares shall retain all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed
corporate action.
271B.13-250 PAYMENT - (1) Except as provided in KRS 271B.13-270, as soon
as the proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with KRS
271B.13-230 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(2) The payment shall be accompanied by:
(a) The Corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial statements,
if any;
(b) A statement of the corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated; and
(d) A statement of the dissenters' right to demand payment
under KRS 271B.13-280.
271B.13-260 FAILURE TO TAKE ACTION - (1) If the corporation does not take
the proposed action within sixty (60) days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it shall
send a new dissenters' notice under KRS 271B.13-220 and repeat the payment
demand procedure.
271B.13-270 AFTER-ACQUIRED SHARES - (1) A corporation may elect to
withhold payment required by KRS 271B.13-250 from a dissenter unless he was
the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action,
it shall estimate the fair value of the shares, plus accrued interest, and
shall pay this amount to each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer a
statement of its estimate of the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenters' right to
demand payment under KRS 271B.13-280.
271B.13-280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER -
(1) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment
of his estimate (less any payment under KRS 271B.13-250), or reject the
corporation's offer under KRS 271B.13-270 and demand payment of the fair
value of his shares and interest due, if:
(a) The dissenter believes that the amount paid under KRS
271B.13-250 or offered under KRS 271B.13-270 is less than the fair value of
his shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under KRS
271B.13-250 within sixty (60) days after the date set for demanding payment;
or
(c) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty (60) days afer the
date set for demanding payment.
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(2) A dissenter waives his right to demand payment under this
section unless he shall notify the corporation of his demand in writing under
subsection (1) of this section within thirty (30) days after the corporation
made or offered payment for his shares.
JUDICIAL APPRAISAL OF SHARES
271B.13-300 COURT ACTION - (1) If a demand for payment under KRS
271B.13-280 remains unsettled, the corporation shall commence a proceeding
within sixty (60) days after receiving the payment demand and petition the
court to determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty (60) day
period, it shall pay each dissenter whose demand remains unsettled the amount
demanded.
(2) The corporation shall commence the proceeding in the circuit
court of the county where a corporation's principal office (or, if none in
this state, its registered office) is located. If the corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
(3) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be
served with a copy of the petition. Nonresidents may be served by registered
or certified mail or by publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under subsection (2) of this section shall be plenary and
exclusive. The court may appoint one (1) or more persons as appraisers to
receive evidence and recommend decision on the question of fair value. The
appraisers have the powers described in the order appointing them, or in any
amendment to it. The dissenters shall be entitled to the same discovery
rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding shall be
entitled to judgment:
(a) For the amount, if any, by which the court finds the fair
value of his shares, plus interest, exceeds the amount paid by the
corporation; or
(b) For the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to withhold payment
under KRS 271B.13-270.
271B.13-310 COURT COSTS AND COUNSEL FEES - (1) The court in an appraisal
proceeding commenced under KRS 271B.13-300 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under KRS 271B.13-280.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all
dissenters, if the court finds the corporation did not substantially comply
with the requirements of KRS 271B.13-200 to 271B.13-280; or
(b) Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this subtitle.
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(3) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be paid
out of the amounts awarded the dissenters who were benefitted.
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